Vladimir Putin’s war on Ukraine has proved a catastrophic mistake. After Russian forces withdrew from around Kyiv last month, Ukrainian troops were on Monday filmed restoring border posts on the Russian frontier, having mostly pushed Moscow’s army back from the second city of Kharkiv. Finland and Sweden are meanwhile due this week to apply to join Nato — an expansion of the alliance that is the exact opposite of what the Kremlin’s war was meant to achieve. Yet Ukraine’s military successes should not obscure the need for the west to accelerate both weapons supplies, and financial support to counter Russia’s crippling economic war against its neighbour.
Large-scale help is starting to flow. The US Senate should this week approve a support package including military, humanitarian and economic aid that lawmakers have increased to $40bn from the $33bn President Joe Biden asked for last month. For now, though, this remains a budget line. The sooner it can be converted into further arms supplies, the greater Ukraine’s chance of containing and repelling Russian forces in eastern and southern Ukraine before they have time to regroup.
The prospect of a lengthy and vicious war of attrition in the east, while Russia continues to bombard military, infrastructure and economic targets elsewhere and to blockade Ukraine’s Black Sea ports, makes economic and non-military aid vital too — on a grand scale. Without a ceasefire, economic output is forecast to plunge more than 40 per cent this year. The Kyiv School of Economics puts direct damage to Ukraine’s infrastructure at more than $94bn by May 10, roughly one-third each accounted for by residential buildings and roads, with $10bn of damage to industry and factories and $15bn to railways, hospitals, bridges, schools and colleges.
One priority is budgetary support. War widened the deficit to $3.8bn in April, with $1.1bn of domestic debt redemptions — in line with the IMF’s assessment that Ukraine faces a financing gap of about $5bn a month for several months. Economic aid of $9bn in the coming US package takes western budgetary support commitments over $20bn, but these, too, will take time to arrive. The IMF is looking at transferring 10 per cent of unused special drawing rights to Ukraine, but the initiative must surmount EU legal hurdles.
Other problems require material and logistical support. Grain exports — crucial to Ukraine’s economy and to global food supplies — are impossible via the Black Sea thanks to Russia’s blockade of Odesa and other ports and seizure of Mariupol. That will require what Brussels calls a “gigantesque” effort to move grain via road and rail to Baltic and other European ports. But efforts are complicated by Ukraine’s different rail gauge and shortages of trucks. The EU has pledged to establish “solidarity lanes” to ensure Ukraine can export grain and import necessary goods, from humanitarian aid to fertilisers and animal feed.
Shortages of motor fuel — thanks to damage to a refinery at Kremenchuk in central Ukraine — threaten to hamper both the civilian and military economy. And border delays are hindering exports of those manufactured goods Ukraine is still managing to produce.
Including indirect costs such as forgone GDP, corporate profit and investments, labour outflows, and higher defence and social spending, Kyiv economists already estimate Ukraine’s total losses from the war at $560bn-$600bn. With Nato allies unwilling to go to war with a nuclear-armed Russia, Ukraine is having to fight alone. It will need all the international support it can muster to deal with the long-term economic devastation.
Source: Economy - ft.com
