Ukraine’s Economic Challenges
Ukraine’s National Bank has decided to keep its benchmark interest rate at 15.5%, despite revising down its economic projections due to the ongoing war with Russia. The bank cited significant wartime losses, rising business costs, and deteriorating crop forecasts as the main reasons for the downward revision.
Inflation Projections
The National Bank of Ukraine now expects core inflation to decline to 9.7% in 2025, before reaching the target rate of 5% in 2027. This is slower than its previous forecast, which predicted inflation would fall to 8.4% by the end of the year. The bank’s chairman, Andrii Pyshnyi, stated that the bank will maintain tight monetary conditions to ensure sustainable disinflation towards the 5% target.
Economic Growth
The central bank has also downgraded its economic growth forecast to 2.1% for 2025, down from a previous projection of 3.1%. While foreign financial support helped sustain growth in the first half of the year, intensified attacks and continued destruction of production facilities, infrastructure, and housing have fueled migration pressures and constrained economic expansion. The NBU’s baseline scenario assumes a gradual return to normal economic conditions, with growth of 2-3% expected in 2026-2027.
Risks to Economic Development
The ongoing war and potential shortfalls in international financing remain the primary risks to inflation dynamics and economic development. Adequate external financial assistance will be crucial for maintaining macrofinancial stability under all scenarios, the central bank warned. Ukraine expects to receive approximately $54 billion in external aid in 2025, having already secured nearly $24 billion. However, the remaining $30 billion from G7 nations and the EU may face risks after Ukraine’s recent move to strip the independence from key anti-corruption agencies, drawing criticism from Western partners.
Impact of Anti-Corruption Agency Reform
European Commission President Ursula von der Leyen expressed "strong concerns" over the legislation, while U.S. Senator Lindsey Graham criticized President Volodymyr Zelensky’s decision to sign the controversial law. The law passed and signed on July 22 does not have anything to do with Russian influence, but rather deprives anti-corruption agencies of their independence. This move has sparked concerns about the potential impact on Ukraine’s economic development and its ability to receive international aid.
Conclusion
In conclusion, Ukraine’s economic outlook remains challenging due to the ongoing war with Russia and the potential risks to international financing. The National Bank’s decision to maintain the benchmark interest rate and revise down its economic projections reflects the significant challenges facing the country. To achieve sustainable economic growth and stability, Ukraine will need to address the ongoing war, ensure adequate external financial assistance, and maintain a stable and transparent economic environment. The country’s ability to receive international aid and support will be crucial in helping it to overcome the current economic challenges and achieve long-term stability and growth.
