Ukraine Country Report Nov22 - November, 2022

November 4, 2022

The war grinds on and the Ukrainian economy is being slowly destroyed. On October 10 Russia launched its own counteroffensive, targeting Ukraine’s power infrastructure. As of the time of writing about 40% had been destroyed plunging 1.4mn people into darkness only a few weeks before winter.

The bombardment has not let up. Russia has been using Iranian-made Shahed 136 “kamikaze” drones packed with explosives. Alhtough Kyiv is shooting down about two thirds of the 330 drones, enough are getting through to cause havoc. Moreover, reports say that Iran has also sold Russia its more powerful ballistic missiles that will arrive soon and could complete the mission. During the Kosovo war the US bombed 85% of the power infrastructure as part of an effort to bring the economy to its knees. Russia has the same plan.

The momentum of Ukraine’s counteroffensive has run its course and the line has stabilised. The introduction of the Iran drones has given Russian President Vladimir Putin back the initiative and Kyiv was urgently appealing for an addition $17bn in aid to repair broken power stations.

Despite the surge of optimism that the war might end soon after the stunning breakthroughs made by Ukraine’s forces in the Kharkiv region at the end of September, the realisation that this will be a long war and certainly drag on all winter is making itself felt. At the start of October Bankova predicted that the war will be over by next summer, but that remains a big assumption.

The latest attacks will only make Ukraine’s economic situation more difficult. The IMF recent said that 25% of Ukrainians are already living in poverty that will rise to 55% in 2023 and confirmed its estimate of a 35% GDP contraction this year.

A mass power outage over the winter plus rising poverty could lead to another wave of refugees leaving the country in coming months. The Prime Minister has already advised those already living outside of Ukraine not to return for the meantime.

Both sides are taking a hard line. In October Ukrainian President Volodymyr Zelenskiy signed a law that rules out negotiating a peace deal with Putin, but after the rocket attacks started on October 10 he seemed to soften his line somewhat and suggested talks could be possible, but only after Russia had withdrawn to its pre-2014 borders, which is not going to happen.

The only good news is that the Ukraine’s donors seem to have sorted out the government’s financing for next year. Both the US and EU have committed to sending $1.5bn of cash to Kyiv each month that will go a long way to cover the budget spending. The IMF estimates that Ukraine will need some $5bn a month, but with the multilateral development banks’ contributions this gap should be closed.

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