Центр економічної стратегії / Centre for Economic Strategy

CES new employee Cessy made her forecast on the dollar exchange rate by the end of the year 😄

❗ There will be no default. Ukraine has reached a fundamental agreement on debt restructuring with the Eurobond Holders' Committee. Due to difficult negotiations with creditors, the media started writing about a potential default for Ukraine. "This is an important stage in the restructuring process that will save $11.4 billion USD in servicing the debt over the next three years and $22.75 billion USD by 2033," said Prime Minister Denys Shmyhal. "A fundamental agreement is very good because the parties entered the negotiations with quite different expectations. The situation was further complicated by the IMF factor - the government proposal had to satisfy not only private creditors but also the Fund," commented Maria Repko, Deputy Director of the CES. It is important that the government agreed not just on another payment deferment, but on actual debt restructuring, showing the lenders that once loaned us money that we can negotiate reasonably. This is crucial for future investments. 🎧 We also dedicated the latest episode of our podcast "Що з економікою" (available in Ukrainian) with Olena Bilan, the Chief Economist of Dragon Capital and a member of the CES Supervisory Board, to the topic of restructuring. In particular, she detailed the points of contention in the negotiations, such as differing views on forecasts regarding the state of the Ukrainian economy in the coming years. 📍 Listen to the podcast (in Ukrainian): https://lnkd.in/da5qHtSU

❗ Today, the Verkhovna Rada allowed the Cabinet of Ministers to suspend external debt payments until October if necessary. The government must agree with creditors on debt restructuring by mid-August. 👉 If an agreement cannot be reached, a purely technical moratorium on the first payments will be declared, allowing time for negotiations and finalizing agreements. We previously forecasted this scenario. Although the amount in question is relatively modest—$12 billion from 2024 to 2027—Ukraine does not have accessible funds to spend if creditors disagree with write-offs. Bill 11396 contains two provisions: 1. Grant the government the right to suspend external state debt payments temporarily. 2. Allow for restructuring the former Ukravtodor debt (a series of 2021 Eurobonds totalling $700 million plus interest). Even if it is impossible to agree on restructuring or extending the payment moratorium, a potential default poses no critical threat. 🗨 "Given that we are not borrowing from private creditors now anyway because the rates are too high due to the war and risks, the default will practically change nothing and will have no objective impact on, for example, the dollar exchange rate. However, in the case of default, it will be harder for Ukraine to attract new credit funds after the war," commented CES economist Maksym Samoiliuk.

💶 Poland to become NATO leader in defense spending relative to GDP Comment from our senior economist Yurii Gaidai: "The Polish Parliament has voted to increase defense spending to 5% of GDP in 2025. This means that in absolute terms, Poland will surpass Italy and become the third country in the EU in terms of defense spending, after Germany and France. Additionally, it will, by far, be the first in both the EU and NATO in terms of spending relative to GDP. ⚡ Defense spending will approach an impressive €40 billion, which will be comparable to Ukraine's defense budget in 2023, amid full-scale war. This is a significant burden on the economy, especially considering that substantial amounts go to weapon imports year after year, primarily tanks, self-propelled howitzers, MLRS, fighters, helicopters, and a host of other items from the US, South Korea, and other countries. However, it is clear that the Poles want to ensure they can defend themselves if the scale of the war increases, and they are willing to pay for this with slower economic growth." 👉 Infographic: Statista.

External aid in June covered only a third of the need 💸 Last month, Ukraine received $2 billion in loans from the EU and $3 million from the World Bank. There has been an improvement in financial aid compared to May, but the situation is far from ideal. Foreign aid in June covered about 37% of the state budget's financing needs (in May, it covered only 0.4% of the needs). Even considering the $2.2 billion tranche from the IMF in July, external financing for the first half of 2024 is $23.7 billion less than the same period in 2023, mainly due to the absence of funds from the US. 📊 Graph — Ukraine War Economy Tracker: https://lnkd.in/dnxHV63q

🙄 Ukrainian negotiations on debt restructuring are ongoing. Despite Ukraine's domestic debt projected to surpass 100% of GDP by 2025, negotiations, which urgently need to find a solution, remain stalled. Without a restructuring agreement, the government faces two stark choices: extend the moratorium on debt payments or declare default. 👉 CES experts, alongside with other Ukrainian civil society organizations, prepared an analytical paper that explores the scope and terms of debt treatment operations. 📄 The full document: https://lnkd.in/d7vW7Pjc RRR4U (Resilience, Reconstruction and Relief for Ukraine) is a consortium of four Ukrainian civil society organizations: Center for Economic Strategy, Інститут економічних досліджень та політичних консультацій (IED), Institute of Analytics and Advocacy and DiXi Group with the support of the International Renaissance Foundation.

🤔 Despite the many loan and grant programs available for Ukrainian businesses, entrepreneurs hesitate to raise funds. On July 11 at 5:00 PM (Kyiv time) in Zoom, together with government and business representatives, we will discuss the opportunities available for entrepreneurs, analyze the requirements for borrowers, and the reasons for financing refusals. Additionally, we will traditionally review the main changes in the country's economy over the past month. 📌 Registration for the event is available at the following link:

⚡💰 The Kyiv Independent covered our discussion on Russian assets and summarized it. What was said? The panellists called the G7's decision to use profits from frozen Russian assets to aid Ukraine a "breakthrough", "extremely positive" for potential confiscation and something that "will help Ukraine survive". Experts cautioned that while the $50 billion would help Ukraine for a year, it is far short of the estimated $486 billion needed for reparations. After two years of disputes, the G7 agreement is a step forward, but the ultimate goal is to confiscate Russian assets and transfer them to Ukraine. As experts have pointed out, Europe should not fear the consequences of such a decision: the potential economic risks associated with the flight of investors from Europe have not materialized, and the position for foreign investment is strengthening despite the asset seizure debate. ☑ Read more in The Kyiv Independent article: https://lnkd.in/eMhCkeiP

World Bank Representative: The Resilience of Ukraine's Economy Depends Not Only on Economic Factors 🌍📉 This was discussed at our event on macroforecasting by Karlis Smits, Lead Economist at The World Bank. 🛡️ He urged partners to support Ukraine not only financially but also with air defense systems: "As the World Bank, we usually do not comment on military perspectives. But increasingly, we and everyone recognize that air defense is one of the most critical aspects for economic activity, especially in large cities." 🌐🚫 The second point the World Bank representative emphasized is the limited access to external markets, particularly the EU market: "The EU is one of the largest markets for Ukraine, but access to it is limited by logistics and political aspects. The EU formally opens the market, but there are many non-tariff barriers and categories of goods that have been subject to quotas. You know what happened with grain." Mr. Smits highlighted the issue of labor market reform, particularly stressing the problem of job opportunities for women and veterans. "When we think about potential production capacity, we need to consider labor market issues. Many talk about the Reform Matrix and what donors are asking to be done. If you look at all these 200 measures, very few of them address the labor market. Ukraine's Labor Code still has elements of the Soviet era. The participation of women and veterans in the labor market is also somewhat limited by labor legislation." 🔗 To listen more – follow the link: https://lnkd.in/dDt76Uj3

ще в минулому місяці зробили з Yurii Gaidai з #CES подкаст - забув його викласти тут - в подкасті більше про МВФ та рос активи - https://bit.ly/45riYGc. послухайте