Political analyst Yuriy Romanenko and economist Oleg Ustenko held their fourth conversation in a series of broadcasts devoted to the economic component of a potential peace agreement with Russia. The discussion was extremely candid and alarming – the experts analyzed in detail the financial challenges awaiting Ukraine in the post-war period, and the conclusions were far from comforting.
Economics as the Foundation of Any Order
Ustenko began with a fundamental thesis: any architecture of a new order, whether global, regional, or national, must always be based on economics as the supporting structure and resource base. "It determines how this order can be implemented. And accordingly, if there are not enough resources, a threat will arise that it will be violated, imbalances will begin to form," the economist explained.
He reminded that the institutions of the post-war world order after World War II were based on the economic power of the United States, which then produced 52% of global GDP. Over the past 80 years, the situation has fundamentally changed: Asia has risen, new centers of power have emerged – India, the Gulf states, Latin America has strengthened. Many different forms of subjectivity are based on their own economic resources.
The Main Condition – Security Guarantees
The central issue of the entire conversation was the topic of security and its impact on the economy. "No security guarantees, no economy, no future development, no investments either external or internal," Ustenko categorically stated.
The economist recalled the scale of the decline: the economy fell by 30% in the first year of war, and by the end of the current year will be 20% below pre-war levels. For recovery, serious economic growth is needed – a minimum of 5% per year for five years. "Why is serious economic growth needed? Because borders are opening. They open not only for the population, they open for business, they open both for entry and exit," he explained.
This means that investors – both foreign and domestic – will weigh every decision through the prism of the question: "Could war start again?" A domestic investor will take out from the bottom drawer of his desk a folder with investment maps and will decide: invest in Ukraine or in neighboring Poland, Romania, further west.
Demographics and the Need for Technological Breakthrough
Ustenko returned to the previously discussed demographic problem: "The dire demographic situation requires serious investments in equipment and technology to increase productivity, to replace the workforce that has left." We're not talking about investments of $100-200 million as now, but billions of dollars.
Why billions? Because the economy "withered" during the war, is 20% below pre-war levels, and needs to make a leap. "You must try over a short period of up to 5 years to ensure serious growth. And serious growth means you must grow at least 5% per year," the economist emphasized.
Closed Stimulation Channels
Ustenko explained why traditional economic stimulus tools won't work. Monetary channels are closed due to high inflation: "The budget for next year forecasts 10% inflation. This year about 10% inflation. Where will you further stimulate the economy through monetary channels?"
Budget stimulus is also extremely limited. Exports cannot become a growth driver, as 70% of Ukrainian exports are metals and agricultural products, i.e., raw material exports that cannot provide a serious breakthrough in the world market.
"It turns out that practically what you can count on is investments," the economist summarized. But any investor weighs risks, and even with written security guarantees understands that risks in Ukraine are higher than in other regions of the world. This means required profitability must be higher. Plus war insurance – a specific and expensive type of insurance that the investor must factor into costs.
Critical Budget Figures
The most shocking part of the conversation concerned specific figures for future expenses. Ustenko started with the army: "What is being discussed now regarding our army is 800,000. I understand this is approximately the same expenditure on the army that we have now. And this means, by current calculations, approximately $60 billion per year."
He paused for comprehension: "$60 billion is 30% of our current GDP. If our GDP grows by 5% per year, we'll bring it to a quarter trillion, to $250 billion, but still this is simply a gigantic sum."
The economist calculated: if the average level of GDP redistribution through the budget is 40%, and 30% goes to defense, then 10% of GDP remains for everything else – about $20-25 billion. Currently, $45 billion is spent on everything not related to the security and defense sector. "Then the question arises: what will happen next? Does this mean our social expenditures must be cut in half?" he asked rhetorically.
Veterans and Medical Programs
Ustenko separately highlighted expenses for veterans: "My assessment is that at a minimum, such medical programs for those returning from war will amount to about 5% of our GDP. We're talking about a sum of about $10 billion."
This is not just medical care, but also creating a barrier-free environment without which veterans simply cannot live. "We are obligated as a state to support them. And this is simply a constant that simply cannot be changed," the economist emphasized.
From the remaining $20-25 billion for the social sector, $10 billion goes to veterans. For the entire rest of the social sector, $10-15 billion remains. Plus payments for fallen AFU soldiers of 15 million hryvnias each – "considering the number of casualties, we're talking about tens of billions of dollars."
Debt Burden
Ustenko reminded about state debt: "Credit resources are already huge. Our credit resources are 100% of GDP – this is a colossal debt burden on the state budget. And this will consume at least 2% of our GDP annually just to service this credit resource."
He added up mandatory expenses: 30% of GDP for the army, 5% for veterans, 2% for debt servicing – total 37% of GDP. "And 40% of your GDP is redistributed through the state budget. For everything else, for all kinds of political wishes, for demands formed by society, for everything altogether, 3% of GDP remains," the economist calculated.
3% of GDP at the current moment is about $6 billion. "Even the pension fund won't be able to cover the pension fund deficit," Ustenko stated.
The Question of Reparations and Compensation
One of the most painful questions is who will pay for reconstruction. Verified losses according to World Bank methodology amount to $450 billion. President Zelensky operates with the figure of $750 billion – an estimated indicator accounting for territories impossible to reach. With indirect losses, we're talking about a trillion dollars.
"What does $750 billion in direct losses mean compared to frozen Russian assets of $300 billion? Well, as Americans say: 'Give me a break.' This is half what's needed to cover losses," Ustenko protested.
From these $300 billion, $100 billion is planned to be withdrawn. "This is actually one-tenth of the total losses that need to be covered. What about the remaining losses?" the economist asked.
He recalled a historical example: after World War II, Germany began paying reparations from the mid-1950s and stopped payments only in 2010. "Are we sure this will happen this way? And if not, then again the question arises: who will pay for everything?"
Criticism of the "Medieval Approach"
Ustenko sharply criticized some provisions of preliminary agreements: "It simply stupefies me that some points reek of the Middle Ages. We are a country that was subjected to aggression, we are a country that suffered in all this. And our security is not simply something given to us by the world community because it's in the interests of the world community, but something we must partially pay for, this service related to guaranteeing our security."
He drew a historical analogy: "The city is plundered. And to come under the protection of a larger feudal lord or stronger kingdom, you must pay for this. This is a kind of insurance that will also cost us certain funds."
Romanenko added: "We're returning to the Middle Ages. Kyiv was destroyed in 1240. Want to rebuild – rebuild. This is your problem, not the problem of the one who destroyed it."
Ustenko continued: "If there's no justice here, why should there be justice there? Is the right of the strong the basic right now enshrined in international law? They burned the city, we ourselves must rebuild it?"
Illusions About Rare Earth Metals
The economist was skeptical about hopes for rare earth minerals and other "magical solutions": "It's worth remembering that land scanning is a very expensive process. One square kilometer of land scanning costs approximately one million dollars. To scan Kharkiv and Luhansk oblasts – we're talking about an initial investment just for geological exploration of several tens of billions of dollars."
And this is without guarantee that rare earth materials will be found in industrial volumes. Plus the usual term of such a project is at least 30 years. "This is not an investment project with a lifespan of 7 to 10 years. Here we're talking about at least thirty years," Ustenko emphasized.
He sarcastically added: "Let's also search for Polubotko's gold. Let's send our group to London. This is also a topic that Ukrainian politicians have constantly thrown out since the nineties. What if there isn't any? What if there are no barrels? But we've already written them into the state budget 20 times and divided them up."
Romanenko quoted from the draft agreements a phrase about "creating a Ukraine development fund for investments in fast-growing sectors, technologies, data centers, artificial intelligence." His reaction: "What the hell artificial intelligence here, who will invest in all this when the energy system will first work in emergency mode?"
Against a Large Investment Fund
Ustenko opposed the idea of creating one large investment fund: "I am very much against creating one large investment fund that will absorb most of the investments entering the country. Who will make decisions on where to invest these funds? Who said that decision will be correct and effective?"
For him, the private sector is the one that can make decisions because it's their own money. He named agriculture as the most promising sector: "It's clear how to do business, it's clear there's a competitive advantage, it's clear that if there's no war, high efficiency can be achieved. Even during the war they managed to collect good harvests."
But immediately raised a critical question: "Who will deal with demining the territory? On the shoulders of an individual farmer or should someone think about this, and should these funds be included in the budget? Will we ourselves pay for demining? Won't we be helped, won't the aggressor pay for this, but we ourselves?"
Romanenko added: "I was in Karabakh in 2021. The Azerbaijanis said that with that scale of work, they would do this for 15-20 years. For us it will be for decades, as in Cambodia under Pol Pot."
Reforms and Optimization
Ustenko raised the issue of structural reforms: "Are we going to somehow change the structure of the state? The structure must be different. A new state structure cannot live in the realities in which we've been during the war."
He gave a concrete example of absurdity: "Now we have extra pay for teachers who are in mountainous areas. Are you completely serious paying extra to teachers who live in Ivano-Frankivsk, Lviv oblasts, while we have teachers in Kharkiv, Chernihiv and Sumy oblasts who work under constant shelling? Do you seriously think it's normal to pay extra there and not pay extra here?"
Regions that suffered should receive priority opportunities from the state budget for reconstruction. But the question arises: what kind of reconstruction? "Do we want to restore an old metallurgical plant or make a new one? Do we want to build a stinking old Khrushchyovka or do we need to build barrier-free houses for veterans? Who will pay for this?"
Illusions About Fighting Corruption
The economist dispelled popular illusions: "Don't delude yourselves with ideas that if we stop stealing, there will be more money. Of course, we need to stop stealing, of course, we need to reduce corruption, but this doesn't solve all problems. Yes, you'll get an additional several billion dollars, but this doesn't solve that huge layer of our economic problems. This is just a small grain."
The same applies to populist proposals about cutting salaries for officials and deputies: "Excuse me, this isn't kindergarten. Cut them, please, don't pay at all. But how much savings will this give you? There it's $2 million or $10 million a year. With the overall additional need we can throw together here, at least $50 billion."
Caution with Tax Experiments
Ustenko warned about the danger of radical tax reforms in both directions. Those who propose sharply reducing taxes ignore the question: "What will you do if this doesn't give the desired effect? Simply because some people simply don't pay taxes. Make the tax 3% instead of 30%, he won't pay it."
And those who propose raising taxes: "You have a shadow economy sector officially 20% of the economy in the shadows, and a version closer to truth is about 30% or more. Raise taxes, let's see how much the shadow economy sector will become then."
The Main Call – Resolve Before Signing
Ustenko repeated the main thesis several times: "It turns out that the most important recommendation to any politician: everything possible must be subordinated to the country being able to show serious economic growth. We must be ready for these economic trials. And they must be discussed on this bank of the river, before we got on the raft and started floating to the other side."
Romanenko supported: "This must be the subject of international negotiations. If we start discussing all this post-factum, and they leave us one-on-one with problems, nothing good will come of it."
Ustenko agreed: "Many want quickly: you quickly sign, sign the paper and that's it, and solve your problems further yourself."
The economist warned about the main threat: "We didn't lose our independence during the war, our sovereignty won't be lost, but we risk losing it later due to purely economic reasons that are more than serious and will hang over us for more than one decade."
At the end of the conversation, Ustenko summarized: "Economics is not a country of fantasies. If you're really doing something, you need to be more realistic about life. It's better to know in advance what awaits us than not to know this and live in some illusions that everything will be wonderful."
