FY 2024 Q1 Report: USAID IBR Activity

The revised scope of work significantly expands and alters the Activity's support for Ukrainian businesses. The primary change is the inclusion of a new Component 5, New Investments Facilitation, which provides direct financial and technical support to Ukrainian enterprises to increase exports, domestic sales, and jobs. The Activity is now organized into five thematic areas. Improved Market Regulation and Supervision focuses on legal and regulatory issues that enable lending to business. IBR has accelerated its work on factoring as a means to help businesses increase domestic sales, educating the National Bank of Ukraine (NBU) and Ministry of Economy (MOE) on best practices in factoring. IBR has also laid the groundwork for the regulatory framework for eInvoices in accordance with European standards. More Efficient Financial Infrastructure aims to increase access to finance. IBR supported the NBU's request to initiate the certification process for BankID against European standards, enabling bank account holders' easier access to financial products. IBR also concluded a study of the state of online Know Your Customer (KYC) through desk research and mystery shopping, highlighting policies and practices that inhibit remote access to financial products. Financial Intermediation and Facilitation of Private Sector Development focuses on supporting financial institutions for MSME lending under Component 3. IBR has increased financial support to financial institutions for MSME lending. The Activity has also reduced its emphasis on Component 2, financial sector infrastructure and capital markets. The National Bank of Ukraine (NBU) has improved its real GDP growth forecast for 2023, raising it from 2.9 percent to 4.9 percent. Factors driving the faster pace of economic recovery include higher adaptability to wartime conditions, better harvests, expansion of alternative export routes, and larger budget spending. The State Statistics Service estimated annual inflation rate in 2023 at 5.1 percent, the lowest level since 2020. The level of unemployment in December 2023 is estimated to be 16.1 percent. Ukrainian banks continue to demonstrate profitability due to growth of interest and transactional income. The share of non-performing loans (NPLs) in the banking sector slightly decreased to 37 percent as of December 2023. Micro, small, and medium enterprise (MSME) bank lending for the recent year decreased by UAH 15 billion from UAH 472 billion (October 2022) to UAH 457 billion (October 2023).