Ukraine is at war. Regular map updates of the conflict show that Russian troops occupy one/fifth of the country. Its major cities are being bombed or under siege. But despite the chaos, Ukrainian schools are still open. Supermarket shelves are still stacked and the government is still functioning. So how is Ukraine's economy operating against the Russian occupation?
On the 22nd of February, two days before the war, Volodymyr Zelensky organized a meeting with Ukraine's business leaders. He brushed aside old differences with rivals. The government proposed a massive program of economic deregulation and tax cuts. Businesses paid one off additional taxes funneling hundreds of millions of euros to the military just ahead of the war. Two days later, when the war started, the news quickly spread of Ukrainians bagging sand on beaches and of making improvised weapons. Ukraine was preparing to enter a war economy.
In peacetime, most factories are geared towards making goods for consumers. Demand for military equipment rises and factories are reconverted to increased military output like breweries, which switched to making Molotov cocktails, or luxury shoe factories that started making military boots. While so far there have been shortages in besieged cities, most of the country has access to supplies, though with less choice.
But as Ukrainian refugees leave the country, infrastructure gets destroyed and land is lost. Ukraine's economy will take a toll. In response, Ukraine has banned men between the ages of 18 to 60 from leaving the country. Not only for soldiers, but so that they keep working. The government is providing cheaper loans to businesses to help them survive the crisis. and support the war effort.
The country's economy is also very dependent on selling commodities like agricultural products, minerals and fossil fuels. If you take a look at a map of Ukraine, we can see that a significant chunk of that production can be found in the east and the south of the country, which have borne the brunt of the Russian offensive and some of that production has been expressly targeted by Russian attacks. This is damaging Ukraine's ability to produce things on its own and reducing its main source of income.
Ukraine was a heavily commodity dependent economy, a very unbalanced economy, very much dependent on imports of a lot of a lot of stuff, just not able to produce everything it needs itself. So a war time gone in Ukraine will likely there will likely be a very heavy emphasis on how can we get the foreign currency that we are going to need to buy stuff that we are going to need to fight this war.
The Ukrainian central bank estimates that since the start of the conflict, the economy has shrunk by half It means that as time goes on, Ukraine's ability to buy or make the goods and weapons it needs will shrink. And that's a problem. Despite Ukraine having a significant defense industry of its own, and destroying more Russian equipment. It is still massively outgunned at the start of the war. Russian tanks outnumbered Ukrainian tanks six to one and for fighter planes, that number was ten to one. To make up for that difference. It needs one thing: money.
While Ukraine's diaspora has donated funds and the economy has become a priority, for the war. By far, the most important source has been international aid. And that has been the goal of Zelensky's appeals in the media.
Ukraine's military spending by years, theglobaleconomy
Since the start of the war. Billions in loans and aid have been granted to the country. The U.S. alone announced a $13 billion aid package compared to the Ukrainian budget of 60 billion in 2021 and a military budget of 8 billion.
While Ukraine's allies have donated unknown amounts of weapons, including vital equipment like anti tank and anti-air missiles, not all the equipment is free. It still needs cash to buy other high tech weaponry, like the much advertised Turkish Bayraktar drones.
turkish bayraktar tb2
But most of that aid arrives by land here in the west of the country, and it's concentrated in the city of Lviv, which has turned into a major hub for refugees and supplies. While the area is mostly spared at the start of the war, it's seeing increased bombings and attacks posing danger to Ukraine's war effort.
Lyiv/Ukraine
It's making it harder to bring military gear to Ukraine's frontlines to supply cities and bring goods and equipment to keep the economy going. Further to the south, Ukraine's Black Sea ports are being blockaded. This blockade and damage damaged infrastructure in the west of the country. Will limit Ukraine's ability to export the raw materials. Its economy is so dependent on.
How long can Ukraine's economy keep this going? I think that's totally dependent on foreign financing. The West is backing Ukraine in this fight. I think it totally depends on how much money, basically, and how much equipment so that Ukraine doesn't have to buy stuff themselves. And the war is already having a global impact. With fears of growing shortages in Africa and commodity shortages in Europe, and once the war is over, it will have to rebuild the more than €100 billion in damages. So far