Ukraine economy in shambles, expected to shrink 45% after Russian invasion | Teen Ink

Ukraine economy in shambles, expected to shrink 45% after Russian invasion

May 17, 2022
By dua_azhar23 SILVER, Lahore, Other
dua_azhar23 SILVER, Lahore, Other
9 articles 0 photos 0 comments

The Russian war against Ukraine has led to the political conditions in Ukraine becoming extremely unstable with numerous officials resigning from their positions. Putin's initial goal was to invade Ukraine and overthrow its government, thereby putting a stop to Ukraine's desire to join NATO, the Western defense alliance. After failing to conquer Kyiv, Ukraine's capital, he shifted his focus to the east and south of the country after a month of failures. The constant invasions have not only made the political scenario unstable but has led to the economic conditions facing difficulties.

The war has led to international sanctions from the international market which has severely impacted foreign relations and trade of Ukraine. As the war's economic shocks compound the continued repercussions of the COVID-19 pandemic, the region's GDP is now expected to contract by 4.1 percent this year, compared to a pre-war prediction of 3 percent growth. This would be the second contraction in as many years, and it would be twice as large as the pandemic-induced contraction that occurred in 2020.

The crisis has raised expectations of a sharp global slowdown, rising prices and debt, and an increase in poverty levels. Multiple channels of economic impact have been felt, including commodities and financial markets, trade and migration links, and a negative impact on confidence. Ukrainian workers abroad are an important source of foreign cash for the country in normal times. Ukrainian remittances abroad reached at $15 billion in 2021, accounting for about 10% of the country's GDP. However, in the face of foreign exchange restrictions on official markets, current demand for foreign currency has prompted the establishment of shadow foreign exchange markets. The exchange rate is around 31-33 UAH/USD as of 15 March.

“The magnitude of the humanitarian crisis unleashed by the war is staggering. The Russian invasion is delivering a massive blow to Ukraine’s economy and it has inflicted enormous damage to infrastructure,” according to Anna Bjerde, World Bank Vice President for the Europe and Central Asia region.

Approximately three million Ukrainians have sought refuge in neighboring countries as a result of the Russian invasion. As a result, long lines formed at ATM machines as people sought physical cash. While the National Bank of Ukraine (NBU) can easily give cash in national currency, foreign currency cash is more difficult to get by.

 
 The supply of national currency liquidity to improve financial conditions is not without risk. Ukraine's economy is heavily reliant on imports, and the invasion has had a substantial impact on its productive capability. As a result, the currency is expected to be under even more pressure as a result of excess liquidity. Of course, any currency depreciation is likely to produce inflationary pressures, first through the price of fuel and other imported products, and subsequently through increased intermediate goods prices, which will raise the price of local goods.

The war's severe humanitarian crisis has been the most prominent of the conflict's early global shockwaves, and it will undoubtedly be one of the conflict's most lasting legacies. Previous crises are expected to pale in comparison to the influx of refugees from Ukraine to neighboring nations. As a result, the World Bank is creating operational support programmes for bordering countries in order to meet the increasing finance demands resulting from refugee flows. Given that both Russia and Ukraine have suffered as a result of the war, serious actions must be done to put an end to the atrocities. This is the only way to remove international sanctions, increase investment and keep both countries' economies and trade balances stable.



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