Ukraine economy fares better than bleak forecasts, sheds 30% amid invasion

By Rostyslav Averchuk

Lviv, Ukraine, Oct 27 (EFE).- Ukraine’s economy has fared better than expected given the scale of destruction wrought by Russia’s invasion but the state continues to rely on financial assistance from abroad. 

The country’s gross domestic product shrank 30% year-on-year in the first nine months of 2022, a softer blow compared to the bleak forecasts of 45% previously given. 

According to the latest report by the Ukraine-based Center for Economic Strategy, the GDP is likely to fall 33% by the year’s end.

The shock to the economy has eroded the state’s ability to pay salaries and fund the country’s healthcare, defense and infrastructure, making timely and sufficient international financial assistance just as important as military support.

Communal workers clean debris of a residential building damaged in an overnight shelling in the small city of Druzhkivka, Donetsk area, Ukraine, 26 October 2022. EFE/EPA/YEVGEN HONCHARENKO

So far during the invasion, Ukraine has received $23.1 billion from a number of external sources, which helped it cover 59% of all state expenses. 

Some 42% of it has come in the form of grants, chiefly from the United States, meaning Ukraine would not need to reimburse it.

The rest has been loaned, which is expected to drive the country’s debt burden from the pre-war 50% of GDP to 106% next year, according to the estimates by the government.

Hlib Vyshlinsky, executive director of CES, says Ukraine is going to receive enough funding until the end of the year to cover its minimum budget needs.

However, the economist highlights in remarks to Efe that since the beginning of the full-scale invasion, international financial support has been uneven and generally insufficient.

“The main problem arose on the side of the European Union, which was expected to play a leading role in covering Ukraine’s financial needs,” he adds.

Vyshlinsky says that due to the lack of consensus on joint EU borrowing, the bloc simply did not have sufficient resources to provide enough budgetary support for Ukraine. 

Last Friday, European Commission president Ursula von der Leyen announced that the EU would provide 18 billion euros in 2022 to Ukraine, distributed evenly throughout the year. 

The finance ministers of EU countries have yet to agree on the mechanism of providing the funds. 

Vyshlinsky says it is important to create a permanent mechanism for coordinating financial assistance to Ukraine from the EU, the US, other G7 countries and international financial organizations.

On Tuesday, Ukraine’s president Volodymyr Zelenskyy called for the creation of the financial aid equivalent of the Rammstein Defense Contact Group, which helps coordinate the provision of weapons to Ukraine.

People rest on the bench in Zahaltsi village near Kyiv, Ukraine, 26 October 2022.  EFE/EPA/OLEG PETRASYUK

Vyshilnsky says that the money that Ukraine receives from abroad is only used to cover the bare minimum.

“The funding is used to pay salaries of the state-employed population, fund defense, police and healthcare, as well as to ensure that the most critical infrastructure is restored.” 

The Ukrainian state spends around 230-250 billion UAH ($6.2-6.8 billion) every month, with more than half directed at defense. 

In September, the state only raised about $2.3 billion through taxes, while $2.8 billion was spent on military salaries. 

The budget deficit is expected to reach $38 billion in 2023, increasing almost six-fold due to the war, meaning Ukraine would need at least $3-3.5 billion of external aid each month.

Any financial prognosis remains contingent on what Russia does next.

The deliberate attacks against key energy infrastructure are going to remain the main threat to the Ukrainian economy, according to the CES.EFE

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