Another 200,000 people left the country, rising inflation and demand for cash dollars, and a reduction in foreign exchange reserves – NBU analysis

In the third quarter of 2024, an additional 200,000 Ukrainians left the country due to summer electricity issues and negative expectations for the heating season.

This is reported in the latest inflation report of the National Bank of Ukraine for 2024.

“According to UN data, the number of Ukrainian migrants increased by almost 200,000 during the third quarter, with growth continuing into the beginning of the fourth quarter, reaching nearly 6.8 million people as of mid-October 2024. Risks of further intensification of migration outflows remain significant,” the report notes. It also highlights the ongoing negative impact of migration on the labor market.

In the same report, the National Bank of Ukraine (NBU) predicted a rise in the demand for foreign cash currency among the population and acknowledged a 3.2% depreciation of the hryvnia in the third quarter. As of November 8, the official NBU exchange rate was 41.36 UAH/USD, while the interbank rate this week peaked at 41.54 UAH/USD before settling back to 41.3 UAH/USD. Today, the average cash selling rate for the dollar at banks is 41.63 UAH/USD, with a maximum rate of 41.80 UAH/USD.

However, NBU analysts indicate that they are doing everything possible to stabilize the currency market, including increasing foreign currency sales on the interbank market from $8.3 billion in Q2 to $9.2 billion in Q3 2024.

“Among the key factors influencing currency demand were high budget expenditures, taking into account significant volumes of international aid. Seasonal and situational fluctuations in supply and demand for currency from agricultural producers also affected the market. Amid weak global demand, revenues from iron ore exports decreased, but this was offset by increased metallurgical supplies due to the gradual recovery of the ferroalloy industry. At the same time, demand for currency grew somewhat due to significant needs for purchasing energy equipment and electricity, given the challenging situation in the energy system and increased fuel imports ahead of expected tax hikes. The summer travel surge and increased migration led to higher spending by Ukrainians abroad,” the inflation report states.

It further specifies that Ukraine plans to spend $1 billion annually on electricity imports from Europe.

By the end of 2024, Ukraine expects to receive $41.5 billion in external aid and $38.4 billion in 2025, which will lead to a reduction in NBU’s foreign exchange reserves:

• To $41 billion by the end of 2025;
• To $35 billion by the end of 2026.

Despite these conditions, the regulator promises to support the currency market and the hryvnia exchange rate, though it does not specify a forecast for the rate.

The NBU also listed economic risks facing Ukraine as a result of the war:

• Additional budget needs, primarily to support defense capabilities.
• Possible additional tax hikes, which could increase price pressures depending on their parameters.
• Further damage to infrastructure, particularly energy and ports, which will constrain economic activity and pressure prices.
• Deepening negative migration trends and a further increase in the labor shortage in the domestic job market.

For 2024, the National Bank of Ukraine forecasted an inflation rate of 9.7%. Its chairman, Andriy Pyshnyy, added in a Facebook comment that at the beginning of 2025, it could exceed 10% on an annualized basis.

“In the coming months, price pressures will persist due to lower-than-last-year supply of certain food products, expanding aggregate demand as a result of significant budget expenditures, further exacerbation of labor market imbalances, and an electricity shortage during the heating season,” the NBU inflation report states.