op_obstfeld1_Frank Hammerschmidtpicture alliance via Getty Images_ukrainecurrency Frank Hammerschmidt/picture alliance via Getty Images
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Life or Debt in Ukraine

Given Ukraine's current debt burden and foreseeable financing needs, its official creditors should take the lead in deferring repayments and laying the groundwork for a debt-restructuring deal. Remaining in financial markets' good graces is the last thing the Ukrainian government should have to think about right now.

BERKELEY/WASHINGTON, DC Public debt is rarely a matter of national survival, but it has become one for war-ravaged Ukraine. Two months into the country’s heroic defense against Russia’s invasion, it is becoming increasingly clear that the war could continue for many more months or even years. Victory depends not only on Ukraine’s brave, highly motivated armed forces and citizens but also on the country’s ability to muster the financial resources it needs to sustain an intense war effort indefinitely.

Even with donated weapons and other aid from the West, the Ukrainian government needs huge sums of money to buy more weapons and matériel, recruit soldiers and auxiliary personnel, and to support the civilian population. Russia has destroyed much of Ukraine’s productive capacity and infrastructure, leaving it with limited ability to raise revenues from fees or taxes. Moreover, the Russian blockade of Ukraine’s Black Sea ports impedes exports and further amplifies the challenges facing the Ukrainian authorities.

Under these conditions, Ukraine’s policymakers must establish clear priorities for using precious revenues and foreign reserves. Though the government can and should cut nonessential imports and postpone development projects, as it is doing, such measures will not free up enough resources to sustain a prolonged all-out war effort. So, Ukraine’s remaining financing options are thus to borrow or print money.