Internal Clash Between Fiscal and Monetary Policies Hampers Ukraine’s Economic Growth, Expert Says
Amidst the ongoing war challenges and global economic pressures, Ukraine faces a significant internal conflict between its two main fiscal and monetary policy directions.
A soft fiscal policy aimed at supporting citizens and the economy during wartime has been implemented alongside a highly restrictive monetary stance by the central bank, creating a complex macroeconomic environment.
Currently, the National Bank of Ukraine’s benchmark rate stands at 15.5%, with the effective rate on operations even higher at 16.2% annually.
According to Tatiana Bogdan, PhD in Economics and Director of Scientific Research at Growford Institute, this situation heavily restricts the country’s real GDP growth.
Since the beginning of 2023, the effective rate has remained in the significantly positive range, fluctuating between +10.9% and 12.1% in the second half of 2023 and the first half of 2024, levels that are notably high for a country at war.
Gradual adjustments have led to a decrease to +1.1% by the first half of 2025.
The author emphasizes that such a rate is unprecedented for a war-affected nation.
She recalls that during wartime, comparable key rates were +0.7% in Georgia in 2008 and an average of -17.2% across European countries, the USA, and Japan during World War II.
In Ukraine, the average real key rate for 2022 and the first half of 2025 was +4%, indicating a high degree of monetary tightening.
This policy rigidity has contributed to a contraction in bank lending, which by 2025 shrank to a historic minimum of 14.6% of GDP (compared to 19.1% in 2021).
Additionally, hryvnia-denominated loans decreased to 8.5% of GDP, adversely affecting economic development.
The divergence between fiscal and monetary policies results in a slowdown of real GDP growth and significant structural changes within the economy.
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