Key Points – The Russia-Ukraine war has become an economic contest where Ukraine has shown surprising resilience, according to a recent Atlantic Council analysis by Anders Åslund.
-Despite the invasion, Ukraine’s GDP has recovered, its institutions remain strong, and it has made significant progress in combating corruption, climbing from 142nd to 105th on Transparency International’s index.
-Russia’s economy, meanwhile, is facing similar stagflation with high interest rates and inflation.
-Åslund argues the West could enable a Ukrainian victory by seizing frozen Russian assets to double Kyiv’s military budget, allowing it to outspend Russia and capitalize on superior morale and technology.
The Ukraine War Has An Economic Dimension
Russia and Ukraine have been at war for nearly three and a half years, in a war that has resulted in a great deal of destruction and death. Russia’s casualty count passed the one million mark earlier this month, according to Ukraine’s count, although Russia has disputed that.
But in addition to all of that destruction and tragedy, the war is one of economics as well, as The Atlantic Council pointed out in an analysis this week.
Anders Åslund writes for the Council that as the war continues, “the two nations are also locked in an economic contest that could play a key role in determining the outcome of Europe’s largest invasion since World War II.”
Åslund is the author of a book called “Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy.”
“Doing Well”
Ukraine’s economy, Åslund writes, is doing reasonably well, considering more than three years of war.
“The Russian onslaught in 2022 reduced Ukraine’s GDP by 29 percent, but in 2023 it recovered by an impressive 5.5 percent. Last year, Ukrainian GDP rose by a further 3 percent, though growth is likely to slow to 1.5 percent this year,” Åslund writes, adding that certain aspects of normal financial life have returned, including functioning ATMs and credit card systems, which is certainly not the case with all war zones around the world. Also, “stores are fully stocked and restaurants are crowded.”
The way Ukraine has pulled that off is that Ukraine’s institutions have remained strong and resilient, despite the continuing war and bombardment. Institutions have not fled Ukraine.
Fighting Corruption
Ukraine has long been known as something of a hotbed of corruption, and efforts in the past to remove a certain prosecutor ended up forming the basis of conspiracy theories, and also leading indirectly to both the first impeachment of President Trump and a GOP impeachment inquiry against Joe Biden.
Per the Atlantic Council analysis, there has been progress in recent years when it comes to fighting corruption in Ukraine.
“Wartime Ukraine has continued to make progress in combating corruption,” the author writes. “When Russia’s invasion of Ukraine first began in 2014, Ukraine was ranked 142 of 180 countries in Transparency International’s annual Corruption Perceptions Index. In the most recent edition, Ukraine had climbed to the 105 position.”
How did Ukraine beat back its corruption problem? In a word, patriotism, as well as a wish by that country that tie itself closer to international institutions and alliances.
“EU accession demands and IMF conditions have been equally important. Ukraine has gone through eight quarterly reviews of its four-year IMF program. It has done so on time and with flying colors. The same has been true of each EU assessment.”
What Ukraine Needs
The Atlantic Council analysis named three key factors Ukraine needs to ensure continued progress. One is “$42 billion a year in external budget financing,” the second is continued maritime trade through the Black Sea port, and the third is to avoid disruptions to its electrical grid.
Challenges for Ukraine, aside from the war itself, include a shortage of labor and rising inflation.
“After three years of war, Ukraine’s economy is showing increasing signs of exhaustion. The country has entered stagflation, which is to be expected.”
What About Russia’s Economy?
Then there’s the question of how Russia’s economy is doing after three years of war, and sanctions placed on it by much of the world.
“Russia’s current economic situation is surprisingly similar to Ukraine’s, although almost all trade between Russia and Ukraine has ceased,” the analysis said. “After two years of around 4 percent economic growth in 2023 and 2024, Russia is expecting growth of merely 1.5 percent this year, while official inflation is 10 percent. Since October 2024, the Central Bank of Russia has maintained an interest rate of 21 percent while complaining about stagflation.”
And while Russia spends more than Ukraine on its military, much of that money is stolen, Åslund writes.
“The West needs to double Ukraine’s military budget from today’s annual total of $100 billion to $200 billion,” he writes. “They can do this without using their own funds if they agree to seize approximately $200 billion in frozen Russian assets currently held in Euroclear Bank in Belgium. This could enable Ukraine to outspend Russia and achieve victory through a combination of more firepower, greater technology, and superior morale.”
About the Author:
Stephen Silver is an award-winning journalist, essayist and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter
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