Previous Quarterly Editions
Expropriation Risk: 69 71 70 67 ▼Political Violence Risk:90 90 90 85 ▼Terrorism Risk:33 24 24 24 ►Exchange Transfer and Trade Sanction Risk: 64 64 64 73 ▲Sovereign Default Risk:75 74 74 73 ►
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Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: HighFood/fuel policy protests: High
Over a year into the Russian invasion, Ukraine continues to suffer from vast economic devastation caused by what has become the war of attrition since February 2022, although some of the headline macro-indicators are proving considerably better than expected. While finalized official data is yet to be released, various estimates suggest the country’s real GDP fell by around 30-35% in 2022, as opposed to a range of 40-45% projected by many observers at the beginning of the war.
The content of this document is believed to be accurate at the time of publishing but due to the rapidly evolving situation, changes are occurring frequently and this information may have been superseded. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. WTW is not in a position to provide any advice in relation to sanctions. Please ensure you taking advise from you own legal and/or other professional advisors before taking any action. The views expressed in the section are the opinion of Oxford Analytica and do not necessarily reflect those of WTW.
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Inflation, too, has been among such better-than-expected indicators. Having already turned double-digit prior to the invasion, year-on-year inflation peaked at 26.6% at the tail-end of 2022. This rate may be sufficiently worrisome even for Ukraine (which is no stranger to soaring inflation) but is still only about half of what the rate used to be during the last domestic financial crisis, of 2015. Moreover, inflation currently tends to moderate – to 24.9% year on year in February – not least due to a rapidly strengthening base. Given, in addition, the similar global trend and further adaption of local
businesses, the central bank – the National Bank of Ukraine (NBU) – is now forecasting its moderation to 18.7% by the end of 2023.
The relatively modest level of inflation – relative in the sense that Ukraine is a country at war – is in large part attributable to a rather tight monetary policy. In early June 2022, the NBU sharply raised its key interest rate from 10% to 25% per annum, which is where the rate has been kept since. The other major factor containing inflation in Ukraine is frozen utility tariffs for households. Such has been the government’s policy for some time,
instituted well before the war for apparent political considerations, and there is no known plan yet to abandon it for the duration of the martial law (imposed immediately upon the Russian invasion). That said, the government seems ready now to make an exception and allow household tariffs for electricity to go up, most likely right after the current cold season is over (which could also see a resurgence in military campaigning activities, as better weather comes).
Partly because of the Ukraine government’s paternalism but mostly because of the raging war, the dire economic situation that Ukraine finds itself in is having little effect on the domestic political scene. Logically enough, the war has put once lively domestic politics virtually on hold, preventing at least their usual, open manifestation. There is even a sense of special political stability within the country, with all the opposition parties and factions still strategically abstaining from attacking the current administration, of President Volodymyr Zelensky, for the sake of maintaining wartime unity.
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The risk of expropriation has continued to grow over the last few months, primarily reflecting Ukraine’s further moves to nationalise assets owned by the Russian state and its citizens. The latest and thus far most notable such move was made in mid-February when Ukraine’s High Anti-Corruption Court reportedly satisfied the Justice Ministry lawsuit on a transfer to the state’s ownership of enterprises belonging to Russian oligarch Oleg Deripaska. The Court’s ruling concerned, among other things, the Mykolaiv alumina plant, the country’s largest producer of the metallurgical component, and followed a preliminary arrest of Deripaska’s corporate rights in the plant as ordered by a lower court in early July 2022.
Ukraine’s current circumstances effectively rule out any serious risk of political violence in the country for the time being. The very phenomenon of political street activism – which had proved so visible in the days of the 2014 Maidan revolution – remains today inconceivable as the existing martial law, repeatedly extended since its introduction, explicitly forbids mass gatherings and manifestations.
For the same reason, however, the situation should change once martial law is lifted: with internal political differences now only muted or set aside rather than buried, a would-be return to peace-time normality promises to revive political competition. However, as earlier, this process is likely to be on the whole devoid of significant outbursts of political violence.
In general, Ukraine has so far been spared what can be called terrorist attacks but only if you discount developments relating to the post-2014 situation in the east and the eventual direct Russian invasion. Each of the two exceptions represents in many ways a special case. In the former, historic attacks on government- controlled territories that are believed to have come from Russia-backed separatists proved sufficiently random and were mostly confined to the ‘hot’ phase of the Donbas war. In the latter case, following the apparent failure of various saboteurs and infiltrators to perform attacks in large cities and towns at the initial stage of the 2022 invasion, Russia has resorted to regular missile attacks targeting Ukraine’s energy infrastructure. These attacks are continuing, albeit with a receding incidence.
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The past few months have brought little change to Ukraine’s currency situation. In the official exchange rate, the local currency, the hryvnya, has remained fixed against a de-facto peg, the U.S. dollar, throughout the whole wartime period, having undergone devaluation through what the central bank called a ‘correction’ only once, in late July 2022.
In the market exchange rates (and there are several of them), the hryvnya has continued to fluctuate within a broad corridor closely watched by the NBU. In terms of its trading value against the major currencies, the currency is now roughly where it was back at the beginning of the year. To maintain the balance, however, the NBU still needs regularly to sell large chunks of reserved foreign currency (currently averaging about 500 million U.S. dollars a week).
In terms of trade sanctions, the respective risk continues to concern only Russia and arose even before its February 2022 invasion. By now, Ukraine has already imposed a wide range of sanctions effectively banning all trade with Russia. Among the latest direct trade sanctions is a resolution adopted by the Cabinet of Ministers in September 2022 to outlaw any Ukrainian exports to Russia for the duration of martial law. Given that such exports had actually been terminated upon the invasion, the resolution thereby cemented the de facto state of affairs legally.
Although the war has forced Ukraine to borrow heavily both at home and abroad, to finance a huge budget deficit, the payment pressure that emanates from its external borrowing is at present relatively low. This year, the country needs to pay to foreign creditors about 3.3 billion U.S. dollars. This should be achievable, considering continued inflows of generous financial aid from Western governments to support the country’s war effort.
Furthermore, with the aid arriving both as grants and loans (in the main from the U.S and the European Union), the credit part of is not payable now until 2027. Since Ukraine has lately reached a staff-level agreement with the IMF on a new four-year lending programme worth USD15.6 billion dollars, the official creditors who last year agreed to suspend payments on their loans until the end of 2023 have reportedly extended the suspension for the whole period of the IMF programme.
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