EXPLAINER: Can Ukraine pay for war without wrecking economy?

EXPLAINER: Can Ukraine pay for war without wrecking economy?

FRANKFURT, Germany — Even as Ukraine celebrates recent battlefield victories, its government faces a looming challenge on the financial front: how to pay the enormous cost of the war effort without triggering out-of-control price spikes for ordinary people or piling up debt that could hamper postwar reconstruction. The challenge is to find loans or donations to cover the massive budget deficit for next years — without resorting to central bank bailouts, which could threaten Ukraine’s currency, hryvnia.

Economists working with the government say that if Ukraine can shore up its finances through the end of next year, it is Russia that could find itself in financial trouble if a proposed oil price cap by the U.S., European Union and allies saps Moscow’s earnings.

Here’s a list of key facts about Ukraine’s economic struggle against Russia:


In order to withstand the Russian invasion, the Ukrainian government sought foreign aid at irregular times. The central bank purchased government bonds with newly printed money when it ran out of money. The alternative was to stop paying pensions and salaries to state employees.

Economists say printing money — while a badly needed stop-gap measure at the time — risks letting inflation get out of control and collapsing the value of the country’s currency if it continues.

Ukraine is haunted by hyperinflation in the early 1990s. As a child, she saw her parents use large amounts of money for everyday purchases. The currency lost value each day until it was replaced by the hryvnia.

“Ukraine is familiar with this. We know what an inflation-out of control look like and we don’t want it again,” Shapoval, vice-president for policy research at Kyiv School of Economics, said. “The government and the central bank are already on the slippery slope by printing so much.”

Price stability and the ability to pay pensions have enormous impact on ordinary people and society at a time when Russia is trying to demoralize the population by knocking out power and water heading into winter.

With inflation already high at 27%, price hikes have made it hard for lower-income people to afford food.

Bread that used to cost the equivalent of 50 U.S. cents has doubled, said Halyna Morozova, a resident of Kherson, a recently liberated southern city.

” It is very depressing and we are anxious. We were living on old stocks (of food), but now the light is turned off, the refrigerator doesn’t work and we have to throw away the food,” the 80-year-old said recently.

She claimed that the Russians continued to pay her Ukrainian pension in rubles, but she has not received anything since October when they began to withdraw. She said that she is counting on the government for any lost pension money.

Tetiana Vaainshtein, also from Kherson, claims that natural gas is too costly to heat her home. “I am cold. I like warmth, and I’m terribly cold,” the 68-year-old said.

She said that because her bank was closed during the Russian occupation, her pension money was not available to her. She had to ration each hryvnia she earned for food.


President Volodymyr Zelenskyy says Ukraine needs $38 billion in outright aid from Western allies like the U.S and 27-nation EU, plus $17 billion for a reconstruction fund for war damage.

Economists associated with the Kyiv School of Economics say a lower overall total of $50 billion from donors would be enough to get Ukraine through the year. The

Defense budget is six times larger than the 2023 budget passed by the Ukrainian parliament last year. Military and security spending will total 43% of the budget, or an enormous 18.2% of annual economic output.

The 2.6 trillion hryvnia budget is in a huge 1.3 trillion hryvnia debt. This means that the government must find $3 billion to $5 million per month to make up the gap. The recent attacks on energy infrastructure that have occurred since the budget was passed will only increase the funding need. Repairs can’t wait for postwar reconstruction, and will impact this year’s budget.

HOW CAN FINANCES AFFECT OUTCOME OF WAR? Despite Western sanctions, Russia has fared better in the economy than Ukraine’s. This is because of high oil and natural gas prices which have boosted the Kremlin’s budget. The EU and its allies in the Group of Seven democracies have put a price limit on Russian oil sales to try to change this.

The Kyiv school economists say “by the middle of next year, we believe that the economic situation will shift strongly in Ukraine’s favor, making strong partner support particularly important over the period until that point.”


The U.S. has been the leading donor, giving $15.2 billion in financial assistance and $52 billion in overall aid, including humanitarian and military assistance, through Oct. 3, according to the latest available data compiled by the Ukraine Support Tracker at the Kiel Institute for the World Economy.

EU institutions and member countries have committed $29.2 billion, though “many of their pledges are arriving in Ukraine with long delays,” said Christoph Trebesch, who heads the tracker team.

The European Commission, the EU’s executive arm, has proposed 18 billion euros in no-interest, long-term loans for next year, which still need approval from member governments. The U.S. is likely to contribute more.

Ukraine is more interested in grants than loans. If all financing is provided as loans, the debt will rise to more than 100% of the annual economic output between 83% and 69% prior to the war. This could limit spending on war recovery.

The $85 billion in total global assistance to Ukraine, according to the Ukraine Support Tracker, is less than 15% of the support European governments have pledged to shield consumers from high energy costs resulting from Russia’s natural gas cutbacks. The commission suggested that Ukraine improve its corruption record in order to be eligible for loans. Since 2014, Ukraine has raised its score on Transparency International’s corruption perceptions index from 26 to 32 out of 100 — not great, but improving.

U.S. Officials in Ukraine have praised the online procurement platform that allows transparency to be introduced into government contracts. This is a big source of corruption and collusion and has saved $6 billion.

Ukraine’s prospect of EU membership gives it an incentive to fight corruption.

WOULD THE INTERNATIONAL MONEY FUND BE OF HELP TO HYPERLINKED? The IMF has provided $1.4 billion in emergency assistance to Ukraine and $1.3 billion to offset the shock caused by lost food exports.

IMF Managing director Kristalina Georgieva said that the Washington-based fund is currently working with the Group of 7 wealthy Democracies, which was chaired by Germany this year.

“We are on the way to come up with a sound and sizable program for Ukraine,” she said, “with the support specifically of the G-7 and the German leadership.”

However, for a larger loan program of $15 billion to $20 billion, it goes against IMF practices to lend money where the debts are not sustainable, and the war raises questions about that. The IMF has not been willing to lend money to countries that don’t control their territory, which is a condition Ukraine doesn’t yet meet.

Adnan Mazarei is a senior fellow at Peterson Institute for International Economics, and was previously deputy director of IMF’s Middle East & Central Asia department.

The IMF is holding a four month period of consultation and enhanced monitoring to examine the Ukrainian economic policies in order to help Kyiv build a record of good practice. This could increase confidence in other donors to step in.


Associated Press writer Sam Mednick contributed from Kherson, Ukraine.

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