Ukrainian economy fares better than bleak forecasts, loses 30% amid invasion

By Rostyslav Averchuk

Lviv, Ukraine, October 27 (EFE).- The Ukrainian economy has performed better than expected given the scale of the destruction caused by the Russian invasion, but the state continues to rely on financial assistance from the stranger.

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

According to the latest report from the Ukraine-based Center for Economic Strategy, GDP is expected to fall by 33% by the end of the year.

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

Communal workers clean debris from a residential building damaged during a nighttime shelling in the small town of Druzhkivka, Donetsk region, 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 has helped cover 59% of all state expenditure.

About 42% of it came in the form of grants, mostly from the United States, meaning Ukraine would not need to pay it back.

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

Hlib Vyshlinsky, executive director of CES, said Ukraine will receive enough funds until the end of the year to cover its minimum budget needs.

However, the economist points out in his remarks to Efe that since the start of the large-scale invasion, international financial support has been uneven and generally insufficient.

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

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

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

EU finance ministers have yet to agree on the mechanism for making the funds available.

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

On Tuesday, Ukrainian President Volodymyr Zelensky called for the creation of the financial aid equivalent of the Rammstein Defense Contact Group, which helps coordinate the supply of weapons to Ukraine.

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

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

“The funding is used to pay the salaries of the state-employed population, fund defence, police and health care, as well as ensure the restoration of the most critical infrastructure.”

The Ukrainian state spends around 230-250 billion UAH ($6.2-6.8 billion) every month, more than half of which is spent on defence.

In September, the state collected only 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, an almost six-fold increase due to the war, which means Ukraine would need at least $3-3.5 billion in external aid each month .

Any financial prognosis depends on what Russia does next.

Deliberate attacks on key energy infrastructure will remain the main threat to the Ukrainian economy, according to CES.EFE

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Christi C. Elwood