Ukraine’s Economy in 2023 Overview

How did the Ukrainian economy fare in 2023? Find the economic results of the year in this special issue of the Ukraine War Economy Tracker with interactive charts and expert commentary.

GDP grew compared to 2022, but is still far from pre-war levels

In 2023, Ukraine’s real GDP is estimated to have grown by 5-5.5%. This is a recovery after a sharp 28.8% drop in 2022. Despite the recovery, GDP is still about a quarter lower than in 2021. In the first quarter of 2023, GDP was still falling, but grew for the remaining three quarters.

GDP growth occurred against a low comparison base in 2022, while the economic recovery had actually stopped. In each quarter of 2023, real GDP was lower than in the corresponding quarter of 2021.

Hryvnia surprised with resilience and inflation slowed to target

Ukraine entered the year 2023 with an official exchange rate of UAH 36.6 per dollar. The cash exchange rate was significantly higher: UAH 40.5 to the dollar as of 1 January. Expectations for the year varied: the government budgeted for an average annual exchange rate of 42.2 UAH/USD in 2023, while non-governmental experts agreed on a consensus forecast of an average annual exchange rate of 37.9 UAH/USD.

In the end, the NBU kept the exchange rate fixed at 36.6 for most of the year, and the gap with the cash rate gradually narrowed. On 3 October, the NBU switched to a managed flexibility regime, but the hryvnia was even slightly strengthening due to significant foreign exchange interventions. In December, the trend reversed and the dollar began to rise, and Ukraine entered the new year of 2024 with an exchange rate of 38 UAH/USD. However, the average annual official exchange rate was lower than both government and non-government forecasts, remaining at UAH 36.6 per dollar.

Ukraine entered 2023 with record-high inflation, which was driven by the war and the printing of the hryvnia to cover military spending. However, inflation was brought under control during the year: regular inflows of foreign aid allowed the government to stop monetary financing (through hryvnia emission) of the budget, and good harvests helped to reduce food prices. In December 2023, inflation stood at 5.1%, almost returning to the pre-war inflation target of 5%.

USD 42.5 billion of foreign funds received in 2023

In 2023, Ukraine continued to receive foreign financial assistance – more than in 2022 ($42.5 billion in 2023 vs. $31.1 billion in 2022), and more regularly and predictably. The assistance mostly came in the form of loans (63% of all financial assistance) rather than grants; however, these loans were very concessional and necessary for Ukraine, as they allowed it to finance important budgetary needs today.

In total, the state budget’s additional financing needs for 2023 amounted to USD 59.9 billion, including USD 47.9 billion for the budget deficit and USD 11.9 billion for debt repayment. Foreign aid covered 71% of these needs; the rest was financed mainly through the issuance of domestic government bonds.

Thanks to foreign financial assistance, foreign exchange reserves reached historically record levels in 2023. At the end of the year, Ukraine’s international reserves stood at $40.5 billion. This is more than the historical record before the full-scale invasion, when reserves reached their previous peak of $38.4 billion in April 2011. This situation during the war was only possible because of the unprecedented financial support provided to Ukraine. The high level of reserves is a kind of safety cushion in case of interruptions in the further flow of aid.

Half of the state budget was used for defence

We will update this section when full statistics on state budget expenditures for all 12 months of the year become available.

The Ukrainian budget in 2023 is still a budget of war. About half of the state budget is spent on defence; we estimate that defence spending will exceed 30% of GDP in 2023. For comparison, the NATO’s guideline in peacetime is 2%.

Ukraine’s own tax and customs revenues are still not enough to cover all budget expenditures. The difference was covered by foreign financial assistance and the issuance of military bonds.

In 2023, the government raised UAH 566 billion through domestic government bonds, more than twice as much as in 2022. The fiscal gap also narrowed. In 2022, the government spent UAH 133 billion more to redeem previous issues of domestic government bonds than it managed to raise from new domestic debt; in 2023, it managed to refinance the repayment of the old debt and raise another UAH 196 billion on top of that. However, if we compare the proceeds from new domestic government bonds issues for the year with the cost of repaying the debt on domestic government bonds and budget expenditures on debt servicing, the difference was still negative (UAH 3 billion).

Banks had record profits

In 2022, due to a decline in demand for loans and banking services in general, as well as a revaluation of their assets due to the hostilities and occupation, bank profits declined.

By contrast, banks were much more successful in 2023 due to monetary policy that provided high rates on certificates of deposit. To finance state defence spending, a temporary higher bank income tax was introduced: 50% in 2023 and 25% in 2024-2025.

Exports of goods almost halved compared to 2021

We will update this section when Ukraine’s balance of payments statistics for all 12 months of the year become available.

In 2023, Ukraine exported $36 billion worth of goods and imported $63.5 billion. Merchandise exports decreased for the second year in a row: in 2021, Ukraine’s exports of goods reached $68.2 billion, and in 2022 – $44.2 billion. The key categories of Ukraine’s merchandise exports are food (mostly grain) and metals, which are highly dependent on easy logistics.

In 2023, Ukraine created its own Ukrainian Sea Corridor to the Black Sea ports of Odesa region after Russia stopped fulfilling its agreements under the Grain Agreement. This allowed for a gradual increase in not only grain exports, but also the resumption of maritime exports of other goods, as well as the resumption of maritime imports.

However, in 2023, Ukraine also began to suffer from the Polish blockade of its land border, which hit Ukrainian exports and tax revenues from imports of goods.

Farmers harvested high yields and the steel industry recovered

The weather in 2023 was favourable for agriculture, and farmers were able to break yield records. Grain yields increased to 54.7 centners per hectare, beating the previous record of 53.6 centners per hectare in 2021. Yields of other crops were also good. This made it possible to harvest high yields despite the loss of a significant part of the territories that are either under occupation or are unsafe for agriculture.

High harvests also bring certain challenges – it is important to maintain logistical capabilities for food exports. At the end of 2023, sea exports of grains and oilseeds through the Ukrainian Sea Corridor reached the peak levels of the Grain Agreement. It is important to maintain these opportunities in 2024, as well as to ensure that Poland lifts its blockade of Ukraine’s western border.

Ukraine’s metallurgical enterprises have been gradually, slowly, recovering. Currently, steel mills are operating at around 70% of their capacity. At the end of 2023, the rope around the neck of steelmakers was finally loosened, with the resumption of sea exports through the Ukrainian Sea Corridor. The corridor should continue to operate, and opportunities for ferrous metal exports should be expanded. This will make the steel industry feel much more confident, as before the war, 4/5 of the industry’s output was exported, and it is almost impossible to replace such volumes with domestic consumption.

Unemployment was declining, and it was becoming increasingly difficult to attract new employees

Since the beginning of the full-scale invasion, the State Statistics Service has not published unemployment data. The Info Sapiens research agency makes its own estimates of unemployment. Throughout 2023, the trend of a steady decline in unemployment continued. At the same time, at the end of the year, unemployment was still one and a half to two times higher than in early 2022, before the full-scale invasion. Throughout 2023, 20-25 percent of Info Sapiens respondents consistently reported that they were saving on food, which roughly coincides with the World Bank’s poverty estimate for Ukraine.

The number of vacancies in the labour market recovered steadily in 2023, but has not yet reached the level of 2021. On the other hand, the dynamics of job seekers were negative, which is also confirmed by the results of a business survey that states that the labour  shortage is a significant obstacle to business activity.

In the first month of the full-scale war, mass layoffs and a slowdown in business activity saw many more new workers enter the labour market than employers could accommodate. During 2022, the labour market dynamics levelled off, and in 2023 the ratio of new job seekers to new vacancies reached the level of 2021.

On the one hand, there were more vacancies on the market overall; on the other hand, there were fewer people willing to take up these positions. The market has stabilised after the initial shock of a full-scale war and is gradually adapting to structural changes in the economy. At the same time, there are fewer and fewer available workers in Ukraine: a significant number of Ukrainians are abroad, and about a million men and women are defending the country in the ranks of the Defence Forces.