More than half of Ukraine’s economy has shut down and infrastructure assets worth $100 billion have been destroyed since Russia launched its invasion of the country, according to the president’s chief economic adviser Volodymyr Zelensky .
As economists revealed grim predictions about the hit to Ukraine’s economy, Oleg Ustenko said the humanitarian situation was “much worse than anyone can imagine” and urged Western countries to toughen sanctions against Russia, including an immediate and comprehensive ban on energy imports.
Speaking to the Peterson Institute for International Economics from Kyiv on Thursday, Ustenko said Ukraine’s economy was “very depressed”, adding: “Currently around 50% of businesses are not working and the rest are not working at full capacity.” .
Ustenko also described EU gas imports from Russia as providing “blood money” for its President Vladimir Putin. “I understand that Europeans don’t want to be cold. . . it’s cold in Berlin and Paris, but much colder [for people] underground in Ukraine without heating.
Ustenko’s remarks followed the announcement of measures to support the Ukrainian economy. The IMF accepted $1.4 billion in “rapid funding” on Wednesday, the fund acknowledging “that significant additional support will likely be needed to support reconstruction efforts” once the war is over.
The US Congress has agreed to $13.6 billion in military and humanitarian assistance to support US troop deployment in Eastern Europe, refugee support and emergency food and health assistance to Ukraine .
Aid would not prevent a devastating blow to Ukraine’s economy this year as Russia destroys infrastructure, prevents businesses ranging from steelmakers to wheat growers from operating normally and forces citizens to take shelter or to flee the country.
In a briefing with reporters on Thursday, Kristalina Georgieva, the fund’s managing director, acknowledged the “horrifying record” of the war on Ukraine and pledged to work with the country on “security management measures.” crisis” to keep its economy running – something it was the fund’s “most critical task”.
“Even if hostilities were to cease now, the costs of recovery and reconstruction are already enormous,” she said. While Georgieva noted it was too early to give an exact estimate of those costs, she said “the order of magnitude is going to be quite large.”
“We are talking about a big country – 44 million people – with massive destruction in key cities . . . as well as massive destruction of transport infrastructure,” she added.
An early forecast survey undertaken by FocusEconomics suggested the consensus estimate was that Ukraine’s gross domestic product would contract by 8% in 2022. Its previous survey released in January predicted growth of nearly 4% for the ‘year.
Many economists surveyed were expecting declines in GDP of between 40 and 60 percent, FocusEconomics said.
The key question, economists said, was how long the fighting would continue.
Evghenia Sleptsova, senior economist at Oxford Economics, said heavy fighting was disrupting activity in 10 of the country’s 24 oblasts (its provinces). These areas are generally responsible for 60% of Ukraine’s GDP and 59% of its exports, the group said.
Exports, she added, have almost stopped. Black Sea and Sea of Azov ports, which previously handled 77% of Ukrainian exports, have closed, either because they were overwhelmed by fighting or for fear of mines and piracy by the fleet Russian Black Sea, according to GMK Center, a Ukrainian industry research and consulting firm. Most road routes out of the country are flooded with refugees.
But some activity is continuing, particularly in western and central regions where there has been little fighting so far, analysts said. “Agricultural producers say they will go to the fields and start sowing where possible,” Sleptsova said.
The extent of damage to this year’s grain harvest and grain in silos awaiting export will be key in determining the damage to Ukraine’s economy and global food supplies. Ukraine provides 12% of global wheat exports, 16% corn and 40% sunflower oil, according to the US Department of Agriculture.
If Ukraine were to permanently lose seaports such as Odessa and Kherson, it would have to undergo a major restructuring of its economy, such as the opening of new trade routes through Poland, said Liam Peach, emerging Europe economist at Capital Economics.
“We don’t know what to put in GDP,” he said. “There may not even be a country anymore.” Oxford Economics will also not estimate the blow to the Ukrainian economy until there is an indication of the outcome of the war.
Any changes to Ukraine’s territory after the war would determine the size and shape of its economy, said Timothy Ash of BlueBay Asset Management. He envisioned a scenario of a free Ukraine holding western and central Ukraine, with or without Kiev, and a Soviet-style Ukrainian Democratic Republic under Moscow.
Besides the real assets to be divided among them, he said, a decision would have to be taken, most likely by the IMF, on Ukraine’s financial assets, including its foreign exchange reserves, and its liabilities, including sovereign debt.
“There’s a huge challenge for the IMF on this,” he said. “How can free Ukraine pay off its debts with only about a third of its old GDP? »