How did the economy survive the first year of the war, and what awaits us next year?

In 2022, the year of Russia’s full-scale war against Ukraine, all the strengths and weaknesses of the Ukrainian economy were vividly demonstrated.

Many of the strengths were the result of reforms carried out over the previous eight years. The unexpected resilience of the banking system. The ability of the government and the National Bank to maintain macroeconomic stability under extremely difficult conditions.

The ability of reformed state-owned enterprises, such as Ukrzaliznytsia and Ukrposhta, to take the initiative and use their scale for large projects, supporting citizens and businesses.

And, of course, the power of private initiatives. In March, after only a few weeks of shock, businesses began to resume operations despite the shelling. By September, almost all of them did so on the territory not affected by hostilities and occupation.

And even Russia’s terrorist attacks on energy infrastructure since October have not stopped the desire to work and earn money. Generator orchestras on the streets are complemented by real orchestras, which continue to play for their listeners by candlelight.

But weaknesses have also appeared. The populist actions of many governments, the desire to spend more from the state treasury than to collect for it, left the state budget not only without a “rainy day fund”, but with heavy debts.

The distrust of citizens and businesses in the government, built up over decades, even now drives them to give money to volunteers rather than pay taxes honestly. And even the President has never once during the war called to support the Armed Forces of Ukraine by paying taxes in full. All this makes Ukraine too dependent on international financial assistance.

If 2022 was the year of quick responses to extremely difficult challenges, 2023 will be the year of decisions for a long-term future.

We hope that the delays in the summer will not be repeated, and a rapid recovery will begin in the spring with the help of international partners to return people and jobs to the de-occupied territories. The next winter should be stronger than the winter of 2022/23, not weaker.

Ukraine will need to understand where many millions of refugees and internally displaced persons are now and where they will live and work after the victory.

Which businesses will remain in less secure regions, and which will move production to other areas? There will be a big discussion about incentives for private investment and the first steps will be taken – from risk insurance to a large-scale tax reform that will not be limited to tax cuts.

But the main achievement should be trust. In the judicial system, in the cleansing of which it will be necessary to pass a critical threshold. In public spending, where it will be impossible to allow old practices to continue behind the fog of opacity under the pretext of war. In the national currency, which has held up better in this war than in any previous economic crisis.

Only on the basis of trust can Ukraine regain its human capital and attract the investments needed to rebuild its physical capital. Together they can give a boost to the Ukrainian economy after the victory.

The publication was published in Ukrainian on Ukrainska Pravda.