Ukraine Is Advancing, Russia Is Retreating, but President Zelensky Has a Big Problem
Despite the Ukrainian Army’s battlefield advances and Russia’s retreats, most recently from parts of Kherson Province, Ukraine’s economy has been left in tatters. A prolonged war of attrition — which seems likely — will subject it to additional strain. For the Kyiv government, the cost of prosecuting the war while also meeting the material needs of its citizens will mount even if the Ukrainian Army keeps gaining ground. Worse, winter looms and Russia, frustrated by the serial military failures it has experienced since September, seems bent on crippling Ukraine’s economy by taking the wrecking ball to its critical infrastructure. On Tuesday alone, an estimated 90 Russian missiles rained down across Ukraine.
Ukraine’s biggest problem may not be the military threat posed by Mr. Putin’s army, significant though that will remain, but rather coping with the destruction Russia’s attacks wreak on its economy — and at a time when the prospects for the large and continuing flow of aid Kyiv desperately needs could diminish because of deteriorating economic conditions in the West.
Despite its recent military reverses, Russia retains immense destructive power. Just within recent weeks, its missiles and drones have struck 40 percent of Ukraine’s energy infrastructure, triggering rolling blackouts across the country. Missile barrages left about 4.5 million Ukrainians without electricity. Eighty percent of Kyiv’s denizens were deprived of water; 350,000 homes lost power. As this week’s missile strikes show, Russia is not about to let up.
Amid all this, Ukraine’s leaders must meet the many basic needs of their people, whose lives have been upended. The United Nation’s Office for the Coordination of Humanitarian Affairs (OCHA) reported this month that six million Ukrainians are now “internally displaced” (another seven million have sought refuge abroad). Unemployment had reached 35 percent by the second quarter of this year, according to the National Bank of Ukraine. The poverty rate, 2.5 percent in 2020, may approach 25 percent by December, and twice that by the end of next year. Wartime upheaval and destruction have been especially hard on children; nearly half a million more in Ukraine have been pushed into poverty, the second-largest share in the region.
Ukraine’s plight reflects the historical pattern. Protracted wars often devastate the economies of combatants, and the ill effects linger long after the fighting ends. Estimates for reconstructing postwar Ukraine range from $349 billion to $750 billion — even before the full extent of the destruction can be foreseen. Though there has been talk of using impounded Russian assets to help defray the costs, this could run into myriad legal obstacles.
That’s for the future; but the Kyiv government has more immediate problems.
The World Bank projects that Ukraine’s G.D.P. will shrink by 35 percent this year, and other estimates predict that the contraction could be as much as 40 percent. Though Ukraine’s National Bank expects economic expansion to resume in 2023, even a return to a pre-war G.D.P. will require many years of rapid growth.
Ukraine’s monthly budget deficit totals $5 billion, and the government has been forced to seek emergency assistance from the West and the International Monetary Fund. Prime Minister Denys Shmyhal said recently that given the anticipated gap between expenditures and revenues, his country will need $42 billion in aid for 2023. President Volodymyr Zelensky added another $17 billion for rebuilding damaged or destroyed power plants and housing. Together, these amounts equal nearly 30 percent of Ukraine’s current G.D.P.
The war has also caused Ukraine’s trade to plummet. By the end of September the trade deficit had more than doubled to reach $6.1 billion. Agricultural exports — which netted $27.8 billion in 2021 and comprised 41 percent of total exports — were particularly hard hit because Russia seized Ukrainian ports on the Sea of Azov and some on the Black Sea and mined others, bottling up 20 million tons of grain plus other food products earmarked for export.
Though food exports picked up following a deal between Russia and Ukraine brokered by the U.N. and Turkey’s president Recep Tayyip Erdogan in July — more than 11 million tons of Ukrainian grain and other foodstuffs have been exported since then — Russia can still interrupt them, as it showed this month when it left the accord, quickly rejoined it, but warned that it reserved the right to leave again. Moreover, though the deal made it possible for Ukraine to resume corn and wheat exports, the volume amounts to half what it was before the war.
Russia’s attacks on Ukraine’s economic assets are not new, but they have reached new heights following Ukraine’s Oct. 8 attack on the Kerch Strait Bridge connecting Russia and Crimea. That same day, Mr. Putin appointed Gen. Sergei Surovikin to run the “special operation” in Ukraine. General Surovikin, notorious for his pitiless aerial assault on Aleppo while commanding Russian forces in Syria in 2017, was quick to implement his signature strategy. He most likely ordered the relentless attacks across Ukraine that singled out electricity grids, dams, waterworks, sewage treatment plants, and thermal power stations.
The electricity grid has already been a prime target for the Russians, and they can damage it further by choking off the fuel supplies required to keep it running. Already, Ukraine, which had planned to earn 1.5 billion euros next year from electricity sales to the European Union, has had to suspend exports and may have to rely on foreign suppliers to meet domestic needs.
As Ukraine’s leaders have scrambled to manage the economic crisis created by Russia’s invasion, they have received substantial assistance from multiple sources. The U.S. Congress authorized — in March, May, and September — nearly $20 billion in various types of economic and humanitarian aid (part of a $54 billion package in economic and military assistance). The Biden administration has delivered $8.5 billion in economic help so far and plans to add another $4.5 billion. The E.U. has done less well, pledging 11 billion euros but disbursing only 27 percent — and unlike the United States, mainly in loans, albeit at concessional rates. Other benefactors include Britain, which had contributed
