Ukraine’s economy is on the brink of collapse – The Bite

Nearly twenty days after the start of the war, the Ukrainian economy is suffering a “catastrophic impact”, with “the collapse of production” and the interruption of essential supply services. The analysis was made by Alexander Rodnyansky, economic adviser to the Ukrainian president, to BBC News.

Until last week, Ukraine had already suffered a loss of US$119 billion, according to an assessment by the country’s deputy economy minister, Denys Kudin, published by Reuters. The balance sheet showed 75% of companies out of service in the conflict regions, which includes most of the metallurgical companies installed in eastern Ukraine. According to Kudin, the export of metals is responsible for a significant part of the national economy.

The destruction of cities and infrastructural facilities, the disruption of the operation of large Western companies, such as Nestlé, and the loss of manpower, resulting from the recruitment of people of working age and the flight of Ukrainians from the country, made it difficult to maintain the so-called war economy.

At the same time as the country recorded a decline in production and tax collection, expenditure on war material, medical care for the wounded and aid in the evacuation of civilians increased. An increasingly complicated account, which has led Ukraine to seek external financial assistance to cover salaries, social assistance and supplies.

Before the Russian invasion, the Ukrainian Central Bank’s forecast for 2022 was for the economy to grow by 3.4%, a good prognosis after the difficulties encountered during the pandemic, according to Alexander Rodnyansky. With the war, however, the economic future of the country is only uncertain.

“We see a bankrupt economy, in which there is no investment, factories cannot export and domestic production of goods virtually comes to a standstill. Everything is very uncertain, we do not know if the work contracts will be respected, and not even if Ukraine will manage to emerge from this conflict as an independent country. The fact is that the productive capacity is going away”, analyzes the economist and doctor in international relations Igor Lucena.

Siege strategy

Professor of Economics and International Relations at IBMec SP Alexandre Pires recalls that, although eastern Ukraine is suffering more severely from Russian attacks, municipalities in the west of the country, such as Lviv, continue to operate with services and businesses. “This region is still functioning as a reserve of economic normalcy, but for how long? When the Russians want to, they can quickly attack these places,” he said.

Last Friday (10) Russia launched an attack on cities in western Ukraine, which until then had been free of bombardment. The attacks hit Dnipro, Lutsk and Ivano-Frankivsk, triggering an alert to the risk of Russian advance in the west of the country.

The World Health Organization (WHO) reported last week that shelling of hospitals, ambulances and other health facilities has increased in Ukraine. The country faces a shortage of essential medical supplies such as oxygen, insulin, protective equipment, surgical instruments and blood products, according to an interview with WHO Regional Director for Europe Hans Kluge, reproduced by CNN.

With the capital disorganized, the government operating with difficulty and the conflict draining national resources, Pires predicts that Ukraine will find it difficult to resist Russian pressure. “A country works in a connected way. It won’t take long, fuel and food stocks will run out. In a month, Ukrainians will be in total calamity and will probably be forced to surrender due to starvation. Russia uses the tactic of siege and sabotage, does not allow humanitarian aid, bombs the corridors because of this, they want people to be hungry and cold, ”analyzes the expert.

Although the closest Ukrainian regions of Russia, Belarus and the coast have already suffered since the occupation of Crimea in 2014, the cities will increasingly bear the brunt of the conflict. Indeed, the Russians tend to also block the country’s supply and export route via Odessa (Ukraine’s largest seaport, which is on the Black Sea). “Although foreign buyers do not want to isolate Ukraine, the Russian strategy is successful,” says Pires.

On Sunday (13), a Russian attack on the Yavoriv military base, about 25 kilometers from the Polish border, reinforced the thesis that Russia is working in the attempt to isolate Ukraine. Indeed, the bombed site would function as an important access point for military aid and weapons sent to Ukrainians by Western powers.

Demographic crisis

The professor recalls that the scenario of successive instabilities had also resulted in a demographic crisis in Ukraine over the past decades. “Before the war, statistics already showed the death of a Ukrainian every 48 seconds, due to nutritional problems, alcoholism, lack of medical care. The country is at the center of an unavoidable geopolitical tension.

With a decrease of about 300,000 people per year, the Ukrainian population, which was 40 million at the fall of the USSR, was reduced to about 40 million before the Russian invasion.

“Now there are about 5-10 million Ukrainians who are feeling the impact of the war and the other 30-25 million are going through life change, hosting relatives, helping refugees, receiving internal migration. This demographic effect of the war is not easy. But we will only have one dimension at the end of the conflict, it is when the statistics appear, “he assesses.

Entry into the EU

In this context of economic collapse, the economist Igor Lucena believes that the best alternative for Ukraine is membership of the European Union (EU), which not only represents a legal and political safeguard, but above all an economic safeguard. “They can renounce NATO, but not the European Union. With membership, the country will have access to funds in euros, some of which are intended to reduce regional inequalities, used in countries such as Portugal, Spain and Ireland”, he illustrates.

According to Lucena, EU resources can be fundamental in the context of the country’s post-war reconstruction. “It’s a process that takes time, but Ukraine can follow the example of countries like Lithuania, which have achieved fabulous economic growth,” he adds.

Alexandre Pires recalls that, historically, Ukraine has functioned as a “buffer state”, where tensions between Russia and the West are kept under control. “Conflicts between the great powers take place there, not on the territory of NATO and the European Union. Ukraine was trying to stop being that.

A free and sovereign Ukraine therefore has an important geostrategic role for the West. Therefore, according to Pires, any Western financial aid is fair in this context. “For every Ukrainian in combat, it is as if a Westerner is fighting. The war has tested Putin’s military prowess and weakened his image, which is work in the service of the West. Even though it is very difficult for Ukraine to win, if there were to be a victory, the country would need to receive all possible help from the West,” he defends himself.

International aid

Last week, the United Kingdom announced the sending of $100 million to the Ukrainian budget, “to alleviate the financial pressures created by the unprovoked and illegal invasion of Russia”, according to a statement published on the official website. of the British government. The transfer will be made through the World Bank and can be used to support public sector wages, safety nets and pensions in Ukraine.

“Since Russia’s unlawful and brutal attack, we have seen the world rise up in solidarity with the indomitable people of Ukraine. British aid is already reaching those who need it most, providing essential supplies and medical support,” Prime Minister Boris Johnson said.

The UK also said it had encouraged other countries to pool funds into a World Bank multi-donor trust fund set up this week to support the Ukrainian government.

To help ease the economic impact of the war, the Executive Board of the International Monetary Fund (IMF) on Wednesday (9) approved $1.4 billion in emergency aid to Ukraine. The body warned in a statement that the conflict would trigger a “deep recession” in the country.

“Funding needs are large, urgent and could increase significantly as the war continues,” he said. the Managing Director of the Fund, Kristalina Georgieva, through the note.

The United States announced this Thursday () the transfer of 50 billion dollars to Ukraine through the United Nations Food Program, according to US Vice President Kamala Harris.

Christi C. Elwood