Ukraine’s economic output plunged after Russia invaded in February, with monthly gross domestic product falling by close to half in March as businesses shut down and millions of people fled the country, Report informs, citing the Wall Street Journal.
Russia’s strategy for subjugating Ukraine includes suffocating its economy. Russian missiles have destroyed factories, oil refineries and other economic infrastructure. Russia’s navy has blockaded the Black Sea, choking off Ukrainian exports. A Turkish-brokered deal to allow grain shipments is beginning to offer partial relief.
With Ukraine’s defenders slowing Russian forces’ advance, the economy is showing signs of stabilizing at a depressed level. The government expects GDP for this year to be around 30% lower than last year. But the economy depends on how the military effort fares, just as sustaining the war depends on bolstering Kyiv’s finances.
Lack of money threatens to become Ukraine’s Achilles’ heel. Before the war, the government’s budget was roughly balanced. Now, tax revenues only cover around 40% of government spending. War costs are more than 60% of the budget. Ukrainian Finance Minister Serhiy Marchenko has cut nonessential spending to the bone.
The government needs about $5 billion a month to cover nonmilitary spending. Western governments have promised to support the civilian budget with grants and loans, leaving Kyiv able to use more of its own resources for the war.
But Western governments’ total pledges of around $30 billion for this year fall short of Kyiv’s needs. And disbursements are lagging behind promises.
Marchenko spends much of his time urging Western governments to act faster. “The support we get now gives us the opportunity to win this war and to do it sooner rather than later,” he said. “Without this money, the war will last longer and it will damage economies more.”
On Wednesday, he received some good news: Ukraine’s international bondholders approved his proposal to freeze debt payments for two years. The bond standstill, together with a similar agreement with official creditors last month, will save Kyiv around $5.9 billion over the next two years. But that only covers a small part of the financial shortfall.