More Ukraine experts warn of financial consequences of martial law

6 December 2018

A swelling number of Ukrainian financial experts are warning about the consequences of martial law having been introduced in ten regions. Martial law will shave three percentage points off Ukraine’s 2019 GDP growth to about 3% yoy, estimated on Dec. 4 Mykhaylo Kukhar, the director of the Independent Macroeconomic Analysis Group. Several foreign companies have already postponed their investment plans in Ukraine for 2019, he said. In particular, Ukraine could lose USD 100-200 mln in investment per month, estimated Oleg Ustenko, the executive director of the Bleyzer Foundation. Such losses will place devaluation pressure on the hryvnia, he said.


Alex Danylyuk, the former finance minister, agreed on Dec. 4 that devaluation pressures will increase, adding that martial law threatens the fulfillment of the big privatization of state enterprises that has been planned. “In considering the 2019 budget, it’s necessary to review privatization revenues. It’s guaranteed we’ll gain none at all,” he told the news site. Introducing martial law doesn’t resolve any of Ukraine’s key problems, said Volodymyr Fedorin, a co-founder of the Bendukidze Free Market Center in Kyiv. “Refusing to uphold basic rights and freedoms, even in words, certainly won’t make Ukraine attractive for investors,” he told the news site. “It will be much easier for Putin to take a starving, poor Ukraine, stripped of its prospects and reeling from the flight of its most active citizens.”


Among Ukraine’s first business leaders to point out the economic losses from martial law being introduced was Igor Mazepa, the CEO of Concorde Capital. In a column published on Nov. 28 on the news site, Mazepa estimated economic losses as high as USD 500 mln, a large amount considering Ukraine’s 2017 GDP was about USD 112 bln. Among the consequences, “it will all lead to money outflow from the banking system, where it would have multiplied and create added value for the economy,” he wrote.


Zenon Zawada: Further economic losses from martial law pose an interesting quandary for Petro Poroshenko’s re-election bid. The president is unpopular for the very reason that voters associate him with the war and its related loss in quality of life and living standards. Yet in provoking the conflict with Russia near the Kerch Strait and imposing martial law, Poroshenko is again banking on his military position against Russia for public support at the expense of a worsening economy. So the very factor that is causing his unpopularity will either make or break him.


At this point, it looks as though Poroshenko will be able to qualify for the second-round runoff with his current electoral strategy. And if he sees his chances slipping, he can attempt to extend the martial law, in one way or another, in order to influence the elections in a myriad of direct and indirect ways. Even without martial law, he has extensive state resources to manipulate. Poroshenko is playing the elections with the expectation that fears of expanded Russian aggression will trump economic concerns, which is a re-election strategy that could just work.

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