ASH: Ukraine - running through the numbers

ASH: Ukraine - running through the numbers
How much is it costing to fund Ukraine in its struggle against Russia? Leading Ukraine analyst Tim Ash estimates its costing about $100bn a year. / bne IntelliNews
By Tim Ash of BlueBay Asset Management in London May 14, 2024

Lots of figures are thrown around about the cost of supporting Ukraine in its defence against the Russian invasion. I have myself used a $100bn a year price tag for keeping Ukraine in the war, and likely a $50bn a year price tag to fund post post war reconstruction.

The Kiel Institute for the World Economy provides by far the best tracker of Western support for Ukraine, see below.

I also combine this with Ukraine’s Ministry of Finance website which provides a tracker of budget support for Ukraine.

According to data from Kiel, total US and European support for Ukraine (military and budget/humanitarian) since the onset of the full-scale invasion until the end of February 2024 was €156.7bn. In addition, Japan provided around €6bn over this same period, and Canada around €5.4bn. This would then put the total at over €168bn. Of this total around €67.1bn had been provided by the US - and obviously this excluded the latest $61bn support package for Ukraine approved by the US Congress in April 2024.

The €168bn total excludes multilateral financing (IMF and World Bank, plus EIB) which, according to the Ukrainian MOF, amounted to around $11bn for the period from the onset of the full scale invasion to March 2024.

Also note that to plug holes left by the delay in US funding from the $61bn package, which had originally been slated for last fall, the EU and other donors front loaded some of their disbursements in Q124. The MOF hence reports over $8bn in additional Western funds were directed to Ukraine in March 2024, including $4.8bn from the EU (part of the €50bn facility agreed at the EU council meeting in December to cover Ukraine to the period to 2027), an additional $1.2bn from Japan and $1.5bn from Canada and just over $0.5bn from the UK.

€168bn is around $180bn in US money, add in the $11bn multilateral financing, and the $8bn detailed above for March and that is already just over $199bn in effect for 25 months. One could perhaps also add in the external debt service relief accrued to Ukraine of well over $10bn also over this period.

Suffice to say the $100bn figure of the annual cost of supporting Ukraine looks about par - not bad from my finger in the air approach.

Notable though that the above figure is just to keep Ukraine in the war, and not actually ensuring victory - Ukraine is currently on the back foot so whatever we are doing is not enough. The West is only just providing Ukraine with enough funds to keep it in the war. In recent months Western financial support has ebbed and flowed. For the first six months of 2023, just prior to the Ukrainian counteroffensive, the West was funding Ukraine to the tune of $8.5bn a month. That had, however, dropped back to just $3.7bn per month in the period from October 2023 to February 2024, and no surprise then that Ukraine was then militarily on the back foot. The latter reduction in funding was again related to the fall off in US financing as funds were logjammed in Congress.

What seems to be evident then from the above is that the West needs to provide Ukraine with at least $100bn a year to maintain the battlefield status quo. Less than this and Ukraine is pushed onto the back foot. I would then argue that to ensure positive forward momentum for Ukraine it likely will require Western financing of not less than $100bn per year ($8bn plus a month), but more likely closer to $150bn (more like $12.5bn per month).

The obvious question is what happens if Trump wins the US presidency in November, and then likely US financing for Ukraine falls off a cliff in 2025. This would risk funding to Ukraine dropping to closer to $50-60bn per year. Would other Western allies be willing then to step in to cover the $40bn per year plus financing shortfall from the US, and go beyond that to provide the additional $50bn to take funding to the $150bn mark. It seems unlikely.

Obviously $100-150bn annually to support Ukraine sound like big numbers. But these have to be set against the costs of not supporting Ukraine and the costs of a Russian victory. Likely then Nato defence spending would need to increase not just to the current 2% of GDP target but close to the 3% plus of GDP spent during the Cold War era on defence. To put some numbers on that Nato’s European members are slated to meet the 2% of GDP target in 2024, which is expected to total $380bn in combined defend spending in that year. Pushing that to 3% of GDP would add an additional $190bn on annual defence spending in Europe. This number would double if the US joined Europe in increasing its defence spending by an additional 1% of GDP to account for the additional threat from a resurgent Russia, likely if it wins in Ukraine. Hence when we think of bang for buck here a $150bn annual investment in Ukraine for just a few years to potentially save a recurring $400bn plus additional spend if Ukraine loses looks like a very good investment by the West in its own security. Not sure if the ECB does cost benefit.

Timothy Ash, the senior sovereign strategist at BlueBay Asset Management in London. This post first appeared on his substack blog here. Subscribe to the blog here.