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Can Ukraine pay for war without wrecking economy?

AP – 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 struggle is finding loans or donations to cover a massive budget deficit for next year – and do it without using central bank bailouts that risk wrecking Ukraine’s currency, the hryvnia.

Economists working with the government said 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 the oil price cap by the United States (US), European Union (EU) and allies saps Moscow’s earnings.

Here are key facts about Ukraine’s economic battle against Russia:


In the first days of Russia’s invasion, the Ukrainian government turned to foreign help that came at irregular intervals. When it didn’t have enough, the central bank bought government bonds using newly-printed money.

The alternative would have been to stop paying people’s pensions and state salaries.

Economists said 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 has painful memories of hyperinflation from the early 1990s, economist Nataliia Shapoval said.

Local residents receive bread in the recently recaptured village of Yampil, Ukraine. PHOTO: AP

As a child, she watched her parents use large bundles of bills for everyday purchases as the currency lost value day by day, before being replaced by today’s hryvnia.

“Ukraine has been through this, so we know what inflation that is out of control looks like, and we don’t want this again,” said Shapoval, who is the vice president for policy research at the Kyiv School of Economics. “The government and the central bank are already on the slippery slope by printing so much.”

President Volodymyr Zelenskyy said Ukraine needs USD38 billion in outright aid from Western allies like the US and 27-nation EU, plus USD17 billion for a reconstruction fund for war damage.

Economists associated with the Kyiv School of Economics said a lower overall  total of USD50 billion from donors would be enough to get Ukraine through the year.

Defence spending is six times higher in the 2023 budget recently passed by the Ukrainian Parliament compared to last year.

Military and security spending will total 43 per cent of the budget, or an enormous 18.2 per cent of annual economic output.

The UAH2.6 trillion budget has a yawning UAH1.3 trillion deficit, meaning the government needs to find USD3 billion to USD5 billion a month to cover the gap. Recent attacks on energy infrastructure since the budget passed will only increase the financing need because repairs can’t wait for postwar reconstruction and will hit this year’s budget.


Despite Western sanctions, Russia’s economy has fared better than Ukraine’s because high oil and natural gas prices have bolstered the Kremlin’s budget.

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


The US has been the leading donor, giving USD15.2 billion in financial assistance and USD52 billion in overall aid, including humanitarian and military assistance, through October 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 USD29.2 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 EUR18 billion in no-interest, long-term loans for next year, which still need approval from member governments.

The US will likely contribute more as well.

Ukraine, however, is appealing for grants over loans. If all the financing comes as loans, debt would rise to over 100 per cent of annual economic output from around 83 per cent now and 69 per cent before the war.

That burden could hold back spending on the war recovery.

The USD85 billion in total global assistance to Ukraine, according to the Ukraine Support Tracker, is less than 15 per cent of the support European governments have pledged to shield consumers from high energy costs resulting from Russia’s natural gas cutbacks.

To get loans, the commission proposed requiring Ukraine to improve its record on corruption.

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.

US officials have praised Ukraine’s online procurement platform for introducing transparency in government contracts – one big source of corrupt dealings and collusion – and saving USD6 billion.

The prospect of EU membership also gives Ukraine incentive to clean up corruption.