At the outset of 2024, many economic projections assumed the war in Ukraine would conclude within the year. However, reality defied expectations. The war persisted, bringing new challenges, including territorial losses, large-scale infrastructure destruction, and sustained Russian attacks on Ukraine’s energy grid. The Government faced the pressing need to secure funding for the war effort and mobilize additional defense forces.
Despite these hurdles, Ukraine’s economy demonstrated resilience. International aid, alongside the adaptability of businesses and citizens, contributed to real GDP growth of 3.5%, according to the IER estimate. Inflation accelerated but remained contained, while the NBU maintained currency stability through targeted interventions. By year-end, international reserves had expanded, buoyed by sustained financial inflows from global partners. However, uncertainty looms for 2025, with the government’s ability to finance key expenditures contingent on adherence to international commitments.
EU Integration Gains Momentum
2024 was a pivotal year in Ukraine’s European integration journey. On June 25, the EU and Ukraine formally launched membership negotiations at the first Ukraine-EU intergovernmental ministerial conference. Over the course of the year, 12 screenings were conducted, resulting in a list of legislative amendments required for compliance with EU standards. Preparations were also completed for opening Negotiation Cluster 1 “Fundamentals”, and screenings for Cluster 2 “Internal Market” began. These two clusters are expected to be the first to open for formal negotiations in early 2025, marking a major milestone in Ukraine’s EU accession process.
The Critical Role of International Support
The 2024 began with delays in international assistance, particularly in military and financial aid from the United States. These setbacks forced Ukraine to reallocate budgetary resources toward defense, yet the adjustments proved inadequate, affecting the battlefield situation. U.S. military aid resumed in the spring, while financial support arrived only in the summer. Meanwhile, the EU emerged as the largest donor, providing EUR 16.2bn (USD 17.3bn) in assistance.
The Ukraine Facility, a newly established EUR 50bn EU support mechanism for 2024-2027, became a key funding source. Within Ukraine Facility, EUR 38.3 bn is earmarked for budgetary support (loans and grants), and EUR 7bn for the investment pillar. Disbursements were contingent on performance indicators outlined in the Ukraine Plan, with all 2024 targets met. Any further disruptions in financial aid could jeopardize defense procurement and military supplies.
The IMF provided USD 5.3 bn, enabled by unprecedented sixth program reviews—exceeding the historical norm for Ukrainian IMF agreements. However, structural benchmarks faced delays, prompting the IMF to adjust deadlines while maintaining support. The IMF’s flexibility was instrumental in securing funding from partners such as Japan, the UK, Canada, and other IFIs like the World Bank.
By the close of 2024, Ukraine’s financial outlook for 2025 stabilized, bolstered by the G7’s agreement on a USD 50 bn support package – Extraordinary Revenue Acceleration (ERA) loan mechanism – to be repaid by the profits on frozen Russian assets. The first USD 1 bn from this package arrived late in 2024, bringing total U.S. assistance for the year to USD 8.3 bn.
Growth Despite Adversity
Despite ongoing hostilities, Ukraine’s economy expanded modestly. IER business surveys identified key constraints as security risks, labor shortages, and power supply disruptions. Russian attacks on energy infrastructure necessitated planned power outages during spring and summer, hindering business operations. However, international support, both financial and technical, facilitated a partial restoration of energy capacity.
Improvements in logistics and defense contracts provided additional economic relief. The Ukrainian Sea Corridor enabled increased exports, particularly in metallurgy and iron ore extraction. Agricultural producers continued shipping goods via rail and sea, benefiting from improved logistics compared to 2023. Rising wages and pension adjustments, underpinned by international aid, further supported consumption.
Energy Resilience Amidst Setbacks
Ukraine’s energy sector endured severe disruptions, with Russian attacks inflicting significant damage on power generation facilities. Nonetheless, integration with ENTSO-E allowed Ukraine to import electricity, mitigating blackouts. By December, the maximum import capacity from the EU reached 2.1 GW.
International donors played a crucial role, with 36 countries providing humanitarian aid, while the Energy Support Fund received commitments exceeding EUR 1bn. Small-scale decentralized energy generation gained traction, adding 835MW in new capacity, with financing secured for another 430 MW.
Fiscal Adjustments and Debt Management
As in previous years, Ukraine’s non-defense expenditures remained largely donor-funded. Total international assistance reached USD 41.7 bn (in equivalent) for 2024. To bolster revenues, the government raised corporate profit tax (CPT) for banks to 50% and for other financial companies to 25%, increased the military levy on private income to 5%, but deferred a planned VAT hike until 2025.
To cover mounting expenditures, the government expanded domestic borrowing, raising UAH 640 bn via government bonds. Meanwhile, public debt restructuring reduced Ukraine’s debt burden by USD 8.67 bn and saved USD 22.75bn in payments through 2033.
Inflation and Monetary Policy
Inflation surged to 12% yoy in December 2024, up from 3% in May, largely due to rising food prices and production costs. The NBU responded by adjusting monetary policy, maintaining exchange rate stability despite hryvnia depreciation (UAH 38 to UAH 42.3 per USD). The key interest rate was lowered to 13% mid-year but later raised to 13.5% to contain inflation. By year-end, the NBU reserves reached USD 43 bn, ensuring liquidity stability. Further currency liberalization is expected in 2025.
Looking Ahead
Despite persistent challenges, 2024 underscored Ukraine’s economic adaptability and resilience. Sustained international support, EU accession progress, and prudent policy adjustments will shape 2025. While uncertainty remains, Ukraine continues to lay the groundwork for post-war recovery and sustainable growth. IER forecasts real GDP growth of approximately 3% in 2025 as well as in 2026, driven by increased investment through the Ukraine Facility’s second pillar.
Written by Oleksandra Betliy, Iryna Kosse, Vitaliy Kravchuk, Institute for Economic Research and Policy Consulting.
Continue exploring:
Business Climate in Ukraine in September 2024: Trends, Challenges, Prospects