Informal economic sector accounts for 40% of Ukraine GDP – Economy Ministry

Tuesday, July 5, 2016 - 18:38 (EEST) Section: Latest news

The shadow economy is estimated to account for 40% of Ukraine`s GDP in 2015, as stated in a special report of the Ministry of Economic Development and Trade.
”On the one hand, the informal sector revenues of all economic entities becomes a source of unequal distribution of income between different population groups and economic sectors, leading to growing social controversies and economic imbalances,” the study says.
”On the other hand, the informal sector of economy provides some kind of a ”safety cushion,” mitigating the impact of an unfavorable business environment in which domestic businesses have to operate,” the study notes.
At the same time, according to the Economy Ministry, it is indisputable that a significant share of the shadow economy contributes to the deepening of imbalances and becomes one of the major economic security challenges in the country.
According to the Economy Ministry, the informal sector of economy began expanding in 2013 and expansion intensified in 2014 with the outbreak of hostilities in the country, as well as against the backdrop of increased devaluation and general macro-financial risks. At the same time, the government`s efforts to ensure the macro-financial stabilization had had effect by the end of 2015, and it helped transform the situation.
By the end of 2015 the share of the shadow economy accounted for 40% of [Ukraine`s] GDP, which was lower by 3 percentage points than in 2014, according to the Economy Ministry.
However, it noted that the tendency towards deshadowing of the Ukrainian economy in 2015 was held back by a number of factors, which affected the economic development in the country as a whole. The ministry mentioned, among other things, a significant tax burden on the corporate sector against the backdrop of high lending costs, external economic constraints on key commodity markets, the decline in domestic demand, higher expenses on imported raw materials due to a weak national currency.
Not less important were the investment risks, the deterioration of relations with Russia, production breakdowns, disruption of logistics supply chains, as well as the growth of smuggling in territories that are not under control of the Ukrainian authorities.
”The deshadowing of the economy will only be possible when the state will seek to create favorable conditions to boost business activity by improving the investment and business climate in the country,” the study emphasized.
Earlier, Prime Minister Volodymyr Groysman noted that the success in the fight against the informal economic sector can generate UAH 1 trillion in additional benefit for the country`s citizens.