Avoidance of the balance of payments crisis and debt crises in Ukraine during the economic crisis of 2020-2021 was a pleasant exception to the established rule of interdependence (mutual strengthening) of financial and economic crises in Ukraine. However, this state of affairs largely reflected not the achievements of Ukraine’s macroeconomic policy, but the unique nature of the current crisis that was realized through reduced imports (which restrained the impact of external shocks through the trade channel) and access to the international capital market for emerging market borrowers (which mitigated the impact of external shocks through the financial channel).
In 2020 – early 2021, the formation of a current account surplus, reducing the deficit of the international investment position and improving certain indicators of reserve adequacy indicated a decrease in the external financial vulnerability of Ukraine’s economy. However, 8 out of 12 indicators of the external sustainability of the economy signal the quite high risks of a stressful situation.
The key risks to Ukraine’s balance of payments stability are the huge outflow of Ukrainian capital and the significant need to refinance external debt in the face of global capital market instability. At the beginning of 2021, the volatility of this market increased along with rising long-term interest rates in advanced economies, which highlighted the risks of the availability of external financing for all emerging markets, including Ukraine. To mitigate such risks, the IMF advises central banks to pursue easy monetary policies and help economic entities to maintain confidence in fiscal and monetary policies.
The positive changes and imbalances in the external economic stance of Ukraine are considered in more detail in the analytical study of the Growford Institute “Ukraine’s external financial vulnerability Assessment”, prepared by Doctor of Economics Tetiana Bogdan.