The Economist - USA (2022-05-14)

TheEconomistMay14th 2022 47

Europe

Ukraine

No ports in a storm

F

or someonetrying to run an economy

in  the  middle  of  an  invasion,  Serhiy

Marchenko  is  oddly  upbeat.  The  Russians

may have occupied or blockaded his coun­

try’s  main  ports  and  forced  the  shutdown

of most of its businesses, but Ukraine’s fi­

nance  minister  radiates  calm.  “The  situa­

tion is very difficult, I am not going to min­

imise that,” he says over a latte in a slick ca­

fé  near  his  ministry.  “But  we  can  manage

it.”  When  an  air­raid  siren  interrupts  the

interview, he simply ignores it.

Reasons  not  to  panic  are  quite  numer­

ous.  Ukraine  went  into  the  war  in  good

shape, with its economy growing at an an­

nualised  quarter­on­quarter  pace  of  al­

most  7%;  strong  prices  for  its  exports  of

grain,  iron  and  steel;  a  well­regulated

banking industry and a government deficit

of  less  than  3%  of  gdp last  year.  Its  debt

stood at just under 50% of gdp, a number

that  many  finance  ministers  can  only

dream  of.  An  impressively  digitised  tax

and  benefits  system  means  that  revenues

are still coming in smoothly from the parts

of  the  economy  that  are  still  functioning.

Pensions  and  government  salaries  are  all

stillbeingpaid,eveninareasthatarenow

underRussianoccupation,thankstoresil­

ientdigitalsystemsanda surprisinglyun­

scathed internet. Most businesses, for

now,arestillpayingtheiremployees,even

iftheycannotoperateasnormal,oratall.

Amazingly,payrolltaxesaredownbyonly

1%,theministersays.

Butitisn’teasy.TheWorldBankhas

predictedthatUkraine’sgdpwillshrinkby

perhaps45% in 2022.(“Our estimateis

44%,”MrMarchenkogrimaces.)Andboth

estimatesare,ofcourse,hugelyuncertain.

Customsrevenues,a significantpartofthe

government’s tax take, have crashed to

around aquarter of their pre­war level

thankstolowerimportsandthesuspen­

sionofmanyduties.Militarysalariesare

anotherbigburden. Italladdsuptoa fi­

nancinggapofaround$5bneverymonth,

hesays.Thatisroughly5%ofUkraine’sde­

pletedgdpforeverymonththatthewar

goeson.

Howtofillthat?Inpart,MrMarchenko

says,byhavingthecentralbankprintmore

money.Inpart,too,byissuingwarbonds,

onwhichthegovernmentcurrentlyispay­

ingaround11%interest,whichislessthan

theinflationrate.Butthemainsourcewill

needtobeforeign.Andthat,thefinance

ministersays,ishowhespendsmostofhis

day, lobbying foreign governments for

help.Americaiswherehehasthehighest

hopes.OnApril28thPresidentJoeBiden

saidhewasaskingCongresstoauthorisea

further$33bninnewfundsforUkraine,

sincea previousfacilityisalmostexhaust­

ed.TheHouseofRepresentativeshasvoted

toraisetheamountto$40bn.Mostofthe

moneywillbeforarms,butatleast$8.5bn

isforeconomicsupport.“It’sgoodnews,

butwhatwilltheAmericanpackagelook

like, and when will itarrive? We don’t

know,”saystheminister.

Theimfhashelpedaswell.Ithasen­

couragedAmericaandothercountriesto

KYIV

It will be hard for the economy to sustaina longwar.Thesuspensionofall

maritime exports is a critical blow

Hard hit

Ukraine, GDP, % change on a year earlier

Source: World Bank *Estimate †Forecast

10

0

-10

-20

-30

-40

-50

* 22†20181614122010

→Alsointhissection

48 Putin’sparade

49 Germany’sSPDtakesa beating

50 France’sradicalleft

50 “Borgen”is back

52 Charlemagne: The EU and crises