How Badly Does the War Affect Ukraine’s Economy and How Are We Going to Survive
Unless the Wester delivers sufficient budget support to Kyiv soon enough, the Ukrainian government will be forced to print money provoking high inflation.
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The EU should become the key source of financial aid, which would be at least fair since the US have been yet the most generous with weapon supplies, historian Niall Ferguson writes for Bloomberg.
Last weekend, he visited Kyiv to attend Yalta European Strategy conference, where he listened to Ukrainian and foreign researchers, economists and politicians, including Volodymyr Zelenskyi. The confidence of the Ukrainian President in his country’s victory inspired Ferguson, so now he considered the Ukraine’s success highly probably.
According to him, in a realist perspective, Russia would seem bound to prevail over Ukraine sooner or later: its territory is 28 times larger; its GDP is nine times larger; its population is 3.3 times larger. However, the history knows many cases, where smaller countries won the wars against the larger enemies (e.g. thirteen American colonies vanquished the British Empire, North Vietnam defeated the US, the Soviet Union could not win in Afghanistan). The wars of national liberation against declining empires are more often successful than not, therefore empires decline and new nations break free, Ferguson believes.
"The Russian position in Ukraine now unravels. This is a largely colonial army, its best battalions severely depleted by six months of highly destructive warfare, its ranks replenished by raw recruits from impoverished provinces east of the Urals. Its morale is low. Such armies can be brought to a tipping point if they encounter well-armed, well-organized and well-motivated opponents. Defeat in land war is much less about killing enemy soldiers than getting them to surrender, flee or desert. The news about AFU’s victories in Kharkiv Region coming in right during the forum is another clear confirmation of this fact. However Zelenskyi’s optimism was balanced by the statement of Ukrainian Prime Minister Denys Shmyhal, who acknowledged high risk of hyperinflation in Ukraine this or even the next year”, he writes.
Because neither Washington nor Moscow wants to go head-to-head, I suspect Western assistance to Ukraine will continue at around the current level.
"It is ensuring that the war lasts not for just a few more months but for perhaps a year or more. Russia economy indeed suffers from sanctions, despite the Russian leadership’s attempts to hide this statistics. Although, the Russian budget remains in surplus, and the Russian Ruble is artificially strengthened. Meanwhile, Ukrainian economy has demonstrated almost 50% decline, and Ukraine desperately needs money in order to restore destroyed housing before winter”, he noted.
The cost of restoration of Ukraine and its economy is estimated as around USD 349 billion according to new report by the World Bank, the European Commission and the Ukrainian government.
During the last than six months since the beginning of the Russian invasion, Ukraine has suffered large-scale destruction.
"The consequences of the invasion will be felt for several generations, because families were separated and relocated, the development of human potential was disrupted, cultural heritage was destroyed, and the positive trajectory of the development of the economy and the level of poverty changed to a negative one," the report says.
The analysis covers only the period up to June 1st - that is, losses incurred during the last three months are not taken into account in the report. According to the estimates presented in it, the direct damages caused primarily to the housing complex, transport, trade and industry of Ukraine amount to USD 97 billions. While the losses caused by the disruption of economic flows and production chains are estimated at 252 billion dollars. These studies highlight the scale of the challenges Ukraine faces in trying to rebuild its economy while fending off Russian aggression.
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