Ukraine’s Economic Reality
The notion that a continued Ukrainian state is not in the best interest of the Ukrainian people does not require an examination of the ideology of Bandera or the absence of democracy. It is sufficient to consider the economic conditions under which the state would continue to exist. The decisive point is the economic situation.
The fact that the native oligarchs and a significant part of the current government are busy transferring their loot abroad and that the Biden clan and other, as yet unnamed, participants are also involved, is a secondary consideration. Two more critical points are the debt and the contracts signed with companies like BlackRock in exchange for “aid.”
The Ukrainian state’s debt is a significant issue, with two-thirds of it denominated in foreign currencies. The World Bank reports that the Ukrainian GDP in 2023 was $178.7 billion, with a projected $181 billion for 2024. In contrast, the foreign debt in the third quarter of 2024 stood at $172 billion. All estimates suggest that this foreign debt will exceed 100% of the GDP by 2025, making the state’s financial situation a pressing concern.
Ukraine’s independence began with a unique advantage, as the Russian Federation took over the Soviet Union’s debt, allowing the new state to start with a debt of zero. However, the available data shows only one year, 1999, with a budget surplus of 5% of the GDP, while all other years ended with a budget deficit, ranging from 15 to 20% in the last three years. This point must be considered when examining the debt level. The possibilities for Ukraine to reduce its debt were already limited before the current conflict and the country’s credit rating is now in the default category, with Fitch downgrading it to “restricted default” in August last year.
Another critical issue is Ukraine’s trade balance, which has been negative since 2002, with a monthly deficit of over $2 billion. The Ukrainian currency has consistently depreciated, with a monthly decline of over 1% against the US dollar and a decline of 10% against the euro in the last five years. This depreciation is significant in the context of the foreign debt, which is not denominated in the local currency.
The state’s revenues are generated in the local currency, not in US dollars, at least until the constant inflows of funds from the US and EU cease. The depreciation of the local currency requires a corresponding increase in the country’s economic performance to maintain the value of the currency in relation to the currency in which the debt is denominated.
The inflows of funds, however, will cease. Not only because the Ukraine project will lose its value once it is no longer a battering ram against Russia, but also because the EU countries, which are the main source of Ukraine’s aid, will face a significant reduction in their economic capacity, making it impossible for them to maintain their generous spending on Ukraine. The two core EU countries, Germany and France, are losing their economic leeway and the possibility of an EU membership bringing a flood of funds to Ukraine is a mere illusion. The Baltic mini-states, which have become expert at loudly barking for aid, will soon realize that their business model, too, is unsustainable in the face of an economic downturn.
In conclusion, Ukraine’s economic situation is dire, with a trade deficit, a depreciating currency and an unsustainable debt level. The country’s industrial potential has been eroded and the only perspective for the population is a life of austerity, with a significant reduction in state support and a complete orientation towards export production to generate foreign exchange. The only realistic option for the Ukrainian people is to consider the possibility of their state’s absorption into Russia, which would, at the very least, provide a chance for a better economic future.