In the conditions of an ongoing war, any military operations on the enemy’s territory attract considerable attention from both society and economic analysts. The Kursk unprecedented operation, conducted by the Armed Forces of Ukraine, became one of the events that have a potentially significant impact not only on the course of military operations, but also on the economy of Ukraine. It is quite clear that it raises questions about its consequences: will this operation affect the economic situation in Ukraine? What opportunities and risks await our state?
The main positive aspects of the impact on the economy of Ukraine
Increasing international support and investment growth
A successful operation on the territory of Russia, carried out by Ukrainian troops, can become a catalyst for increased financial assistance from Western partners. International support is likely to increase, which will positively affect the stabilization of the economy and further recovery of our country.
An increase in financial infusions in the form of grants, loans and investments can significantly support Ukraine’s economy in wartime conditions. In addition, the confident actions of the Ukrainian army can increase the confidence of foreign investors, which will contribute to the attraction of new capital investments in various industries.
Release of resources for economic development
A successful operation in the Kursk region may lead to the release of some of the resources that were previously used for defense in this direction. This will allow funds to be redirected to support the economy, social programs, development of peace initiatives, and infrastructure restoration.
Strengthening of the national currency
Successes on the front can affect the currency market. Increased confidence in Ukraine’s ability to protect its borders and ensure stability may lead to a strengthening of the hryvnia. The growth of the national currency will have a positive effect on import-dependent sectors of the economy, such as energy, technology and the production of consumer goods. This will also reduce inflationary pressure, which is an important factor in stabilizing the economy in wartime conditions.
Possible risks and negative aspects
Despite the potential positive consequences, the Kursk operation may create great risks for the economy of Ukraine. First of all, it causes an escalation of the conflict and a likely harsh response from the Russian Federation, which, in turn, can lead to a worsening of the economic situation, an increase in economic uncertainty, an increase in military spending and a decrease in investment attractiveness.
Any military activity on the territory of Russia forces the authorities to reorient resources to ensure security and stability in the regions. This increases the budget deficit, especially in the context of sanctions and limited access to international capital markets. Such costs can affect social programs and economic development in other regions of the country. In addition, investors may perceive this as a sign of instability, which will deter them from investing in the Ukrainian economy
In addition, there is an extremely important issue of ensuring the livelihood of cities and towns that remained in the zone of military operations. It is not limited to humanitarian considerations on the part of the Armed Forces of Ukraine, and is also supported by international obligations. In particular, the requirements of the Geneva Convention, which provides for compliance with certain standards of protection of the civilian population during conflicts.
If the military operation in the Kursk region drags on, which is quite possible, the provision of new territories with resources will turn into a significant financial burden for Ukraine. Additional costs related to infrastructure maintenance, providing the local population with food, medical services, social benefits, water supply and other critical systems in the territories of the Kursk region (especially in remote areas where logistics are complicated due to hostilities) may increase significantly. This fact becomes extremely alarming against the background of the existing budget deficit in Ukraine. In conditions where the country already does not have enough funds to cover its own needs, such additional costs can create serious financial pressure.
In addition, today at the briefing, the Deputy Minister of Education and Science of Ukraine Mykhailo Vynnytskyi Ukraine stated that our country will provide an educational process for children in the territory of the Kursk region in the event of such a need. It will also require significant resources. It will be necessary to provide children with textbooks, educational materials, technical means for distance learning, as well as pay salaries to teachers who will work in difficult conditions. In addition, there may be a need to repair or equip temporary educational facilities, which will further complicate the state’s financial situation.
Ukraine is already faced with the need for significant borrowing to support its economy, which leads to an increase in public debt. In such conditions, new expenses can significantly worsen the situation, forcing the government to look for new sources of financing. This may include raising taxes, cutting social programs, or turning to international financial institutions for additional assistance.
It is also worth considering that any increase in wartime spending can have long-term effects on the economy. The growth of the budget deficit creates risks for macroeconomic stability, increasing inflation and lowering the standard of living of the population. All this complicates the performance of the main functions of the state and may lead to the need to implement strict economic measures in the future. Rising prices for essential goods, energy and services can create additional social pressure, which in turn can lead to increased spending on social programs and support for the most vulnerable. In the conditions of war, this can significantly complicate the management of the economy and cause new challenges for the government.
Partial troubleshooting steps are required
The mentioned problems require determination of the legal status of the people who remained in the territories that came under the control of Ukraine. Instead of following Russia’s example and issuing Ukrainian passports, we should consider providing temporary protection to all who need it, similar to what EU countries do.
Also, new economic problems require the fastest possible spread of hryvnia circulation in the new territory, which will help reduce the costs of supporting the local population. In this way, it will be possible to assign social payments in hryvnias to citizens who will receive the status of temporary protection, and to provide hryvnia funds for the purchase of local food products and other necessary goods for our military personnel. At the same time, it is possible to make calculations regarding the ratio of available commodity stocks and necessary social payments, but it is likely that if the ruble is promptly displaced from circulation in favor of the hryvnia, the balance will be favorable for Ukraine. The launch of the hryvnia in new territories will make it possible to offset the costs of social assistance at the expense of emission income provided by existing goods and services. However, it is necessary to act urgently, until the stockpiles in the new territories have not been exported to Russia or consumed for rubles.
Therefore, the Kursk operation of the Armed Forces of Ukraine is an important stage in the current military conflict, and its economic consequences can be both positive and negative. At this time, it is extremely important to develop an economic support strategy, which will include measures to minimize risks, as well as intensifying international efforts to support the Ukrainian economy. Only in this way will Ukraine be able to maintain economic stability and continue its path to victory in the war.
