How Ukraine is Managing a War Economy

IMF News, December 22, 2022

Source details

War duration and scale:
- "For the past 10 months, Ukraine has withstood the largest full-scale military aggression in Europe since World War II."
GDP impact:
- "According to our estimates, Ukraine will lose at least one-third of its GDP in 2022."
Economic adaptation and new sectors:
- Businesses and displaced people began to recover after the first shock.
- "New sectors of the economy were created that focused on supporting Ukraine’s armed forces."
Continued fiscal and financial operations:
- "We have income from taxes, we make social-security payments, we have international assistance, and we can fundraise billions of hryvnias to support the armed forces."

System resilience:
- "The banking system was strong and operated with no functional limitations during the whole war."
- "Almost all banks—not only systematically important banks—continued operations."
Anti-crisis measures implemented:
- "We stopped the outflow of capital, implemented a fixed exchange rate, and took several other necessary anti-crisis measures."
Administrative restrictions and future normalization:
- Current operation "with some administrative restrictions, for example on capital flows."
- Plan to "review the restrictions that were implemented during the crisis period" and "go back to market mechanisms" as recovery proceeds.
Upcoming supervisory actions:
- "The next priority will be an assessment of banks in Ukraine through diagnostics and stress tests."
Operational continuity priorities:
- Focus on "power banking" to ensure banking network functioning under blackout conditions.

Energy terror and timing:
- "Since October, Ukraine has been under intensified energy terror. There were nine waves of rocket or missile attacks that destroyed our critical infrastructure—key facilities that generate and distribute electricity, heating, and water."
Power banking network:
- Creation of "one network of branches of systematically important banks in Ukraine."
- Network scale: "over 1,000 branches in 200 cities and villages."
- Network capabilities to include "backup electricity, connectivity, and cash" and solutions to operate "even under blackout conditions."
Citizen support infrastructure:
- Special stations in government buildings and shelters to "charge their phones, get warm and receive hot meals" and to provide banking systems, including ATMs.
- Coordination with "a big network of stores and gas stations to make sure that the citizens of Ukraine have access to cash when they need it."

PMB purpose and expectations:
- PMB allows Ukraine "to demonstrate its aspiration and readiness for reforms, regardless of the war."
- Opportunity to "coordinate fiscal, monetary, and other policies" and facilitate NBU–Ministry of Finance interaction.
Budget financing needs and approach:
- "We have to finance colossal budget needs of least $38 billion with external funds."
- Commitment that "the financing of next year’s deficit will not be done by the central bank" to avoid macroeconomic risks.
- Financing strategy: cooperation with "the donor coalition and the domestic debt market as well as with the assistance from the IMF."
PMB as catalytic tool:
- PMB expected to help "attract financing from the coalition of international partners" who will look for "a green light from the IMF."
- PMB seen as "the first step to an upper-credit tranche program that Ukraine is counting on next Spring."
Interactions during program finalization:
- IMF–Ukraine communication described as "continuous communication, 24/7."
- Agreement "finalized ... during a missile attack."

Tenure and challenges:
- Governor Andriy Pyshnyy has been in post "for 10 weeks" at time of interview and faced intensified energy attacks.
Personal adaptation to impaired hearing:
- Hearing loss described as enabling "strengthen my focus and concentration" and facilitating "monetary silence"—an internal central-bank practice to concentrate before policy decisions.
Human and staff resilience:
- NBU staff continued operations under attack, including working "in a basement during a missile strike."

Source: IMF Country Focus interview, December 22, 2022.