The Battle to Save Ukraine’s Economy From the War

A top European bank chief weighs in on how to bankroll Ukraine for the war, and reconstruction, ahead.

By , a national security and intelligence reporter at Foreign Policy, and , a diplomacy and national security reporter at Foreign Policy.
A man walks in front of signage at the Ukraine Recovery Conference in Lugano, Switzerland, on July 3.
A man walks in front of signage at the Ukraine Recovery Conference in Lugano, Switzerland, on July 3.
A man walks in front of signage at the Ukraine Recovery Conference in Lugano, Switzerland, on July 3. Pascal Lauener/Pool/AFP via Getty Images

Russia’s invasion has wrecked Ukraine’s economy, which is projected to shrink by as much as 35 percent this year, according to World Bank estimates. Fighting has uprooted millions of people from their homes, choked off access to the country’s ports, disrupted agriculture, and driven up defense spending.

As the fighting looks set to drag on into next year, Ukrainian Prime Minister Denys Shmyhal has estimated that Ukraine will likely face a $38 billion budget deficit in 2023—much of which is set to be covered by financing from the International Monetary Fund (IMF). With every day that the war continues, the costs of postwar reconstruction, currently estimated at $349 billion, are driven ever higher.

The economic fallout from the war hasn’t been contained to Ukraine, as the spiraling costs of food and energy have exacted a painful toll across the global south.

Russia’s invasion has wrecked Ukraine’s economy, which is projected to shrink by as much as 35 percent this year, according to World Bank estimates. Fighting has uprooted millions of people from their homes, choked off access to the country’s ports, disrupted agriculture, and driven up defense spending.

As the fighting looks set to drag on into next year, Ukrainian Prime Minister Denys Shmyhal has estimated that Ukraine will likely face a $38 billion budget deficit in 2023—much of which is set to be covered by financing from the International Monetary Fund (IMF). With every day that the war continues, the costs of postwar reconstruction, currently estimated at $349 billion, are driven ever higher.

The economic fallout from the war hasn’t been contained to Ukraine, as the spiraling costs of food and energy have exacted a painful toll across the global south.

Ahead of the annual meetings of the World Bank and IMF in Washington next week, where the impacts of the war will undoubtedly be in focus, Foreign Policy sat down with Odile Renaud-Basso, the president of the European Bank for Reconstruction and Development (EBRD), the largest institutional investor in Ukraine, to talk about the costs of reconstruction, whether Russia should pay, and how long-lasting these changes will be. This interview has been edited for length and clarity.

Foreign Policy: I’d like to start with Russia’s war in Ukraine. First of all, what are the EBRD’s priorities for Ukraine as the conflict continues?

Odile Renaud-Basso: Our key focus in Ukraine is to support the real economy, which is support to key infrastructure such as railways, electricity, energy supply. We provided some financing to Naftogaz [Ukraine’s state energy firm] to secure buying but also support to the private sector in the agribusiness. And now we have started working with municipalities. For example, we have a loan upcoming for Lviv city, and we are working with others in order to help them with the financing of infrastructure or needs for the internally displaced people. The more the economy is sustained and active, the more there will be some tax revenue to contribute to the sustainability of the government.

FP: How has the real economy been affected by eight months of war?

ORB: Our assessment is that real GDP in Ukraine will shrink very substantially, by 30 percent in 2022. But this is due to the level of destruction in the east and southern parts of the country.

One of the biggest challenges has been with the agribusiness, how to export Ukraine’s grains. We are seeing what we can do in Romania, in Moldova, in Poland, to facilitate what Europe calls a “solidarity lane,” which is alternative infrastructure to enlarge Ukraine’s scope for exports West.

The price of energy, as with everybody, will have a big impact on Ukraine. You’ve also seen that some big public companies are also in the process of restructuring their debt. So, the liquidity situation is challenging, the capacity of the clients to pay. It’s a war economy, so it’s a very, very challenging environment for businesses. Another big challenge is that, in the current context, the capacity and willingness from partners to take risks is much more limited, and of course the capacity to access finance is more restricted than in a non-war situation.

FP: How concerned are you that Ukraine could face a full-scale economic collapse?

ORB: That’s why it’s very important to continue to provide support to the country, and that’s why they need financial support of around $3 billion, $3.5 billion, a month. Otherwise, the country’s economy will collapse, I think. They need this external assistance at all levels on budget, on more infrastructure, on the real economy, in order to sustain the country in a way that is required for the war.

FP: There are fears of a global recession mounting in Europe and the United States. How concerned are you about donor countries’ abilities to sustain their support for Ukraine?

ORB: I think it’s a challenge. Up to now, what we’ve seen is a lot of support and the capacity to mobilize a lot of support very quickly. But I think the willingness and the understanding that there is a need for sustained effort is there. Of course, we need to see whether this effort is really sustained over time. I think that also there is an understanding that a prolonged war is quite likely. As people are preparing for a long war, it will call for a strong narrative from Western countries on why they need to support Ukraine for such a long period.

FP: Top Ukrainian officials have suggested that the war recovery should be funded by the assets of Russian oligarchs that have been seized by Western authorities. What do you make of that proposal?

ORB: I think legally speaking it’s very challenging. I know there is a lot of reflection work ongoing, but I think the legal solution is not there yet. I think we should not underestimate the challenges, even if I fully understand the rationale and the logic of it from Ukraine’s perspective. But I think this needs to be looked at very seriously.

FP: Is the EBRD involved in those discussions?

ORB: No, we are not. I think it’s more for national governments, central banks, and treasuries to look into that. So, as a bank, we are not actively exploring this. We are, of course, following the discussion but not actively involved in that discussion.

FP: The World Bank, Ukrainian government, and European Commission last month jointly assessed that Ukraine’s economic recovery could cost $349 billion in the short term—but the war is still ongoing. What are your projections for how much money Ukraine would need to recover from the war if it lasted another six months or year or even five years?

ORB: It’s very difficult to have a definitive figure because of course it depends completely on the scenarios of the war. And we see that in the areas where the war is very active, the level of destruction is growing. It’s very difficult to measure. I’ve seen a lot of figures mentioned, from $700 billion to $200 billion or $300 billion.

FP: What’s your expectation of how the war is going to impact other post-Soviet economies beyond Russia and Ukraine?

ORB: It very much depends on the situation of each country. In Central Asia, Armenia, Georgia, we have seen an influx of people moving their savings, in order to avoid sanctions, out of Russia to be able to use them. The very close neighborhood [around Russia] is quite economically resilient.

Energy importers that are very highly dependent on Russia’s gas are suffering. We can see now already a huge impact on inflation. In the Baltic countries and Poland, we have seen a reduction of risk appetite in the market and some challenges to issuing debt. Mediterranean countries in particular are very much affected by food price increases. They are very dependent on Ukrainian and Russian food staples, such as wheat and sunflower oils, plus fertilizers.

We are working a lot in Central Asia so they can develop alternative trade corridors because a lot of things they were exporting were done through Russia. This war has caused quite structural changes on trade and its impact on the way trade is organized between China, Central Asia, Europe. Also, the way energy is traded will be completely changed. The structural changes in the global economy triggered by the war will be very important.

Amy Mackinnon is a national security and intelligence reporter at Foreign Policy. Twitter: @ak_mack

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer

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