Ukraine’s Economy Needs Saving as Well
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Loading... - Jasper Cobus
- 10 Feb 2023
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One year since Russia’s invasion of Ukraine, the war is entering a critical phase. Western governments have agreed to supply Ukraine with battle tanks in anticipation of heavy fighting this spring. Such weaponry is essential to the country’s defense, but sustaining the war effort will also require greater attention on another front: Ukraine’s devastated economy.
It’s hard to overstate the war’s economic toll. Ukraine’s economy shrunk by more than 30% in 2022. One-third of the country’s 44 million people have been displaced; more than 8 million have left the country. Tax revenues have collapsed, and spending has been diverted to essentials. Poverty rates have soared and will increase further as the war drags on.
Since the start of the conflict, the government of President Volodymyr Zelenskiy has relied heavily on foreign assistance to pay public-worker salaries and maintain basic services. The danger now is that the make-do policies of the last year are not sustainable. With a government deficit running around $5 billion per month (about 30% of the country’s monthly gross domestic product before the war), the National Bank of Ukraine has had little choice but to print money. War bonds help, but the coupon is too low to attract enough buyers. Even with interest rates at 25%, conventional economic policy has struggled to contain inflation, now running over 26%.
On its current trajectory, without a fresh infusion of aid, the country faces the likelihood of a currency crisis, hyperinflation or both. Meanwhile, Russian President Vladimir Putin’s forces continue to target the country’s infrastructure, from hospitals to the energy grid, in an effort to disrupt economic activity, destroy public morale, and undermine the stability of Zelenskiy’s government.
While foreign donors have pledged more than $50 billion in financial assistance to the Ukrainian government (apart from military and humanitarian aid), support among Western publics for such largesse won’t last indefinitely. That’s all the more reason to give Ukraine the resources it needs now. Read More…
