Policy Insights
Policy Insight 140: Replacing foreign aid: A macroeconomic plan B for Ukraine (and Europe)
Nearly three years on from the Russian invasion, Ukraine faces the danger that its economic and military aid from allies, notably the United States, will decline. This poses problems for the Ukrainian military and the Ukrainian economy. The immediate consequences of reduced aid may include acute problems with financing fiscal and trade deficits, which present the Ukrainian government with very painful trade-offs.
The authors of this Policy Insight discuss some policy responses to ensure a sustained war effort despite reduced aid. They continue to believe that generous foreign assistance is essential, but it must be considered what Ukraine can do to close the gap created by insufficient aid. They also note that transferring Russian frozen assets to Ukraine can address the fiscal and trade deficits directly while reducing uncertainty over the medium term. If external aid does not materialise, Ukraine will have to mobilise resources internally to cover military spending over a long period of time.
