Can Ukraine pay for war without destroying the economy?

By DAVID McHUGH – AP Business Writer

FRANKFURT, Germany (AP) — Although Ukraine celebrates recent battlefield victorieshis government faces a looming challenge on the financial front: how to pay the enormous cost of the war effort without triggering runaway price spikes for ordinary people or racking up debts that could hamper post-war reconstruction.

The fight is find loans or donations to cover a massive budget deficit for next year – and do so without using central bank bailouts that risk destroying Ukraine’s currency, the hryvnia.

Economists working with the government say that while Ukraine can consolidate its finances until the end of next year, it is Russia that could find itself in financial difficulty if a proposed oil price cap by the United States, the European Union and their allies is undermining Moscow’s revenue.

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Here are the main facts about the Ukrainian economy battle against russia:


In the early days of the Russian invasion, the Ukrainian government turned to foreign aid which arrived at irregular intervals. When it didn’t have enough, the central bank bought government bonds using newly printed money. The alternative would have been to stop paying state pensions and salaries.

Economists say that printing money – although a much-needed stopgap measure at the time – risks letting inflation spiral out of control and collapse in the value of the country’s currency if this keeps up.

Ukraine has painful memories of the hyperinflation of the early 1990s, said economist Nataliia Shapoval. As a child, she watched her parents use large wads of bills for everyday purchases as the currency lost value day by day, before being replaced by today’s hryvnia.

“Ukraine has been there, so we know what inflation looks like out of control, and we don’t want that to happen again,” said Shapoval, vice president of policy research at the Kyiv School of Medicine. Economics. “The government and the central bank are already on a slippery slope in printing so much.”

Price stability and the ability to pay pensions have enormous impact on ordinary people and society at a time when Russia is trying to demoralize the population by turn off electricity and water on the way to winter.

With inflation already high at 27%, price hikes have made it difficult for low-income people to access food.

Bread that cost the equivalent of 50 US cents has doubled, said Halyna Morozova, a resident of Kherson, a recently liberated southern town.

“It’s very depressing and we’re nervous. We were living with old stocks (of food), but now the light is out, the fridge isn’t working and we have to throw the food away,” the man from 80 years old.

She said that the Russians continued to pay her Ukrainian pension in rubles, but since they started to withdraw in October, she received nothing. She is counting on the government to return any lost pension money, she said.

Tetiana Vainshtein, also in Kherson, says natural gas is too expensive to heat his house. “I’m cold. I like the heat and I’m terribly cold,” the 68-year-old said.

Bank closures during the Russian occupation prevented her from receiving her pension money, forcing her to carefully ration every hryvnia for food, she said.


President Volodymyr Zelenskyy says Ukraine needs $38 billion aid from Western allies like the United States and the EU at 27, plus 17 billion dollars for a reconstruction war damage fund.

Economists associated with the Kyiv School of Economics say a lower overall total of $50 billion from donors would be enough to get Ukraine through the year.

Defense spending is six times higher in the 2023 budget recently adopted by the Ukrainian parliament compared to last year. Military and security spending will total 43% of the budget, a whopping 18.2% of annual economic output.

The 2.6 trillion hryvnia budget has a gaping deficit of 1.3 trillion hryvnia, meaning the government needs to find $3-5 billion a month to fill the gap. Recent attacks on energy infrastructure since the budget passed will only increase the need for funding as repairs cannot wait for post-war reconstruction and will hit this year’s budget.


Despite Western sanctions, The Russian economy is doing better than Ukraine because high oil and natural gas prices strengthened the Kremlin’s budget.

Plans by the EU and its allies in the Group of Seven Democracies to place a Russian oil sales price cap aim to change that.

Economists from the Kyiv School say “by the middle of next year, we believe that the economic situation will shift strongly in favor of Ukraine, which will make strong support from partners particularly important during the period up to that time”.


The United States has been the top donor, giving $15.2 billion in financial aid and $52 billion in overall aid, including humanitarian and military assistance, through Oct. 3, according to the latest data. available compiled by the Ukraine Support Tracking at the Kiel Institute for the World Economy.

EU institutions and member countries have committed $29.2 billion, although “many of their pledges are coming to Ukraine with long delays”, said Christoph Trebesch, who leads the monitoring team.

The European Commission, the executive arm of the EU, has proposed 18 billion euros in long-term interest-free loans for next year, which have yet to be approved by member governments. The United States will likely contribute more as well.

Ukraine, however, appeals for grants rather than loans. If all funding came in the form of loans, the debt would rise to more than 100% of annual economic output, from around 83% today and 69% before the war. This burden could dampen spending on post-war recovery.

According to the Ukraine Support Tracker, the $85 billion in total global aid to Ukraine represents less than 15% of the aid European governments have pledged. protect consumers from high energy costs resulting from Russia’s natural gas cuts.

To obtain loans, the commission proposed requiring Ukraine to improve its record on corruption. Since 2014, Ukraine has raised its score on Transparency International’s Corruption Perceptions Index from 26 to 32 out of 100 – not great, but improving.

US officials praised Ukraine’s e-procurement platform for bringing transparency to government contracts – a big source of corruption and collusion – and saving $6 billion.

The prospect of EU membership also encourages Ukraine to eliminate corruption.


The IMF has given Ukraine $1.4 billion in emergency aid and $1.3 billion to cushion the blow of lost food exports.

IMF Managing Director Kristalina Georgieva told The Associated Press that the Washington-based fund is working on more assistance in cooperation with the Group of 7 rich democracies, chaired this year by Germany.

“We are on the verge of delivering a solid and important program for Ukraine,” she said, “with specific support from the G-7 and German leaders.”

However, for a larger lending program of $15 billion to $20 billion, it goes against IMF practice to lend money where debts are unsustainable, and the war raises questions at this point. topic. The organization has been reluctant to lend to countries that do not control their territory, a condition that Ukraine does not yet meet.

The IMF “should seriously tweak its existing framework or modify it to provide substantial sums,” said Adnan Mazarei, senior fellow at the Peterson Institute for International Economics and former deputy director of the IMF’s Middle East and Central Asia department.

As a prelude to a possible assistance programme, the IMF is organizing a four-month period of consultation and enhanced surveillance of Ukraine’s economic policies to help Kyiv establish a track record of good practices. This could build confidence for other donors to step in.

Associated Press writer Sam Mednick contributed from Kherson, Ukraine.

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