Independence Day 2022: the anniversary that fell on the six-month mark
Thirty-one years of independence and six months of full-scale war fall on the same date. What the economy looks like when a third of it disappears in a single year, and what is holding the rest together.
Two anniversaries share this date. Thirty-one years since the declaration of independence, and six months since the full-scale invasion began. There is no parade. Public gatherings are restricted across the country because large crowds are targets.
This entry records the economic position as precisely as available data allows, because that is the useful thing an archive can do in a year like this.
The scale of the contraction
GDP will fall by roughly a third this year. There is no modern peacetime comparison; the closest analogues are wartime economies of the 1940s. Industrial output in the occupied and frontline regions has effectively stopped. Mariupol, Sievierodonetsk and Lysychansk — significant industrial centres — are outside government control. The steel sector, which was a fifth of exports, has lost Azovstal and Illich entirely.
Roughly a third of the population has been displaced, internally or abroad. Around six million people are outside the country, predominantly women and children, and their return depends on factors nobody can forecast. This is the single largest long-term economic variable and it receives the least attention.
The budget deficit is running at around five billion dollars a month, funded by external assistance and central bank monetisation. Inflation is above twenty per cent. The exchange rate was fixed at the outbreak of the war and devalued by twenty-five per cent in July to relieve pressure on reserves.
What is still working
The banking system has not failed. Payment systems, card networks and ATMs have functioned nearly continuously, including in front-line cities. This is genuinely remarkable and is the direct result of the 2015 to 2018 clean-up and of contingency infrastructure built after 2014.
The state has continued to pay salaries and pensions. Tax collection has fallen but not collapsed. Railways have moved millions of evacuees and, since summer, substantial freight volumes westward.
The IT sector has kept operating and exporting, with much of the workforce relocated within the country or abroad. It will finish the year close to its 2021 export level, which is an extraordinary outcome and reflects the fact that its output crosses borders as data.
The grain corridor
The agreement signed in Istanbul on 22 July has reopened Odesa, Chornomorsk and Pivdennyi for grain exports under a monitored corridor with a joint coordination centre. The first vessel sailed at the start of August, and volumes have been building since.
Before this, Ukraine's exportable surplus was moving by rail and river through Romania and Poland at a fraction of the volume and several times the cost. The corridor matters for Ukrainian farm incomes, for the balance of payments, and for wheat prices in importing countries across North Africa and the Middle East, which fell substantially from their March peak as the arrangement took shape.
Its durability is uncertain and it depends on periodic renewal. Anyone whose supply chain now assumes Black Sea grain flows should hold an alternative sourcing plan with a defined trigger.
Candidate status
On 23 June the European Council granted Ukraine candidate status for EU membership, four months after the application. Seven conditions are attached, covering judicial appointments, the constitutional court, anti-money-laundering, anti-oligarch legislation, media law and national minorities.
Candidate status confers no market access that the Association Agreement did not already provide. What it does is convert an aspiration into a process with a file, a timetable and annual assessments. For businesses this is the more useful frame: from here, Ukrainian regulation is on a defined convergence path, and the direction of every future rule change is known in advance.
Thirty-one years in
The country marking this anniversary has lost more territory, output and population in six months than in the previous thirty years combined. It has also acquired a formal European future, a functioning wartime state administration, and a degree of external support that no assessment written in 2021 would have predicted.
What can be said with confidence is narrow: the institutions that were rebuilt between 2015 and 2018 — the central bank, the banking system, the treasury, the railways — are the reason this economy is functioning at all. That is the strongest argument for institutional reform anyone has produced in this country's history, and it was made at an unbearable price.
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