KYIV, May 17 – The war against Ukraine launched by Russia is moving into a more exhausting period, which requires the restructuring of the economy, budgetary and monetary policy, Oleksandr Pecherytsyn, a leading analyst at Raiffeisen Bank (Kyiv), has said.

We need to think about how to rebuild the economy so that it can work longer in the war period," he said at a press conference on Tuesday.

In particular, the expert said that if initially there were tax breaks, now they are being reviewed, since it is necessary to resume revenues to the state budget.

Another sign of such a revision, Pecherytsyn called the statement of Governor of the National Bank of Ukraine (NBU) Kyrylo Shevchenko that the NBU is considering the option of returning to a floating rate, while earlier the regulator announced that the fixed rate regime would be maintained until the end of the war.

We are entering a new level of the military economy, which requires more flexible conditions," the leading analyst at Raiffeisen Bank said.

He said that in connection with the prolongation of the war, the bank worsened its estimate of the fall in Ukraine's GDP this year from 33% to 35-36%, confirming that if it is extended until the end of the year, the fall will be up to 45%.

The general manager for macroeconomic analysis at Raiffeisen Bank, Serhiy Kolodiy, predicted that in the coming months the state budget deficit will increase to UAH 100 billion or even UAH 120 billion from UAH 91 billion in April. "The situation is a derivative of the duration of the war. Despite the deflator, nominal GDP will fall, so incomes will decline," he said.

According to the bank's estimates, Ukraine's state budget deficit this year will be about 18% of GDP, subject to the receipt of grants, accounted for as budget revenues, by another 2.5-3% of GDP.

In this regard, the bank's analysts emphasized the importance of attracting significant amounts of external financing both to cover the deficit and to maintain relative stability in the foreign exchange market.

According to Pecherytsyn, the experience gained by the National Bank in 2015-2018 in the gradual lifting of foreign exchange restrictions will allow, if such a decision is made, to gradually return to the floating exchange rate regime, and the need for such a decision to remove imbalances will be indicated by the gap between the grey market and the official one.

The analysts also said that in the event of abandoning the fixed rate, which is now one of the elements of curbing inflation, the National Bank will probably have to gradually restore inflation targeting, although there have not yet been any relevant signals from it in this regard. (om/ez)