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What's Behind Ukraine's Upgrade to Upper-Middle-Income Economy?

© Sputnik / Alexandr Demyanchuk / Go to the mediabankUS and Ukrainian notes and coins
US and Ukrainian notes and coins - Sputnik International, 1920, 02.07.2024
Ukraine has been classed as an upper-middle-income country — largely due to its population outflow and injections of foreign aid, according to experts and Sputnik's pundits.
The World Bank has upgraded Ukraine's economic status — despite the country teetering on the brink of a default.
The paradox can be explained by the fact that while Ukraine's economy grew by 5.3 percent in 2023 after a steep decline of 28.8 percent in 2022, the country's population has dropped by around 15 percent since the conflict began, economic observers say.
As a result, gross national income per capita in Ukraine has recently increased to $5,070 from $4,270 — which automatically brought it in the category of upper-middle-income countries, going by with the World Bank's classification.

Ukraine "received powerful external support in the form of financial resources. And it is precisely this external support that largely helped the Ukrainian economy stay afloat when it faced military problems," Andrey Kolganov, head of the Laboratory of Socio-Economic Systems at the Faculty of Economics of the Moscow State University, told Sputnik.

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Ukraine has received almost 108 billion euro ($115.9 billion), including 39 billion euro ($41.8 billion) of military aid from the European Union and its member states since February 2022.
Washington's Ukraine spending has so far reached $175 billion, of which $107 billion directly aided the Kiev regime, including $34.2 billion in budget support and $69.8 billion in arms and other military assistance.
"Ukraine's economy has never belonged to the league of efficient economies," Kolganov said. "Its economic indicators before the outbreak of hostilities were not brilliant, frankly speaking. Ukraine has wasted a lot of its Soviet legacy. And it was one of a few countries in the post-Soviet space that never restored its initial level of gross domestic product (GDP) per capita production."
Ukraine survives because thanks to its financial lifeline from the West and because its economy is buoyed up by its military needs, according to Sputnik's pundit.
"If this external support ends, I am afraid that Ukraine's economic gains will disappear in thin air," Kolganov said.
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To understand the importance of Ukraine's external funding, one should take a look to the Gaza Strip and the West Bank — where per capita income has declined dramatically amid the hostilities, according to the expert.
"There is no external support, and military actions are extremely destructive [there]," he said. "Therefore, of course, there are no economic gains there."
The Economist reported on June 30 that Ukraine's creditors had agreed to suspend debt repayments for two years, while the moratorium on payments to private foreign bondholders will end on August 1.
The magazine warned that if Ukraine defaulted, it would negatively affect investor confidence in the West’s obligations and would throw Ukraine's post-war recovery and future access to financial markets into question.
"Lending to a borrower that is at war involves a second gamble: that it will win," The Economist noted.
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