Financing Ukraine’S Victory

Ukraine has just achieved a stunning success on the battlefield in the Kharkiv counteroffensive, showing that it can win the war. However, we see a growing risk of a major setback on the economic front if donor disbursements continue to be slow and unpredictable and predominantly coming as loans rather than grants. Such a setback – posing a further risk to macroeconomic stability, weakening the currency and driving inflation higher – could make it difficult for Ukraine to win the war. It would be a completely unnecessary setback, since it can be easily avoided by clearer upfront commitments by donors. Here, we do not set out a broad macroeconomic framework for Ukraine during the war – proposals on this topic were set out in a recent report in CEPR’s Rapid Response Economics series (Becker et al. 2022). This argued for macroeconomic policies to put Ukraine’s economy on a sustainable trajectory for the duration of the war, including financing the budget without relying on the central bank, moving to a managed float of the currency, tougher regulation of trade and capital flows, and flexibility and efficiency in the allocation of scarce resources.