Ukraine’s counteroffensive is under way but has not delivered any surprise successes or significant breakthroughs of the heavily defended Russian line. This has caused some comment from watchers that have been hoping for a repeat of the success of the Kharkiv offensive last September where the Russians were outfoxed and the Armed Forces of Ukraine (AFU) made spectacular gains. This counteroffensive is likely to last much longer and be more bloody.
The west continues to send more arms and money to Ukraine, albeit at a frustratingly slow pace. Kyiv has been well supplied ahead of the start of the counteroffensive but the concern is after that operation is over to continue to supply Ukraine as Russia is ramping up its own military industrial production as it puts its economy on a war footing.
Talk to post-war reconstruction has already started with the Ukraine Recovery Conference (URC) held in June where a star-studded list of Western diplomats and leading captains of industry attended to promise to support Ukraine.
However, in the same week the European Commission (EC) legal repeated their position that it is legally impossible to seize the frozen $300bn of CBR money and that this will have to be returned to Russia once the war is over.
That creates a major headache for the western allies as the cost of rebuilding Ukraine is $411bn, according to the World Bank. Without the CBR money it is not clear at all how the funds will be raised. Hence it was notable the emphasis placed on the private sector participation by all the speakers at the URC. However as bne IntelliNews opined, persuading private sector capital to invest in Ukraine will be extremely difficult – and certainly raising the hundreds of billions in short order needed would be impossible.
Nevertheless, Ukraine’s president Volodymyr Zelenskiy remains ambitious. Ukraine wants to build 500,000-strong military Ukraine aims to increase its gross domestic product (GDP) from $161bn to $1 trillion in ten years, among other reasons to maintain a 500,000-strong military.

And the economy is showing some signs of recovery after the first year of war. Ukraine’s real GDP in the first quarter of 2023 increased by 2.4% compared to the fourth quarter of 2022, according to Economy Minister Yulia Svyrydenko.
She added that the situation has been improved by the implementation of programs such as “Affordable Credits 5-7-9%,” “e-Robota,” and significant funding for the reconstruction of damaged infrastructure, housing, and social facilities.

“All this becomes possible thanks to the international assistance provided by partner countries, which fuels the restrained optimism of business entities,” she said.

Additionally, exporters faced restrictive measures imposed by five EU states that cut off exports of grain – one of Ukraine’s major foreign exchange earners. The EU ban on imports of Ukrainian grain will last five months.

These challenges are further compounded by the consequences of a terrorist act — the destruction of the Kakhovka Hydroelectric Power Plant, the minister said.

Labour demand has been gradually picking up, resulting in a halt in the decline of wages in the private sector. Household income has also been supported by pension indexation and budget payments. The number of internally displaced persons (IDPs) and migrants remains high, indicating ongoing demographic challenges.

In terms of the state budget, May witnessed a widening deficit due to substantial expenditures. International aid and domestic borrowings have been utilized to cover the deficit. The revival of market demand for government securities and banks' purchases of benchmark securities to meet reserve requirements have contributed to significant volumes of domestic borrowings.
Ukraine’s budgetary funding needs are in good shape with the deficit for this year already covered by donors and the EU has committed to covering 45% of budget needs through to 2027. With the revivial of the domestic bond market and a new extended fund facility (EFF) from the IMF in place, it seems that the government can raise the money it needs to make ends meet for the next few years.

April recorded a significant deficit in trade of goods and services, but the receipt of a grant from the US helped achieve a surplus in the current account. Substantial amounts of official financing have facilitated net capital inflows and an increase in international reserves. By the end of April, international reserves had reached $35.9bn, and they continued to grow in May, reaching the highest level since 2011 at $37.3bn.