Crisis is a litmus test for the quality of economic institutions, management systems and the adequacy of motivation.
The year 2020 was a stress test for the global economy. Today we can summarize its preliminary results.
Let’s take the pre-crisis year of 2020, as well as two subsequent years of recovery. The average annual growth rate of the global economy during the designated period was 2.63%. Meanwhile, Ireland demonstrated the growth rate 2.6 times higher than the world average.
Is expected to see an acceleration in economic growth by 2.6 times (in 2021 and 2022, as projected by the IMF). Emerging and developing Asia’s growth rate is 72.2% higher than the world’s average. This means that it has been catching up with global leaders, it is on the way to the status of a high-income economy.
Belarus is at an opposite pole. Its pace for the period of 2019-2022 will be 3.4 times slower than the world’s economy. The post-Soviet economy based on five-year plans (Derzhplan) and controlled by the OMON regime is predictably doomed to degenerate.
The average annual growth rate of Ukraine during the said period is 1.58% of GDP. This is 40% slower than the global economy. This is stagnation in stand-by mode. And this is with the IMF’s best-case scenario for 2022 of 3.6% of GDP, which is higher than in 2021. There are a number of assumptions here that are far from reality:
1. Maintaining high export growth due to a favorable external environment
2. Rapid growth of private investment
3. Success in the implementation of state-run investment projects
4. Reducing inflation by almost half and maintaining forex rate stability
5. Acceleration of domestic demand due to a significant increase in household income
In 2022, Ukraine will need systemic, institutional reforms to create new sources of rapid, long-term, inclusive growth
There are many countries that may be used as examples for Ukraine. In addition to the already known ones, it is appropriate to describe the success story of Malaysia. In 1980, Malaysia’s GDP was $26.76 billion, or $1,927 per capita. In 1990, that country’s GDP was $47.2 billion, or $2,586 per capita. In that year, government spending was 30.5% of GDP. In 2000, Malaysia’s GDP rose to $102.1 billion and GDP per capita climbed to $4,348. The country’s GDP in the U.S. dollar equivalent doubled while the share of government spending shrank to 25.6% in 2000. In 2020, Malaysia’s GDP was $337 billion, or $10,231 per capita. Moreover, in 2020, government spending accounted for 25.4% of GDP.
In 1990, income in Malaysia was about half lower than the average Ukrainian one (in terms of GDP per capita). In 2020, the average Malaysian was already 2.8 times wealthier than the Ukrainian. According to the IMF, the average annual growth rate of real GDP in Malaysia was 5.8% in 1993-2002; 4.3% in 1997-2006; 5.1% in 2003-2012; 3.7% in 2013-2021 (taking into account the forecast for 2021). That is, over the 30 years, Malaysia has grown steadily at a rate that is higher than the global one. Even without being a leader in terms of economic freedom, by limiting the presence of the state in the economy, the country has entered the league of middle-income countries.
The success story of Malaysia, a dozen other countries, economic science, and common sense all back up the assertion that : “A country with the state’s share (general government expenditures) being about 45-50% of GDP, a regulatory burden of 15 – 17% of GDP, and transaction costs of 5-7% of GDP never, nowhere and under no circumstances can ensure fast (6-9% of GDP), long-term (at least 20 years), inclusive (benefiting all people, not just for the oligarchs) economic growth.” Unfortunately, this conclusion was not taken into account by the authorities when hammering out monetary and fiscal policy for 2022. Banking on anabolic growth by mobilizing the state economy amid trade protectionism, financial oligopoly, and scheme-based management is a dead end. Ukraine continues losing its opportunities, enduring investment hopelessness, theoretical impossibilities, and lack of competitiveness.
Trajectory of recovery.
GDP of selected countries, 2019 through 2022
Source: World Economic Outlook, October 2021. IMF https://www.imf.org/en/Publications/WEO/Issues/2021/10/12/world-economic-outlook-october-2021
Yaroslav Romanchuk. Head of Economic Reforms Office of Simple Solutions & Results, Kyiv
