What Russia's War Is Costing the World

A year ago, Ukraine’s economy was on a strong footing, with a debt-to-GDP of less than 50% and a budget deficit of 3.5%. Then came Feb. 24, and with it a full-scale war. We were in a new reality, with very different financial needs.

Funds that should have been directed toward environmental, social, and corporate-governance goals, sustainable development, and strengthening the country’s competitiveness were re-directed to defense, humanitarian purposes, and support for people affected by the war. And in 2023, about 50% of the state budget is allocated to national security and defense.

Months of war have transformed Ukraine from a country with stable and promising financial indicators to one that is directing all resources to the struggle while battling severe economic consequences: 30% economic decline, inflation around 28%, up to 8 million refugees, unemployment of about 30%, and hundreds of destroyed or damaged businesses and industries.

Since the start of the full-scale invasion of Ukraine by the Russian Federation, we have been implementing measures for macro-economic stabilization and accumulation of financial resources to defend our state. While business in Ukraine was practically paralyzed in the first month of the war, we’ve ensured that today just 10% of enterprises are nonfunctioning. And our economic and financial systems are fully operational.

The financial system has performed at full capacity since the invasion. Budget revenues have increased by 20% since April. We began issuing war bonds. All social expenditures, pensions, wages of teachers and health care workers, as well as the security and defense sector, have been financed.

At the beginning of the Russian invasion, international partners verified our budget deficit at $5 billion per month for the rest of 2022. As of early December we had received just over $28 billion out of that required $50 billion, and the National Bank of Ukraine had to print $12 billion more.

In 2023 the state budget deficit of Ukraine will reach $38 billion. The constant massive missile attacks across Ukraine mean the reconstruction bill and economic losses will keep growing in 2023.

The support of international partners will play a crucial role in how we get through the 2023 budget year. We welcome the U.S. intention to continue providing grants to Ukraine, as well as the European Commission’s proposal to launch a new full-scale macro-financial assistance program for Ukraine in 2023. But as the war drags on, this is not enough.

Large economies and international financial institutions need to find new tools and solutions—and not just for Ukraine. When a country finds itself under attack, it needs fully engaged and constant cooperation. Learning from the experience of military aid coordination at Ramstein Air Base in Germany, and to coordinate financial support to Ukraine and address immediate financial needs, Ukraine’s President Volodymyr Zelensky and Prime Minister Denys Shmyhal have proposed a new financial-coordination platform. The idea of developing this platform is to bring G-7 member countries and international financial institutions to the table on a regular basis—to facilitate information sharing on key developments and projections, as well as ensure timely and efficient channeling of the financial assistance from various donors. This kind of cooperation will help to make disbursement more efficient.

With Ukraine as a co-chair, the platform could develop effective and sustainable mechanisms to coordinate financial support for Ukraine, as well as a valuable model for other nations to use in the future.

Russia’s war doesn’t just affect Ukraine’s economy. The economic consequences have been global. Many countries are facing the highest inflation in decades, huge energy costs, and threats of recession.

Food security and an energy crisis will bring many more deaths and more suffering around the world. We must work more closely toward a solution for us all.

Marchenko is Ukraine’s Finance Minister

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