
Ukraine’s Economic Struggles Signal Barriers to Post-War Recovery
Publication: Eurasia Daily Monitor Volume: 22 Issue: 111
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Executive Summary:
- Ukraine’s soaring fiscal deficit, trade imbalances, and stalled reforms undermine post-war reconstruction planning.
- Foreign investments critical for recovery are also deterred by judicial inefficiencies, incomplete energy sector reforms, and entrenched corruption.
- Uncertain financial aid, monetary instability, and mismanaged state assets limit prospects for economic diversification and integration with the European Union.
On June 13, the press service of the Ukrainian Center for Economic Strategy warned that Ukraine risks losing 1.5 billion euros (about $1.8 billion) in EU aid under the Ukraine Facility program for the first quarter of 2025 due to delays in judicial and anti-corruption reforms (Ekonomichna Pravda, June 13). This announcement follows a January report that Ukraine’s national debt reached 92 percent of its gross domestic product (GDP) in 2024, up from 84 percent of GDP in 2023 (Forbes.ua, January 9). In early June, another troubling signal came when the Standard and Poor (S&P) Global Index downgraded Ukraine’s GDP-linked bond rating from “CC” to “D” due to a silent default on $665 million in GDP warrants (The New Voice of Ukraine, February 25; Ukrinform, June 4). These developments are symptoms of the systemic roadblocks—judicial inefficiencies, corruption, and mismanaged public assets—that threaten Ukraine’s economic stability and eventual post-war recovery.
Ukraine’s economy has been battered by Moscow’s full-scale invasion. While the economy grew by 5.3 percent in 2023 and 2.9 percent in 2024, it remains almost 25 percent below prewar levels (Centre for Economic Strategy, July 10). June brought some improvement as inflation finally began to slow after running rampant for over a year, and the National Bank of Ukraine (NBU) expects that inflation has already hit its peak. In May, the NBU presented a growth projection of 3–4 percent for 2025–2027, though that figure may be constrained by growing labor shortages and significant damage to critical infrastructure (National Bank of Ukraine, May 13). Addressing judicial issues, energy sector inefficiencies, and corruption while shoring up aid uncertainties and trade deficits will be critical to unlocking more foreign direct investment (FDI) and achieving sustainable growth.
Some of Ukraine’s judiciary lacks independence, which is eroding investor confidence. Despite dissolving the notoriously corrupt District Administrative Court of Kyiv, new courts often retain similar personnel, perpetuating inefficiencies (Ukrainska Pravda, December 13, 2022; Babel, January 14). The EU Ukraine Facility ties aid to judicial reforms; yet, progress lags, with only about 43 percent of Q1 benchmarks met by March 27 (The New Voice of Ukraine, April 1). A transparent, efficient judiciary is essential to attract FDI and align with EU standards (Ukraine Facility Plan, March 2024).
The energy sector, vital for economic recovery, faces outdated infrastructure and incomplete reforms. The Fourth Rapid Damage and Needs Assessment, published by the Ukrainian government, the World Bank Group, the European Commission, and the United Nations in February of this year, reported a 70-percent increase in damaged or destroyed energy assets since the third assessment was published in February 2024. The sector reportedly requires $68 billion for reconstruction (United Nations Ukraine; Ukrainska Pravda, February 25). Unilateral amendments to Ukrenergo and Gas TSO statutes from the Ukrainian Ministry of Energy may jeopardize international financing, as they undermine transparency (Interfax Ukraine, June 4). Modernizing and repairing Ukraine’s energy infrastructure and governance is critical for a successful recovery.
Corruption remains a formidable barrier, with Ukraine ranking at 105th in the 2024 Corruption Perceptions Index (Babel, February 11; Transparency International, accessed July 28). While the ProZorro procurement system and the 2023–2025 State Anti-Corruption Program show progress, vested interests block deeper reforms (Suspilne, June 20, 2022). According to a poll conducted by Socis earlier this year, among Ukrainians’ most serious concerns, corruption outweighs Russian assaults (The New Voice of Ukraine, February 26). Protests broke out across Ukraine on July 22 following the Verkhovna Rada’s vote in favor of controversial amendments that effectively subordinated the National Anti-Corruption Bureau (NABU) and the Specialized Anti-Corruption Prosecutor’s Office (SAPO) to the Office of the Prosecutor General. In response to the vote, NABU head Semen Kryvonos stated that the “anti-corruption infrastructure has been destroyed” (RBC-Ukraine, July 23). This decision caused criticism in the West, with the European Union expressing concern for the trajectory of Ukraine’s reform program (RBC-Ukraine, July 22, 24; European Pravda, July 29). Ukrainian President Volodymyr Zelenskyy has since submitted a bill aiming to restore independence to NABU and SAPO (RBC-Ukraine, July 24; X/ZelenskyyUa, July 27).
Ukraine has been unable to make significant progress on its fiscal debt, as public debt has remained at 92 percent of GDP for 2025 (Forbes.ua; Minfin.com.ua, January 9). Issuing $25 billion in domestic bonds since 2022 has strained liquidity, while inflation hit 12.6 percent due to rising food and labor costs (Ministry of Finance of Ukraine, May 22, 2024; The New Voice of Ukraine, May 9). The NBU’s 250 basis points of rate hikes since December 2024 aim to curb inflation but may also stifle growth (National Bank of Ukraine, April 24). Capital controls stabilize the hryvnia but restrict profit repatriation, which could deter investors (Ligazakon.net, January 27). Without fiscal discipline and monetary flexibility, Ukraine risks prolonged economic stagnation.
Ukrainian Finance Minister Sergii Marchenko warned in early June that funding for the 2026 budget remains uncertain due to the war (Ukraine Business News, June 3). The Center for Economic Strategy reported in 2024 that Ukraine would need $32 billion in external financing for 2025, but donor fatigue and geopolitical shifts threaten future flows (Center for Economic Strategy, August 28, 2024).
State-owned enterprises (SOEs), such as Naftogaz, suffer from nepotistic vendor selection and double billing, with equipment paid for twice via state budgets (VoxUkraine, June 29, 2023). Privatization in Ukraine stalls due to vested interests, leaving SOEs uncompetitive (Korrespondent.net, July 18). Transparent governance and privatization are crucial for unlocking economic potential.
Ukraine needs to overcome a multitude of economic and legal challenges to ensure a successful post-war recovery. The NBU underscores that while the economy has remained resilient since Russia’s full-scale invasion, thanks to steps taken by the Ukrainian government, further reforms are still needed to unlock Ukraine’s full economic potential (VoxUkraine, May 8). The threats of a decrease in FDI and a stalled EU integration process could further hinder Ukraine’s development and highlight the urgency of the current situation. The coming year will be a vital test of Ukraine’s ability to balance wartime resilience with structural transformation in shaping its economic future.