UKRAINE’S FOREIGN TRADE ANALYSIS UNDER SAVING–INVESTMENT GAP PERSPECTIVE

Abstract

The article looks into the problems of Ukraine's foreign trade deficit through the prism of basic macroeconomic identities that link the current account balance with the gap between national savings and investment. Long-term trends in savings, gross fixed capital formation (GFCF) and the current account in Ukraine are analysed. The study assesses how the gap between national savings and investment, alongside net factor and secondary incomes, shapes the dynamics of Ukraine’s foreign trade balance in goods and services. It is revealed that national savings in Ukraine reached a peak of 32.7% of GDP in 2004, followed by a steady decline to a low of 8.6% in 2013; since then, the savings-to-GDP ratio has stabilized at 10–15%, significantly lagging behind the EU-27 (24.7% in 2024), Turkey (30.1%), and the global average (26.2%). The share of GFCF in Ukraine’s GDP peaked at 27.1% in 2007 and has also declined steadily ever since. Since 2007, with only a few exceptions, investment levels have consistently exceeded national savings, reflecting a persistent reliance on external financing to bridge the savings-investment gap. Given systemic challenges in converting savings into investment, coupled with long-term demographic shifts, Ukraine is likely to face a shortage of domestic resources for financing economic reconstruction and defence capacity strengthening. Consequently, this will heighten reliance on external financing, potentially perpetuating trends toward a persistent current account deficit and a negative foreign trade balance. The article also focuses on the twin deficit phenomenon as a mechanism through which the fiscal deficit indirectly influences the current account balance by altering savings–investment gap in the private sector. By examining this relationship, the study highlights how fiscal imbalances can exacerbate external sector vulnerabilities, particularly in economies with limited domestic savings or high reliance on foreign capital. This framework provides a foundation for assessing the broader macroeconomic implications of fiscal policy on external sustainability and foreign trade.