Tax increases, high inflation, and increased migration: The National Bank of Ukraine outlined economic risks for the country

The Board of the National Bank of Ukraine (NBU) has decided to keep its key interest rate at 13%, a decision NBU Chairman Andriy Pyshnyi attributes to rising inflation.

According to the NBU’s estimates, the official inflation rate reached 8.6% in September and continued to increase in October.

Pyshnyi forecasts inflation to reach 9.7% by the end of 2024, exceeding the 9% target set in the latest IMF memorandum.

“In the coming months, price pressures will persist due to continued supply-side factors affecting food prices, expanding budgetary spending, high wage growth, and increased energy shortages during the heating season. Consequently, by the end of 2024, inflation will reach 9.7%. However, by spring 2025, inflation will begin to decline. This slowdown in price growth next year will be supported by balanced NBU monetary policy, a reduction in external price pressures, improvements in the energy sector, and larger crop yields. The NBU forecasts inflation to decrease to 6.9% by the end of 2025 and to meet the 5% target by 2026,” he stated.

Pyshnyi also projected GDP growth for Ukraine in 2025-2026 at a rate of 4.3-4.6% and promised an increase in external funding for the country.

“By the end of the year, we expect to receive more than $15 billion, of which $4.8 billion will come through the SPUR program with the World Bank, supported by U.S. funding. Additionally, significant progress has been made in confirming future assistance volumes. International partners have come closer to providing Ukraine with a non-repayable loan, secured by revenues from immobilized Russian assets, worth up to $50 billion under the Extraordinary Revenue Acceleration (ERA) Loans program. Total international financing is expected to reach $41.5 billion this year and $38.4 billion next year,” he clarified.

Pyshnyi listed several risks specific to Ukraine’s wartime economy:

• The emergence of additional budgetary needs, primarily to support defense capabilities
• Potential further tax increases, which could intensify price pressures depending on the parameters.
• Additional damage to infrastructure, particularly energy and port facilities, which would limit economic activity and create supply-side price pressures.
• Worsening negative migration trends and a widening labor shortage in the domestic job market.

“There is also a risk of heightened geopolitical tensions globally, amid the war in the Middle East, electoral cycles in certain countries, and Russia’s attempts to form a coalition of states against the democratic world,” Pyshnyi added.