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Cabinet promises. GDP, forex rate, and wages outlook for next three years

12:45, 05 August 2020
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The Cabinet has approved its macroeconomnic forecast for the next three years.UNIAN learned about the government's estimates for the future average and minimum wages, as well as the hryvnia exchange rate.

The Cabinet of Ministers of Ukraine, whose action program has not been adopted to this day, has nevertheless, approved the forecast for the development of the country's economic and social policies for the next three years. This covers the minimum wage, according to which fines and social assistance are calculated, as well as pensions, average wage, and the hryvnia exchange rate.

That is, the Cabinet of Ministers released an outlook for Ukrainians' wellbeing.

Future state budgets, at least the one for 2021, will be drafted in line with this audit, which the finance ministry has already announced. The budgetary process has already begun. The ministry believes that "the updated macro forecast for 2021 is quite realistic, and takes into account the latest trends in economic development, the realities that have developed in world markets as a result of the COVID-19 pandemic, and current assessments of the prospects for the global economic recovery."

The Ministry of Finance also said that "a letter is already being prepared to the main managers for preparing budget applications. Further, they will be processed and conciliatory meetings will be held". And in early September, as stated in the Budget Code, the Ministry of Finance will submit to the Cabinet a draft state budget for 2021.

Also, the Ministry of Finance claims that everything is just fine in the country. "For example, according to the current budget, since May, we have fully met budget revenue targets, while even exceeding them in June. And now it's the end of July – we also expect that the revenues of the state budget's general fund will be overfulfilled by more than UAH 4 billion. All this is the result of the changes we have introduced in the country's fiscal system: we are effectively fighting against shadow schemes, ensuring additional revenues to the budget," said Finance Minister Serhiy Marchenko.

Here we can argue with him, at least if we take into account the data released by the Accounts Chamber. According to the report, Ukraine's budget deficit for the first half of the year amounted to more than UAH 38 billion, which was an absolute low over recent years.

"Analysis of Treasury's operational reporting showed that for a few months in a row the amount of income shortfalls remains significant. In January-June 2020, the revenue target of the state budget's general fund fell short of UAH 38.4 billion, or 7.8%," said Valeriy Patskan, the Accounts Chamber Head.

By the way, in early April, the Verkhovna Rada adopted changes to the 2020 state budget in connection with the coronavirus pandemic. Therefore, state treasury revenues are already planned in the amount of UAH 975.8 billion (that is, they will decrease by UAH 119.74 billion), expenditures are laid down at UAH 1.266 trillion (increased by UAH 82.39 billion), while budget deficit was increased more than threefold – from UAH 96.27 billion to UAH 298.4 billion. Now the Cabinet of Ministers has adopted a plan for Ukraine economy's development for the next three years.

Forecast for the future

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According to Prime Minister Denys Shmyhal, "the updated macro forecast provides for the country's return to the trajectory of economic growth next year."

According to the rules of the Cabinet of Ministers, all macro indicators were forecast by the Ministry for Development of Economy, Trade, and Agriculture.

So, in 2021, GDP growth in Ukraine should be 4.6%, and in 2022 and 2023 – some 4.3% and 4.7%, respectively. It should be added that according to the forecast of the International Monetary Fund, our economy will fall by more than 8%. That is, the country will continue to remain in the red.

The inflation rate in December 2021 is 7.3% against December 2020, for which the indicator remains to be seen. On average, inflation in 2021 is projected at 8.1%. Inflation in December 2022 is 6.2%, compared to December 2021. On year though (2021 and 2022 are being compared), the inflation rate in 2022 is projected at 6.7%. Inflation in December 2023 will be 5.3% against December 2022. On average, compared with 2022, the inflation rate in 2023 is projected at 6%.

An important indicator is that the average wage in 2021 should correspond to UAH 13,632, in 2022 and 2023 – to UAH 15,414 and 17,169, respectively. The minimum wage in 2021 will grow first to UAH 6,250, and by the end of the year – to UAH 6,500. In 2022, minimum wage will be UAH 6,700, and in 2023 it will stand at UAH 7,200.

The unemployment rate for the population aged 15 to 70 is projected at 9.2% in 2021, 8.5% in 2022, and 8% in 2023.

The export of Ukrainian goods in 2021 is projected at $60.175 billion, in 2022 – at $64.018 billion, and in 2023 – at $69.284 billion. At the same time, imports in 2021, 2022, and 2023 will amount, respectively, to $70.591, $77.661, and $86.28 billion.

Based on these indicators, trade deficit will amount to $10.416 billion in 2021, $13.643 billion in 2022, and $16.996 billion in 2023.

All the listed figures have been approved on the condition that they require revision within three days. But so far no new data has been released.

REUTERS

As for the hryvnia, the national currency rate for 2021 was revised at UAH 29.1 to the dollar.

The prime minister believes that in order to achieve the economic growth declared, it is necessary to focus on supporting small and medium-sized businesses, developing industry, supporting the national producer, domestic investment, and improving the business climate.

And Finance Minister Serhiy Marchenko predicted that the recovery of the Ukrainian economy would begin by the end of this year, with a revival of dynamics expected next year. "Already in the fourth quarter of this year, we expect a gradual economic recovery. Economic dynamics are expected to revive in 2021. This will be the budget for the growth of the welfare of citizens and the country's economy," the minister stressed.

The outlook seems encouraging. Especially when compared with forecasts for Europe and the United States – the most developed economies. Eurozone's GDP contracted 12.1% in the second quarter of the year, the biggest drop in 25 years. Eurostat notes that these are preliminary estimates that take no account of a complete set of data. The final report for the second quarter of 2020 will be released on August 14.

On July 31, the U.S. Bureau of Economic Analysis announced that U.S. GDP plummeted by nearly 33% at an annualized rate. This is the deepest fall since 1947.

These are the disappointing data of international auditors. But, judging by our government forecasts, Ukraine is ahead of the rest in terms of overcoming the coronacrisis.

Good and bad

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Economic expert Oleh Pendzin casts doubt on the realism of the government assessment of Ukraine's development. Thus, the forecast for 2021 provides for a 4.6% GDP growth. But this year it is set to fall by 4.5%. For the first half of 2020, state statistics confirmed a 5.2% drop in GDP.

"In this economic situation, it would be very optimistic to expect that growth will begin in the second half of the year, which by year-end will reduce the rate of GDP decline. In addition, the experience of past global crises shows that the Ukrainian economy is much heavier than other economies coming out of decline. In 2008, global economy fell by 5%, while that in Ukrainian – by 15%, while our country was recovering from crisis 1.5 times longer. This is due to the raw material structure of our economy, low savings of the population, and weak fiscal support for businesses on the part of government. Another factor is that the forecast includes a phased increase in the minimum wage to UAH 6,500 in July 2021. Today it's UAH 4,723. On January 1, 2021, the minimum wage will have to be UAH 6,000. That is, for six months in 2021, there should be growth of over 30%. At the same time, inflation is set at 7.3%. The question arises as to the source of growth. Will labor productivity at Ukrainian enterprises rise so much? In the 2020 forecast, the decline in labor productivity is set at 3.3%. And in 2021, they lay down growth by 4% due to a low base. In fact, in 2021 we must reach the pre-crisis level of labor productivity. Then what's all this optimism about wages about? Are we planning to increase it at the expense of shadow businesses? But the example of recent months has shown a very peculiar trend. While official unemployment has decreased, deductions of the single social contribution are showing no growth. On the contrary, they are on decline. Business goes into the shadows, ”the expert noted.

Vitaly Shapran, a member of the NBU Council, has a different opinion. He believes that the macro-forecast, which was approved by government, is quite realistic, and that the budget process can be based on it.

"Of course, this is a forecast that doesn't take into account any 'black swans', such as an exacerbation of the global economic crisis, inflation in the U.S. and the EU due to excessive measures to stimulate the economy, or an escalation of conflict in eastern Ukraine, or consequences of the IMF program failure. I would be more restrained in my estimates of economic growth for 2021, judging by gold prices: investors are still pessimistic about the forecasts of a global economic recovery, and since our economy is dependent on exports, it will be quite difficult to become an island of growth in a difficult period of instability. But I would still call the Cabinet's inflation expectations moderate. Although they go beyond the NBU's target, they don't differ much," the expert emphasized.

An analyst with IG Univer Mykhailo Fedorov referred to the government's macro forecast for the coming years as idle running.

"That's because, in the current situation, the country's economy could grow at an annual rate of 5-10%, just by itself, if not tampered with. In 2014-2016, Ukraine experienced a shocker, which led to a collapse of economic indicators. After that shocker, the natural goal of the authorities was to stabilize things and achieve the so-called macroeconomic stability, in which they succeeded over the past years, on principle. And now, had the economy not been hurt by coronacrisis, it would have logically been reaping the fruit of macrostability achieved through of strong recovery growth, which had actually begun in 2019, when GDP growth started to accelerate on its own, contrary to expert expectations... Now the Ukrainian economy growth is being hindered by coronarisis, but in subsequent years its negative impact will cease to affect it, and the economy may again begin to grow at a rapid pace due to the macroeconomic stabilization of previous years and the recovery from coronavirus losses. But that's if no one tampers with it, if the government won't undermine the earlier achieved macroeconomic stability through their actions," the expert summed up.

It is no secret that the official economy statistics are very different from the actual wellbeing of average Ukrainians who could tell more clearly what's been happening with inflation and wages and it's likely to be worse than government forecasts.

Nana Chornaya

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