KYIV, March 15 – Ukraine’s economy will rebound sharply in 2021 after a coronavirus-induced downturn in 2020, but will probably begin slowing down again in 2022, S&P Global Ratings, an international rating agency, reported.

The economy is expected to expand 4% on year in 2021, reversing 4.2% contraction in 2020, and will slow down to 3.5% growth in 2022, S&P reported.

"We forecast real GDP growth in Ukraine of 4% in 2021 following a gradual stabilization of the public health situation and a recovery in demand," S&P said in a report. S&P also reaffirmed Ukraine's rating at "B/B" with a stable outlook.

Ukraine may see a strong economic recovery in the second quarter, S&P reported. According to analysts, an inflow of remittances and government support, including an increase in pensions, should support the recovery in consumption.

At the same time, analysts call the key risk of the forecast uncertainty regarding vaccination, which, firstly, is slowly developing in Ukraine, and secondly, is not supported by half of the population.

"We view the recently imposed sanctions by the Biden administration in the United States against oligarch Ihor Kolomoisky as a decisive renewal of Western support for President Zelensky's reform program," it said.

Ukraine is currently experiencing difficulties in negotiations with the International Monetary Fund (IMF) due to problems in anti-corruption and judicial reform, but analysts still expect a tranche in the amount of $700 million in 2021, given the high budget deficit in 2021.

This will allow obtaining additional loans from the World Bank and the European Union in the amount of about $1.5 billion. However, even under these circumstances, S&P expects the government debt to grow by $5-6 billion due to new external and internal borrowings.

The agency notes that investments in 2020 amounted to only 5.3% of GDP in 2020, compared with 12.6% in 2019, and this figure is expected to reach 9.4% of GDP.

According to the agency's estimates, the average annual inflation will accelerate from 2.7% in 2020 to 7.7% this year, and then slow down to 5.5% in 2022.

According to S&P analysts, the hryvnia exchange rate at the end of this year will be about UAH 29.5/$1, 2022 - UAH 30/$1, and in subsequent years it will grow even more and will amount to UAH 30.5/$1 at the end of 2023, 2024 – UAH 31/$1.

The current account deficit of the balance of payments will amount to 1.5% of GDP this year, after a 4.4% surplus in 2020. In the future, a gradual increase in the current account deficit of the balance of payments is expected to reach 2.1% in 2022, 2.6% in 2023 and 3.3% in 2024.

The agency also expects a further gradual increase in reserves: from $28.36 billion last year to $29.98 billion this year, $31 billion next, $32.17 billion in 2023 and $32.32 billion in 2024.

S&P predicts that total government debt to GDP will rise to 62.5% this year from 62.3% in 2020, and gradually drop to 59.1% over the next three years, compared with a peak of 81% in 2016. (tl/ez)