Ukrainian economics dropped further than expected during 2015. The results of the last year do not promise huge improvements for 2016, experts predict.

2015 Results for Ukrainian Economics

2015 budget planned the drop in the country’s GDP at 4.3%. The most pessimistic expert opinions put this number at 6-8%, KP.ua wrote.

The World Bank gave its prediction as 2.3% decline in GDP, Moody’s at 2%.

However, the actual drop of GDP in Ukraine in 2015 came to the shocking 12%.

Ukrainians joke: When we thought we have reached the bottom, someone knocked from the other side.

Inflation

The government projected 2015 inflation at the level of 13%, while experts thought the prices would rise by 17-20%.

Some of the western experts even gave predictions that there would be no inflation in 2015, after the substantial drop in values of the Ukrainian currency in 2014.

In reality the prices increased about 44% during the calendar year, Andrey Shevchishin from Forex Club stated.

Exchange rates progressed from 16-17 hryvnia for 1 US Dollar at the start of January 2015 to 25 hryvnia/dollar by the end of December, giving the devaluation of 48.7%.

In comparison, inflation in other countries of the former Soviet Union is expected to reach 11-15% in 2015:

• Russia: 15%
• Moldova: 13.5%
• Kazakhstan: 12.8%
• Belarus: 11.5%

Ukrainian currency devaluation (to USD) is far ahead of the planet: 170% from 1 January 2014 to 24 August 2015. The second country on the list is Russia with 118% loss of value.

Ukrainian currency devaluation (to USD) is far ahead of the planet (click to enlarge).

Shadow Economy

Don’t be misled by the official GDP figures for Ukrainian economy.

Even according to the government reports by the Ministry of The Economic development and Trade, the shadow economy accounts to an additional 42% of GDP. The ministry believes the level of shadow operations has decreased from 47% in the first half of 2015.

If the official GDP of Ukraine is 83 billion US dollars, the actual GDP is around $250 billion due to the sizable shadow economy, experts claim.

However, experts disagree. Finance.ua reported that one of the industry professionals, Vladimir Spivakovsky, believes that 2/3 of the Ukrainian economy operates in the shadows, without paying tax.

In other words, if the official GDP of Ukraine is 83 billion US dollars, the actual GDP is around $250 billion.

“There are a lot of money in the country, but 65% of it is in the shadow [economy]. And this number is voiced not only by me. Today this number is known to practically all economists,” Spivakovsky said. “We are counting everything incorrectly,” Spivakovsky said.

The officers of foreign embassies seem to agree with the experts. For example, Ukrainian medical doctor Pavel Silkovsky received an entry visa to Canada without the corresponding bank statements, needed to prove his ability to support himself during travel.

Silkovsky’s salary was too low to qualify and his friends advised him to obtain a fake bank statement to meet the visa requirements, Finance.ua wrote.

The Ukrainian anaesthesiologist, however, decided to come clean about his shadow income and wrote a letter to the Embassy:

“Dear officer, I have no bank account, except for the salary. I cannot prove anything. I can only say that in addition to my salary I consult patients at home, some patients in the hospital give me tips, sometimes I give lectures to students, medical doctors, and parents of the patients. For that I get cash. I don’t mind to be paid in full through the bank like in Canada and the USA, and to pay taxes. After the reforms are completed, I hope this is how it will be. But at the moment the situation in my country and my own [situation] is like this.”

He was granted a 4-year entry visa to Canada.

The Canadian ambassador in Ukraine Roman Vashchuk commented in his Twitter feed that they understood Ukrainian realities and valued the truthfulness of their clients.

2016 Prognosis

2016 budget was approved by Rada at 4 am on 25 December 2015. Yes, the Ukrainian lawmakers stayed until the early hours of the morning to vote.

Last year budget was voted in at 5 am, which the government promised to avoid this year.

They managed keep their promise: 2016 budget was voted before that deadline at 4:20 am — just when western kids were trying not to miss the visit of Santa Claus.

The government plans to keep the inflation on the level of 12% in 2016. The experts say 20% would be a more realistic number.

The budget deficit is 3.7% of GDP. However, experts don’t believe it is deliverable. Andrey Virginsky from the company “Public Audit” says the current exchange rate is already exceeding the budgeted projections and states that the budgeted expenses will have to be to be reviewed during the next year, as they are not realistic

Other projected indicators (source: KP):

• growth of GDP: 2%
• exchange rate hryvnia/US dollar: 24.1-24.4
• GDP: 2,262 billion hryvnia

For 2016, the world’s leading banks projected US Dollar/Hryvnia exchange rates from 20 to 32, Insider.ua reported.

2016 US dollar to hryvnia exchange rates prognosis by banks.

However, it’s not all doom and gloom for Ukraine. Online economics and sales are on the rise, and expected to increase 30-40% in 2016, Nikolay Palienko from Prom.ua stated.

Online sales are expected to become more popular and sales of smart phones should increase by 30-40% by the end of 2016, Finance.ua wrote. Palienko believes that in just another 6 months half of all online purchases will be made on mobile phones.

Online sales 2015-2017 projections.

He projected the growth in online sales to reach 33.7 billion hryvnia (US $1.44 billion) in 2016.

However, the US dollar value of online sales in Ukraine in 2014 was already around $1.46 billion (the exchange rate in October 2014 was around 13 hryvnia/1 USD). Even though the value of online sales is projected to increase in the local currency, the dollar value is just barely recovering from the setback of 2015, due to inflation and drop in actual people’s income.

Another executive of Prom.ua Nicolay Zhandorov told Finance.ua that he believes in 30-40 years economists will be studying “The Ukrainian economic miracle”. In his opinion, 2016-2018 will become the years of stabilizing the economy, after which he expects a huge growth.

Earlier we reported that Kiev has been rated the cheapest European city to live in. Ukraine is also the #1 destination for budget-conscious travellers, according to ratings by a UK travel site.

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