Economy of Ukraine 2024: Results

A year of betting on state, centralized interventionism. A year of unfulfilled hopes for the triumph of economic freedom. A year of the entrepreneurship spirit suppression and the sky-high nationalization of the economy.

19 December, 2024

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Yaroslav Romanchuk

However, we believe that it also became a year of realization by the majority of Ukrainians that economic freedom is an inseparable condition for defending Ukrainian independence. In 2024, the Government of Ukraine preserved the country's economy within the framework of the State model of general interventionism. The size of the non-market sector (government spending as a share of GDP), the volume of resources/assets owned by the State (national, local authorities), and the parameters of the regulatory burden allow us to classify the Ukrainian economy as still centralized and socialist.

The resolutions adopted in 2024 (laws, concepts, strategy, by-laws) confirm the economic course of the authorities to maintain a high level of nationalization of the economy. The current composition of the Government believes that it is possible to achieve substantial rates of economic growth, ensure the return of approximately 10 million people to the country, modernize development institutions, occupy profitable niches in global value chains, and significantly increase national competitiveness through centralized state management and dominance in the economy of the State business.

The choice of the Government of Ukraine is generally supported by international economic organizations (IMF, World Bank, EBRD), the EU, foreign mainstream consulting companies and think tanks (BlackRock, McKinsey, German Economic Team, ICU (Investment Capital Ukraine), Oxford Economics, Dragon Capital, Concorde Capital, Centre for Economic Policy Research (CEPR), Centre for Economic Strategy).

They have formed a nomenclature-political, technocratic consensus, whose main parameters are a focus on public investment and consumption, regulatory, tax, customs and financial favoritism; ignoring the quality of public administration, the Government's capacity to perform both complex regulatory tasks and allocation tasks (distribution of limited factors of production between its individual sectors).

The government and its national and international partners are recreating a model in Ukraine that, in the opinion of the authors of Draghi’s Report about the state of competitiveness of EU countries, has led even much more stable countries with high-quality legal institutions to profound problems.

In 2024, the relative macroeconomic stability of the Ukrainian economy would have been impossible without external assistance (loans and grants). Ukraine significantly reduced its level of subjectivity, increasing its dependence on foreign partners and their decisions. As of early December 2024, the volume of external financing of public expenditures of the Government of Ukraine, excluding government bonds (including military ones), amounted to $32.4 billion, including bonds - $47.3 billion. In the period 2022-2024 (early December), the volume of financing from foreign partners amounted to $106 billion.

Government and Business

In 2024, the quality of the dialogue between business and Government in Ukraine significantly deteriorated. On no essential issue did the Government take into account the conclusions and recommendations of the business community on taxation, protection of property rights, implementation of the constitutional principle of the presumption of innocence, as well as the principle of the presumption of business integrity.

The current format of business-government relations is beneficial to large lobbyists, participants in public procurement and investment programs, but discriminatory towards small and medium-sized businesses.

In 2024, the Government finally decided to create a two-sector economy.

The first sector - state favorites, "strategically important enterprises", "growth points", the Club of "white" business, "participants of almost a hundred special economic zones", beneficiaries of state programs "5-7-9%", investment cashback, government procurement, etc. For this commercial minority, the Government reduces the tax and regulatory burden, creates preferences in access to resources, finance and infrastructure.
For most business entities (the second sector), the Government increases the costs of doing business, worsens the qualitative parameters of the business climate, pushing them into the third sector - the "gray" economy. Its size, even according to the Ministry of Economy, has exceeded 40% of GDP.

According to the survey "Institute for Economic Research and Policy Consulting (IER) monthly survey of enterprises "Ukrainian Business during the war" for October 2024, the share of positive assessments of the government's business support policy was 4%. The share of neutral assessments of this policy decreased from 61% in September to 53% in October, while the share of negative assessments increased again: from 24% to 29%."

Government and Foreign Funds

In 2024, the Government was largely guided by the recommendations and requirements of international economic organizations, primarily the IMF and the European Commission, rather than by the national business agenda.

The government has invested a lot of time, attention, and human resources in holding numerous international forums, conferences, and dialogue platforms on meeting EU accession requirements and fulfilling credit conditions of foreign partners.

The government found the time and opportunity to adopt the National Strategy for Bridging the Gender Gap, the Resilience Plan as a set of declarations and wishes, anti-entrepreneurial amendments to the Criminal Code, the concept of an electronic pricing system in construction, as well as the decision to convert over 200,000 private enterprises and over 30,000 farms into business partnerships.

However, the Government did not consider it a priority to adopt clear, transparent rules for the functioning of the labor market and mobilization, to make a full balance of the benefits and losses from increasing the tax burden, to assess the consequences of dividing the country's commercial sector between the favorites of the government and the others.

The Government of Ukraine in 2024 did not find it necessary to react to Ukraine's record low place in the Index of Economic Freedom (150) and chronically low place in the ranking of countries by the quality of public administration, regulation, and protection of property rights (<100).
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Crisis of Confidence in the Government

The price of the State for Ukrainians (tax, regulatory, transaction, inflationary costs) remains consistently high, amounting to the equivalent of ~67% of the annual cash expenditure of the average Ukrainian household.

In 2024, the crisis of confidence both within the country and in Ukraine from foreign states and societies considerably intensified. The Government of Ukraine significantly reduced the credit of trust in itself from both Ukraine's foreign partners and business.

According to a study conducted by Active Group "Socio-political moods of Ukrainians" (December 2024), 42.9% of Ukrainians believe that the country as a whole is moving in the wrong direction. The number of those who believe that the country is moving in the right direction was 41.8% of those surveyed.

For comparison: in a survey by Gradus (November 2024), only 34% of respondents said that the country was moving in the right direction, while 48% said it was moving in the wrong direction. (survey «The Future as seen by Ukrainians».)

The top 5 priority problems are as follows:

fighting corruption (81.6%);
organizing the defense of Ukraine(36.2%);
supporting the economy of Ukraine (31.2%);
carrying out mobilization (27.7%);
developing the domestic defense industry (15.3%).

According to a survey by the Office of Effective Regulation (BRDO) (December 2024), the main problems and obstacles for doing business by legal entities are:

blocking tax invoices - 64.9%;
delay in logistics at the border (queues at customs points) - 31.4%;
abuse of regulatory norms by government officials - 28.3%;
unfair decision during the tender procedure - 22.6%;
business inspections by other government bodies - 20.0%.

According to a survey by the Center for Insights in Survey Research (CISR) of the International Republican Institute, in September 2024, 76% of Ukrainians surveyed disapproved of the activities of the Verkhovna Rada, 21% approved; 52% disapproved of the activities of the Cabinet of Ministers, 35% approved; 44% disapproved of the activities of local authorities, 51% approved.

Thus, 2024 was for the Ukrainian economy a period of strengthening institutional defects, suppressing the spirit of entrepreneurship, erosion of trust and unprecedented nationalization in almost all spheres and types of economic activity. The Government's resolutions and actions indicate its choice of the model of the State of general interventionism with the separation of nomenclature-commercial favorites from the general economic legal and financial conditions. Such a model cannot but lead to a reboot of the "oligarchy" and "schematosis" with all the ensuing consequences for the country's defense capability and competitiveness.

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Yaroslav Romanchuk

A well-known Ukrainian and Belarusian economist, popularizer of the Austrian economic school in the post-Soviet space. He specializes in reforms in transitional economies in the post-socialist space.

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Yaroslav Romanchuk

27 November, 2024

Common sense economics

A true people's economics is the one when people themselves choose goods, services, investments, and governance under conditions of open competition, free trade, personal responsibility, and social solidarity.