The main conclusions from the new inflation report of the National Bank of Ukraine: tax changes, increase in utility tariffs, emigration and international aid

The National Bank of Ukraine forecasts a significant budget deficit of about 23% of GDP in 2024 and 18% in 2025. This is stated in the inflationary reports regulator.

Increase in tariffs for housing and communal services services

The NBU expects an increase in individual tariffs for housing and communal services services next year due to the difficult state of the energy system and the state budget. From 2025, tariffs will begin to be gradually reduced to their economically justified levels, which may lead to an increase in administrative inflation by more than 10%.

Tax changes and their impact

The government announced a record increase in taxes, including an increase in the military tax rate to 5%, the introduction of this tax for sole proprietorships and legal entities, and a number of other increases. Ukrainian business sharply criticized this initiative. The National Bank of Ukraine warns that the introduction of a military levy on the income of enterprises may significantly increase inflation, as such taxes may be passed on to consumers.

International aid

The National Bank of Ukraine expects that international partners will provide about $38 billion in concessional loans and grants this year, and at least $31 billion in the next year. In 2026, aid in the amount of $21 billion is expected. Such amounts of aid, together with an increase in domestic investments, will make it possible to finance a significant deficit budget

Economic activity and GDP growth

In the second quarter of 2024, GDP growth remained relatively high (3.7% y/y). It was supported by an increase in budget expenditures, faster than last year’s harvest of early cereals, further recovery in animal husbandry and stable operation of the sea corridor.

Emigration

The NBU predicts a further outflow of migrants abroad in 2024-2025 – about 400,000 people in 2024 and 300,000 people in 2025. This is due to a difficult economic situation, including prolonged power outages.

Harvest and the agricultural sector

Thanks to favorable weather conditions, the estimates of the harvest of grain and oil crops in 2024 have been increased to 53.7 million tons and 20.7 million tons, respectively. However, extreme temperature highs in July pose additional risks to the harvest of late crops. Slow demining operations and high security risks will lead to a restrained increase in cultivated areas and yields in the coming years. The grain harvest will be almost 58 million tons in 2025 and about 62 million tons in 2026, and the oilseed crop will be 21 million tons and about 22 million tons, respectively.

Energy sector

The NBU worsened the assumptions regarding the electricity shortage for 2024-2026. The deficit is expected to be over 7% in 2024, around 8% in 2025 and around 5% in 2026. Prolonged power outages can lead to reduced economic activity and labor demand.