Challenges for development and reconstruction: time or illusion of action (continued)

Bohdan Danylyshyn analyzes the strategic challenges for the new Cabinet of Ministers. We publish the second part of his article. The first part can be found at .

Structural deficit of foreign currency and unpredictability of the foreign exchange market

The negative trade balance is the main factor behind the balance of payments deficit. The NBU's currency liberalization policy, which led to an increase in private demand for cash foreign currency purchases, contributed to currency instability.

In 2025, the trade deficit widened, as a result of weak domestic production growth and increased demand for critical imports after hostile shelling. The negative effect of the widening trade deficit amounted to about 7 percentage points of the decline in real GDP in 6 months of 2025.

The currency deficit is covered mainly by non-market sources of external assistance. The NBU's foreign exchange interventions to support the hryvnia amount to about USD 40 billion a year (up 22% year-on-year in 2024, and another 24% in January-June 2025). In 2025, foreign exchange demand is growing mainly due to business demand, while in 2024, the key factor behind the increase in foreign exchange demand was the behavior of the population.

The economy needs investments to strengthen the competitiveness of the real sector and reduce the trade deficit.

The uncertainty is exacerbated by the flexible exchange rate regime, under which the exchange rate is actually determined not by the trade balance but by unpredictable NBU interventions. As a result, households and businesses have naturally started to prefer to withdraw funds into foreign currency assets.