Ukraine’s economy could ‘collapse’ in the fall – Financial Times

Ukraine’s economy could collapse in the fall of 2022. Photo:

In the fall of 2022, Ukraine’s financial resources will run out and the economy will “collapse”, despite the agreement on a two-year deferral of international debt.

During the war, monthly spending increased from $250 million in February to $3.3 billion in May. The Cabinet has already implemented a sharp reduction in the cost of current services to cover military needs. In addition, the government can then decide on measures. This is the story of the Financial Times.

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“Something has to happen inside the country – either raise taxes or cut spending, if it’s not critical. Everyone thought the war was going to end soon… But it’s going to last for months, even years,” predicts an economics professor at the University of California at Berkeley. Yuri Gorodnichenko.

Any additional tax on companies can lead to their bankruptcy, which will only worsen the humanitarian crisis, according to the deputy director of the Economic Strategy Center Maria Reko.

According to her, if the large-scale increase in military spending continues at the current level, the country will run out of funds again in the fall.

Repko also noted that without foreign support, Ukraine’s economy “went into a tailspin” and it would be impossible to continue hostilities.

Also, a foreign banker who cooperates with the Ukrainian government said that foreign aid to Kyiv is insufficient and too slow, while bonds, on the contrary, are very important.

At the time of the invasion, Ukraine received $12.7 billion in financial aid with the promised $38 billion. Ukraine’s net reserves are down to just $12.9 billion, down from $19 billion in February.

This is enough for two and a half months to pay for the import of the necessary products: from agricultural resources to car parts and fuel.

Investment Director of the British management company Abrdn Victor Szabo he considers that the possibilities of the Ukrainian government are very limited. According to his words, Kyiv may find itself in a situation where it will not even be able to repay all social obligations to Ukrainians.

“If they burn their reserves, they will have to decide whether to pay soldiers or nurses. They will have problems managing schools and hospitals. It’s a disaster,” he said.

International rating agency Fitch lowered Ukraine’s long-term default issuer rating from CCC to C (pre-default).

The agency isn’t ruling out a downgrade to RD (limited default), the agency’s website says.

Western creditors have agreed to postpone payment of Ukraine’s external debt from August 1 until the end of 2023. The grace period can be extended by one year.

Christi C. Elwood