Where does the Ukrainian economy go from here? – Kyiv Post
Short-term estimates for Ukraine’s economy are decidedly frosty, but some investors are confident the country will rebound stronger than ever once the war is won.
According to Gintarė Narkevičiūtė-Jurgelionė, a finance and investment specialist who also coordinates humanitarian aid to Ukraine from Lithuania: “The war will certainly take time to recover, but Ukrainians are incredibly resilient. She adds that “war is a setback, not the endgame”.
Earlier this week, the Kyiv School of Economics released a forecast estimating the current direct costs of the war against Ukraine at around $80 billion. This estimate is based on evidence that the Russian invasion “destroyed, damaged or seized” about:
- 3,000 kilometers of roads;
- 37,000 square meters of real estate;
- 319 kindergartens;
- 205 medical establishments;
- 546 educational institutions;
- 145 factories;
- 54 government administrative buildings;
- 277 bridges and bridge crossings;
- 10 military airfields, 8 airports and 2 ports;
- 62 cultural buildings; and
- 74 buildings used for religious services.
Since the beginning of Russian President Vladimir Putin’s war against Ukraine, the United Nations estimates that nearly 11 million Ukrainians (about a quarter of the population) have been displaced from their homes. Of these, 4.3 million have fled their homeland, in addition to an estimated 6.5 million who are now internally displaced.
This wave of Ukrainian refugees has created a crisis across Europe as countries struggle to cope with the influx of people. Poland, which has hosted around 2.6 million refugees, has asked for help from European allies to meet the demand for resources.
Across the Atlantic, the United States has not yet developed a plan for Ukrainian refugees, despite the Biden administration’s promise to welcome 100,000 people. International organizations believe that the exodus of Ukrainian nationals will not diminish any time soon.
Such dramatic population displacements can create long-term difficulties for the recovery of economies. The kyiv School of Economics and the Ukrainian Ministry of Economy warn that the indirect costs of the invasion could be 700% higher than the direct costs of the war. In a joint statement, an estimated combination of direct and indirect costs, which includes items such as “decline in GDP, cessation of investment, labor outflow, additional defense and social support costs” , could be in the range of “564 billion dollars to 600 billion dollars”. ”.
Dan Rapoport spent nearly 20 years working as an investment banker in Moscow before moving to Kyiv, where he now supports Ukrainian defense efforts. He believes that the influx of “Russian money and Russian government money to rebuild” will lead to the growth of Ukraine’s new post-war economy. According to Rapoport: “There are nearly $1 trillion in frozen Russian funds around the world, including sanctioned personal funds and Central Bank funds. These funds will eventually be transferred to Ukraine as compensation after a court ruling showing Russia’s guilt in the war. Rapoport expects massive international aid to help rebuild Ukraine’s economy.
Many experts agree with Rapoport’s analysis and believe that when the war is over, Ukraine will get back on its feet, experience strong economic growth and come closer to fulfilling its long quest for membership in the European Union.
Narkevičiūtė-Jurgelionė observes that “Ukraine’s relations with the EU have never been so close”. She believes this will lead to the rebuilding of Ukraine’s economy because “when Ukraine is able to bring its basic products to the European market, we can expect foreign investment to flow into the country.”
Dr. Tom G. Palmer is co-author of “Development with Dignity” (London: Routledge, 2022), Executive Vice President for International Programs of the Atlas Network and Senior Fellow at the US-based Cato Institute. He stresses that Ukraine must follow the examples of other post-war European countries of the 20th century if it wishes to experience a renaissance, stating: “It will be reborn if it follows Ludwig Erhard and Luigi Einaudi, who liberalized state economies of Germany and Italy after the war. Palmer reminds us that this was key to the development of these nations because “they abolished price controls, entry restrictions, crushing bureaucracy, state enterprises, and freed enterprise from the lowly ordinary.” He warns that otherwise there is a risk of “perpetual vassalage to Russia”.
Maryan Zablotskyy is an economist turned MP for Ukrainian President Volodymyr Zelensky’s Servant of the People party. He shares Palmer’s view that opening markets, namely the European market, will be key to Ukraine’s recovery. He says: “Ukraine will now definitely be part of the EU. With access to the single market and the cheapest labor by far, any business manufacturing goods for the EU market will become very profitable.”
Narkevičiūtė-Jurgelionė summarizes the current situation by saying that “today, when talking about Ukraine in the press, the emphasis is on the latest news from the battlefield and not on the future”. However, she adds that “Ukraine is incredibly forward-looking” and “has a great economic future on the horizon.” She concludes: “I know investors who said that the day the war ended, kyiv would be the first place they would go.
The opinions expressed in this article are those of the author and not necessarily those of the Kyiv Post.