Russia’s War on the Ukrainian Economy by Anders Åslund

The main economic problems of Ukraine are not of national origin but result from Russian aggression. The international community, led by the EU, must provide substantial humanitarian aid and help stabilize the country’s economy.

WASHINGTON, DC — Ukraine’s economy may no longer be in free fall, but it remains in dire straits. The country’s GDP contracted by 6.8% last year and is expected to shrink another 9% this year, a total loss of around 16% over two years. While things seem to be, to some extent, stabilizing – the depreciation of the hryvnia eliminated the country’s current account deficit and a massive fiscal adjustment brought Ukraine’s budget back to cash balance in the second quarter of this year – the situation remains precarious.

Ukraine’s main economic challenges are not local; they are the result of Russian aggression. The country’s belligerent eastern neighbor has annexed Crimea, sponsored rebels in eastern Ukraine, waged a trade war, intermittently cut off its natural gas supply and threatened financial attack. So far, Ukraine has miraculously resisted these onslaughts with little international support – but it desperately needs help.

Russia’s annexation of Crimea in March 2014 took 4% of Ukraine’s GDP. Since then, Russian-backed armed forces have occupied territories in eastern Ukraine that accounted for 10% of the country’s GDP in 2013. Production in the Donbass region fell by 70% in the months that followed. followed, it cost Ukraine around 7% of its 2013 GDP.