The shadow economy reaches nearly 50% in Ukraine

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August 14, 2015

Business Vesti Ukraine

Translated by Kristina Rus

The level of the shadow economy in Ukraine in the first quarter of 2015 increased by 5 percentage points (PP) compared with the corresponding period of 2014 — to 47% of the total official GDP.

Such preliminary calculations were made by the Economic Development Ministry on its website on Friday, August 14.

“The loss of confidence of economic actors in the improvement of the economic and political situation in the near future caused them to actively use the schemes of income concealment, including such as increasing write-offs and losses”, — notes the agency.

The experts add that the increase in the level of shadow economy was also stimulated by price and devaluation shocks, the escalation of the military conflict in the East of the country and the negative impact of external processes: the increasing deterioration of political relations with Russia, and the collapse of economic ties with Russia.

The Ministry recalls that the last time the decline of the shadow economy in Ukraine was recorded in 2011 – from 38% to 34% of GDP, after which for a year the level was stable, then began to grow: in 2013 to 35%, in 2014 to 41%, which was a record since 2007. Meanwhile, the rate of economic growth in 2012 slowed to 0.2%, in 2013 – to zero, in 2014 it registered a fall of 6.8%, and in the first quarter of 2015 — dropped by 17.2%

“The shadow economy in the period of economic crisis plays a role of so-called “cushion”, allowing businesses to maintain their competitiveness,” — said the Ministry of Economic Development.

The agency says that three of the four methods (except monetary), used in the assessment of the level of shadow economy, showed an increase of the level compared with the first quarter of 2014. In particular, the method of “spending — retail sales” recorded an increase in the level of the shadow economy by 5 percentage points to 56% of GDP; loss method  — by 8 p .p. to 50% of GDP; electric method — by 6 p .p. to 38%. Only the monetary method showed a decrease in the level of the shadow economy by 1 percentage point to 35% of GDP.

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