Ukraine Says Economy Poised to Shrink a Whopping 40% in 2022 Due to Russia War

The war with Russia will leave a trail of economic hardship in Ukraine but, the extent of losses for the economy appears to be bigger than originally estimated. Ukraine's economy could contract a whopping 40 percent in 2022 as a result of Russia's invasion, the economy ministry said in a statement on Saturday.

The projection was based on preliminary estimates. Ukraine's economy shrank 16 percent year-on-year in the first quarter of this year. "Areas in which remote work is impossible have suffered the most," the ministry said.

Belgorod attack
Stills from videos posted on social media show the two attack helicopters firing rockets at the oil depot in Russia's Belgorod region. Twitter

IMF Projection

Earlier in March, the International Monetary Fund had said that Ukraine's economy was expected to contract by 10 percent in 2022 as a result of Russia's invasion. It was pointed out at that time that the economic outlook could worsen sharply if the conflict lasted longer.

The Ukraine economy ministry's latest statement shows the worst fears over the economy could come true.

The IMF report, prepared ahead of the IMF's approval of $1.4 billion in emergency financing, said Ukraine's economic output could shrink by 25% to 35%, based on real wartime gross domestic product data from Iraq, Lebanon and other countries at war, Reuters had reported.

Ukraine had an external financing gap of $4.8 billion, IMF staff said in their March 7 report, but its financing needs were expected to grow and it would require significant additional concessional financing as a result of the war.

Explosions at Russian oil depot after Ukranian airstrike
Explosions at Russian oil depot after Ukranian airstrike Twitter

Trust Fund Instrument

The IMF is working to set up a trust fund instrument through which bilateral donors can channel resources to Ukraine, an official with the global lender said.

The $1.4 billion already approved in emergency financing is the maximum Ukraine can borrow under current IMF rules, but the loan is having a "catalytic" effect in encouraging other donors, the official said.

Red Cross building in Mariupol
The dilapidated Red Cross building in Mariupol after being shelled by Russia Twitter

Ivanna Vladkova Hollar, the IMF mission chief for Ukraine, said Ukrainian authorities were making "a remarkable effort" to keep the country's economy and financial system running in the face of the war.

"Making wage and pension payments, restocking ATMs with cash, opening bank branches ... continuing to make payments on external debt obligations, so that post-war they can resume normal operations with their creditors and markets. It's really actually a remarkable, remarkable effort," she said.

(With Reuters Inputs)