Financialization of the global economy: Macroeconomic implications and policy challenges for Ukraine


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The acceleration of the global economy’s financialization with the spread of the COVID-19 pandemic highlights the risks of financial markets volatility, boom and bust cycles, violation of price stability, and debt sustainability. In such conditions, the high degree of Ukraine economy’s external openness, significant amounts of external debt, and lack of domestic investment and credit resources raise the issue of external financial threats to the national economy. This study aims to identify the risks of financialization and debt accumulation across the globe, specify protective arrangements and vulnerabilities of Ukraine’s credit system to external shocks and develop a set of policy actions for global risks mitigation in Ukraine. To achieve this goal, available theoretical sources and policy studies were reviewed, and international databases of financial indicators have been analyzed. As a result, the underdevelopment of the financial system in Ukraine and insufficient use of the credit levers by the private sector are revealed, which impede economic growth but simultaneously mitigate the impact of external shocks in Ukraine’s economy. On the other hand, high external debt reliance is confirmed, which increases the risks of financialization and cross-border capital flows for Ukraine’s economy. A set of financial and organizational measures (targeted at eliminating credit and debt distortions in Ukraine and creating a financial basis for sustainable economic growth) are devised; they refer to development of the national capital market, fiscal policy adjustment, acceleration of the foreign direct investments inflows, shifts in the NBU’s monetary policy, and the management of foreign exchange reserves.

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    • Figure 1. Global debt in relative and absolute terms in 2011–2020
    • Figure 2. Areas and mechanisms of shocks spillovers in Ukraine’s economy
    • Table 1. Comparison of external debt indicators of low- and middle-income countries and Ukraine as a %
    • Table 2. Accumulated debt by sectors and countries (their groups) as a % of GDP at the end of 3rd quarter of 2020
    • Table 3. Nominal and real interest rates of different assets in the USA in 1999–2020, per annum
    • Conceptualization
      Tetiana Bogdan
    • Formal Analysis
      Tetiana Bogdan
    • Investigation
      Tetiana Bogdan
    • Validation
      Tetiana Bogdan
    • Writing – original draft
      Tetiana Bogdan, Vitalii Lomakovych
    • Writing – review & editing
      Tetiana Bogdan
    • Data curation
      Vitalii Lomakovych
    • Project administration
      Vitalii Lomakovych
    • Supervision
      Vitalii Lomakovych
    • Visualization
      Vitalii Lomakovych