Ukraine should be bracing for hard economic scenarios - NBU deputy governor
MOSCOW. July 25 (Interfax) - The Ukraine crisis might yet continue for quite a long time, further worsening the economic situation in the country, and therefore, the national economy should have a certain financial safety margin, without much hope pinned on some optimistic scenario, National Bank of Ukraine (NBU) Deputy Governor Serhiy Nikolaichuk said.
"We need to be prepared for hard scenarios and not wear rose-colored glasses, expecting that the crisis will end in a month and our lives will quickly normalize to the level that existed before February 24 - that is a very dangerous strategy," Ukrainian media quoted Nikolaichuk as saying on the KSE Live Telegram channel run by the Kyiv School of Economics (KSE).
Tymofiy Mylovanov, KSE president and advisor to the Ukrainian presidential office, who formerly served as economy minister, also called for preparing for a very difficult economic situation, including a macroeconomic one, warning that the crisis would last long.
"The implications will certainly be long-term, like decades [...] and the economic situation will be difficult, and there will be lots of challenges," Mylovanov said.
Ukraine's state budget will have a sizeable deficit, which could not be narrowed without the National Bank's monetary financing, and even the state debt's restructuring would provide only part of the necessary support, he said.
"We are heading for difficult times," he said.
In this context, Mylovanov called for more honest communications and welcomed the NBU's decision to devalue the hryvnia by 25% as an honest message to the market.
The NBU also presented its first macroeconomic outlook after February 24 last week, predicting the real GDP to drop by 33.4% in 2022 and to increase by 5.5% in 2023 and by 4.9% in 2024, provided that the Ukrainian seaports resume operations.
The NBU expects inflation to grow in 2022 to 31% (from 21.5% in June) and to decline to 20.7% in 2023.
Following a current account surplus of $6.4 billion in 2022, it would see a deficit of $3.9 billion in 2023 and $8.8 billion in 2024, and the country's international reserves are expected to shrink to $20.8 billion by the end of 2022 from $22.8 billion in the middle of the year.
"This is clearly a moderately optimistic scenario," Nikolaichuk said in describing the macroeconomic outlook.
This forecast implies complex steps on the part of the authorities to maintain macroeconomic stability and a new program of cooperation with the International Monetary Fund (IMF), he said.
At the same time, Nikolaichuk admitted some problems in the drafting of the program for the IMF. "The IMF has no record of implementing macroeconomic programs in situations like the one Ukraine is experiencing now and balancing the budget in the midterm, taking into account huge defense spending. Certain decisions beyond standard recipes have to be made here. We see that there is no willingness inside the Fund to resort to such bold steps," he said.
A positive result can hardly be achieved without certain political pressure put on the IMF stakeholders, including through voters, Nikolaichuk said.