Scenario assessment of fiscal pro-investment expansion in Ukraine

Abstract

The article identifies the role and place of public investment as one of the significant factors of growth. As a high value of fiscal multiplier, public investment is an effective countercyclical measure to restore economic growth. The goal of the study was to estimate the aftereffect of fiscal pro-investment expansion in Ukraine without increasing the debt burden. The monetary sector should support the increased public investment financed through the domestic government borrowing by expanding the money supply at a rate exceeding the debt growth to minimize the crowding-out effect and support the real sector’s demand for credits. According to the scenario results, the limit of increased public investment in Ukraine compared to the reported data without increased debt burden during the relatively stable 2016?2019 could be 11-19%. The short-term effect of implementing such fiscal pro-investment expansion provided an additional increase in GDP by 1.3-1.8%. Every UAH borrowed by the state and directed to capital investment could add more than 4 UAH of product annually in 2017?2019, which corresponded with the public investment multiplier equal to 1.1. These growth targets may be more significant during COVID-19 crisis, as the fiscal multiplier is usually higher in recessions. Since the indicated growth rates depend on the selected strategic priorities for capital investment in facilities with the highest return, the obtained results assume the development of additional volumes of public investment in the most efficient way providing the expanding of aggregate supply in the longer term.