Medium-term forecast of Ukraine’s balance of payments and sources of its deficits financing

Abstract

Introduction. Since the beginning of the russian large-scale war external viability of Ukrainian economy was jeopardized by dramatic trade deficits and destructions of export capacities, loss of access to the international capital market and outflow of domestic capital into foreign currencies, as well as significant reliance of public finances on unstable official funding. Problem Statement. Maintaining external sustainability of Ukraine’s economy highlight the importance of elaboration of the balance of payment (BoP) forecasts and identification on their basis of the Ukrainian external financing needs. Purpose – development of the methodological approaches to medium-term forecasting of Ukrainian BoP, projection of the BoP’s aggregates and constituents through 2024-2027, estimating evolving external gaps and foreign financing needs (in particular, official concessional financing), that will provide well-justified arguments for policy dialogue with international partners. Methods. General and special scientific methods are used: analysis and synthesis, description and comparison, historical method, method of generalization, abstract and logical method, quantitative forecasting methods, simulations, multiple regression models and functional dependencies. Results. Author reviews the available methodological approaches for BoP forecasting and specifies multiple regression models for estimating the volumes of Ukraine’s exports and imports. Predicting the values of exogenous variables (comprised in these models) allowed estimation of the exports and imports through 2024-2027. Author identifies the significant factors explaining the behavior of the major components of the current account and forecasts their medium-term developments. Important determinants and quantitive estimates/ projections of the financial account constituents are also suggested. In the framework of medium-term scenario external official financing needs are calculated as a sum of projected current account balance without official grants and financial account balance without exceptional financing. Conclusions. As a result of modelling and forecasting undertakings for BoP indicators we arrived at Ukraine’s financing needs estimates, that approach 39.2 bn USD in 2024, 33.2 bn in 2025, 24.4 bn in 2026 and 20.6 bn in 2027. Discrepancy between exceptional official financing in our forecast and that one in the IMF financing plan amount to 27.3 bn USD spanned over 2025-2027. Such discrepancy might be countervailed by higher contributions from the EU via Ukraine Facility, larger own resources, pledged for Ukraine by the World bank and enhanced commitments from the bilateral donors, including grant financing.