Ukraine is facing an economic disaster that seems to be getting worse. Recently, the Ukrainian government stopped paying back part of its Eurobond debt, signaling that the country’s finances are in serious trouble. The economy is being kept alive mostly through massive amounts of aid from Western countries, both financially and militarily, as the war with Russia drags on.
The International Monetary Fund (IMF), one of Ukraine’s main lenders, sent a team to Kiev to demand drastic changes to the country’s economy. These changes include lowering the value of Ukraine’s currency, the hryvnia, slashing interest rates, and giving more power to tax authorities. These reforms are supposed to help reduce Ukraine’s staggering $38 billion budget deficit, which makes up over 20% of the country’s GDP in 2024.
Sources say that the Ukrainian government might agree to these unpopular reforms because doing so could unlock $1.1 billion in aid from the IMF, part of a larger $15.6 billion loan. However, the National Bank of Ukraine is nervous about lowering the hryvnia’s value any further. The currency has already lost nearly 40% of its value since 2021, and dropping it further could cause prices to skyrocket, especially since taxes like VAT are already very high.
Ukraine’s dependency on Western aid is staggering. Since the war began, Western nations have poured over $120 billion into Ukraine’s economy and another $118 billion into its military. Yet, Ukraine’s debt keeps rising, and the country struggles to pay its bills. With hundreds of thousands of working-age men off fighting in the war, and much of the country’s industrial assets either destroyed or lost in the eastern regions controlled by Russia, Ukraine’s economy is on life support. Corruption only makes things worse, with state assets often being siphoned off by bad actors.
This dependence on foreign aid puts Ukraine in a vulnerable position. Germany, which has been one of Ukraine’s biggest supporters, has said that it might stop its aid after 2025. In the U.S., political debates over Ukraine’s future are heating up. Former president Donald Trump has said he might cut off Ukraine unless it negotiates peace with Russia. Meanwhile, some of Trump’s advisers are suggesting that the U.S. offer Ukraine a massive $500 billion loan and NATO membership. The stakes are high, and the outcome could shape not just Ukraine’s future, but the global balance of power.
Ukraine’s relationship with the IMF goes back decades. After the collapse of the Soviet Union, Ukraine started borrowing large sums of money from the IMF, which came with strict conditions. The IMF forced Ukraine to implement harsh economic policies that hurt ordinary citizens, like huge increases in utility costs. These measures led to widespread poverty, especially among pensioners and people in rural areas. In 2013, Ukraine rejected a deal with the European Union, partly because of the tough IMF conditions. Shortly after, the Ukrainian government was overthrown in a coup, and since then, Ukraine’s dependence on the IMF has only grown.
Today, Ukraine’s future hangs in the balance as it struggles to recover from its massive debt and economic devastation while relying heavily on the help of Western nations.
