$280bn dollars over six years, $40bn annually – this is what the conflict with Russia cost Ukraine between 2014 and 2020, according to the Center for Economic and Business Research (CEDR). With this in mind, it comes as no surprise that Kyiv is trying to calm down the alarming analyses of Washington and London, who continue to warn of an imminent invasion: after several months of tensions, the Ukrainian economy has begun to suffer from this tense climate.   

In late January, President Zelenskiy confirmed that the National Bank of Ukraine (NBU) would have to intervene to support the hryvnia, which was consistently losing ground against the US dollar. After suffering a 5% depreciation, the NBU managed to stabilize its currency by the beginning of February. Ukraine also continues to benefit from its massive exportation of agricultural products (mainly grain, such as wheat), which helps strengthen the hryvnia’s exchange rate.   

However, like all European countries, Ukraine is still suffering from rampant inflation, which barely decreased in January and remains at almost 10%. This is despite the government’s active measures: in December, the prices of several basic commodities were frozen once again, and in January, the NBU raised its interest rate to 10% to fight inflation.

Overall, observers agree to say that Ukraine’s economy is coping well so far. But now there are growing concerns about the country’s ability to finance its debts. The rating agency Fitch has downgraded Ukraine’s “B” rating forecast from “positive” to “stable,” pointing to the “high degree of uncertainty about President Putin's immediate strategic goals, and the heightened risk of invasion.” Non-resident investors have also largely sold off their assets and bonds.

This fuels Kyiv’s frustration over an economic threat that is purely the result of the growing panic over a potential Russian invasion.“In a normal situation, without pressure, without crazy gas prices and without this hysteria, this year would have been very comfortable,” Finance Minister Serhiy Marchenko told Economichna Pravda. In an effort to seem reassuring, Marchenko underlined that long-term investors haven’t left the country yet. Above all, he emphasized the benefits of financial assistance to Ukraine from the EU and the IMF, which will lend $2.2bn to Kyiv in 2022. “To be perfectly clear: we can deal with the problems we’ve been saddled with,” the finance minister affirmed.  

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This article originally appeared in FPRI's BMB Ukraine newsletter. Click here to learn more about BMB Ukraine and subscribe to the newsletter.