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The third front: How the Ukraine conflict became an economic war of attrition –



How the war in Ukraine unfolds in its second year will be decided as much by dollars and cents (or rubles and hryvnia) as by bombs and bullets, say experts who warn the economic battlefield in Eastern Europe has become a critical front in the conflict.

Ukrainian President Volodymyr Zelenskyy’s repeated calls for donations of weapons continue to dominate headlines as the Russian Army carries on a grinding offensive in the eastern Donbas region.

“Ukrainians, when I talk to them, they say there are three fronts to the war,” said Matthew Schmidt, an expert at the University of New Haven Connecticut, who also taught at the U.S. Command General Staff College. “There’s the eastern front, there’s the southern front, then there’s the economic front.”


On Monday, U.S. Treasury Secretary Janet Yellen visited Kyiv to reaffirm the American economic aid crucial to keeping the Ukrainian government afloat and continuing the war effort.

CBC News has been on the ground covering Russia’s invasion of Ukraine from the start. What do you want to know about their experience there? Send an email to Our reporters will be taking your questions.

“I know people talk about war in terms of the battlefield, right?” said Schmidt, who wrapped up his own visit to Kyiv last weekend. “They talked about tanks and planes and troop movements. I taught military theory [at the command college] and I can tell you what we talked about was politics and economics.”

The Ukrainian economy “cratered” after Russia’s full-on invasion last year, said Schmidt — a roughly 30 per cent contraction driven by the displacement of people and businesses and the attacks on infrastructure.

The Russian military’s reputation has taken a massive hit due to its failure to conquer Ukraine. But when you consider the drive to exhaust Ukraine’s economy, said Schmidt — an aspect of Russia’s war efforts that rarely gets talked about — the results look much different.

A woman cries in front of the building which was destroyed by a Russian attack in Kryvyi Rih, Ukraine on Friday, Dec. 16, 2022.
A woman cries in front of a building that was destroyed by a Russian attack in Kryvyi Rih, Ukraine, on Dec. 16, 2022. (Evgeniy Maloletka/The Associated Press)

“If you look at the purpose of the Russian kinetic force, it’s actually achieved a lot because its purpose is not just to kill Ukrainians but to crater the economy, and then create an economy to change the political situation,” he said.

The Ukrainians themselves realize they’re fighting an economic war for survival, Schmidt said — which is why Zelenskyy’s government recently wiped out half the regulations required to open a new business in Ukraine.

In a very real sense, Schmidt said, the war has been reduced to a question of which economy will collapse first — Ukraine’s or Russia’s. 

Howard Shatz, a senior economist at the U.S non-profit think-tank RAND Corporation, said Russia’s economy has performed better than expected during the war, despite the effect of western sanctions.

Customers queue at a currency exchange kiosk in Moscow on Feb. 28, 2022. The Bank of Russia acted quickly to shield the nation’s $1.5-trillion economy from sweeping sanctions. (Andrey Rudakov/Bloomberg)

Right before the full invasion, the Bank of Russia had been projecting that the country’s 2022 gross domestic product would rise by two or three per cent. Right after troops crossed the border, the bank projected Russian GDP would fall by eight or 10 per cent.

For Russia, a ‘slow degradation’

The World Bank and the International Monetary Fund issued similar forecasts.

By October, the Bank of Russia was saying the country’s GDP in 2022 would “only fall by three or three-and-a-half per cent, something close to what happened [with] COVID,” said Shatz.

Higher-that-anticipated world oil prices have helped to cushion Moscow’s economic slide. They’ve mitigated the effects of western sanctions — the ones many world leaders, including Prime Minister Justin Trudeau and U.S. President Joe Biden, predicted would bring the Kremlin to its knees.

Shatz said he believes the sanctions will bite more in 2023 than they did last year but still won’t be the economic “smart bomb” the West was hoping for.

“I don’t think there’s going to be, you know, a switch [in the Russian economy], where all of a sudden it’s falling off a cliff,” he said. “I think what we’re looking at is a slow degradation.

“We’re looking at a downward slope in the Russian economy. Because bit by bit, it’s just going to fall behind the West more and more in the level of technology.”

For Ukraine, it could have been much worse

In Kyiv, the stocktaking among economic experts is mixed. On the one hand, there’s a sense that the 30 per cent plunge in GDP could have been worse, given the circumstances.

Given the mass exodus of Ukrainians to other countries, the roughly 5.3 million people displaced within Ukraine and the massive damage to infrastructure, including the electricity grid, a 30 percent drop is a “very good result, actually,” said economic analyst Yuliya Pavytska.

A woman sits on a bed in a dark room in her pajamas snuggling a cat, lit only by the light of her phone.
Tetyana Safonova, 61, sits with her cat Asya as she looks at her mobile phone during a power outage on Oct. 20, 2022, in Borodyanka, Ukraine. (Paula Bronstein/Getty Images)

It helped that Ukraine’s central bank moved decisively early in the war to keep the country’s financial institutions solvent, she added.

“We didn’t have any bank runs,” said Pavytska, an analyst at the Kyiv School of Economics.

She said she hopes the economy has hit bottom now and can begin to grow again. As late as last fall, Ukraine’s central bank had been predicting four per cent GDP growth for 2022.

That changed when Russia began blowing up the electricity grid.

Those attacks led to a lot of suffering as Ukrainians struggled to cope with mid-winter blackouts. But the destruction of up to half of the national grid also had dire economic consequences, forcing the central bank to revise its GDP projection for 2022 to roughly 0.3 per cent.

“Definitely, the pressure on the economy is huge,” said Pavytska.

“And definitely Ukraine is now relying on the West, in terms of financial aid, to cover the expenditures. But this doesn’t mean the Ukrainian economy will not survive in these circumstances.”

WATCH | Mariupol’s displaced plot their return: 

Living in exile, Mariupol leaders fight for their city’s future

12 hours ago

Duration 2:41

As Russia tightens its hold on the occupied Ukrainian city of Mariupol, its government leaders are living in exile. They refuse to give up on the city or its residents.

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Sri Lanka secures $3B IMF bailout to help salvage bankrupt economy –



The International Monetary Fund (IMF) said Monday that its executive board has approved a nearly $3 billion US ($4.1 billion Cdn) bailout program for Sri Lanka over four years to help salvage the country’s bankrupt economy.

An IMF statement said about $333 million US ($455 million Cdn) of the funding will be disbursed immediately and the approval will also open up financial support from other institutions.

“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities,” the IMF statement quoted managing director Kristalina Georgieva as saying.


“Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical.”

The office of Sri Lanka’s president said the IMF approval will unlock financing of up to $7 billion ($9.6 billion Cdn) from the fund and other international multilateral financial institutions.

WATCH | How Sri Lankans are coping with political, economic turmoil: 

How Sri Lankans are coping with political and economic turmoil

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CBC’s Salimah Shivji gives an inside look at how the political and economic unrest in Sri Lanka is hurting everyday people.

Earlier this month, the last hurdle for the approval was cleared when China joined Sri Lanka’s other creditors in providing debt restructuring assurances.

“From the very start, we committed to full transparency in all our discussions with financial institutions and with our creditors,” president Ranil Wickremesinghe said in a statement from his office. “I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda.”

Wickremesinghe said he has made some tough decisions to ensure stability, debt sustainability and to grow an inclusive and internationally attractive economy.

Sri Lanka increased income taxes sharply and removed electricity and fuel subsidies, fulfilling prerequisites of the IMF program. Authorities must now discuss with Sri Lanka’s creditors on how to restructure its debt.

Protesters shout slogans and hold up signs.
People shout slogans and hold up signs during a protest against the Sri Lankan government increasing income tax in Colombo on Feb. 22. (Eranga Jayawardena/The Associated Press)

“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors to make swift progress towards restoring debt sustainability consistent with the IMF-supported program,” Georgieva said.

“The authorities’ commitments to transparently achieve a debt resolution, consistent with the program parameters and equitable burden sharing among creditors in a timely fashion, are welcome,” she said.

Currency crisis

Sri Lanka announced last year that it is suspending repayment of its foreign debt amid a severe foreign currency crisis, because of a fall in tourism and export revenue due to the COVID-19 pandemic, mega projects funded by Chinese loans that did not generate income and releasing foreign currency reserves to hold the exchange rates for a longer period.

The currency crisis created severe shortages of some foods, fuel, medicine and cooking gas leading to angry street protests that forced then-president Gotabaya Rajapaksa to flee the country and resign.

Since Wickremesinghe took over, he has managed to reduce shortages and ended hours-long daily power cuts. The Central Bank says its reserves have improved and the black market no longer controls the foreign currency trade.

However, Wickremesinghe’ s government is likely to face hostility from trade unions over his plans to privatize state ventures as part of his reform agenda and public resentment may increase if he fails to take action against the Rajapaksa family, who people believe were responsible for the economic crisis.

Wickremesinghe’s critics accuse him of shielding the Rajapaksa family, who still control a majority of lawmakers in Parliament, in return for their support for his presidency.

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Australia Puts Policy Pause Back on the Table as Economy Slows – BNN Bloomberg



(Bloomberg) — Australia’s central bank will consider pausing its policy tightening cycle next month given interest-rate settings are already restrictive and the economic outlook remains uncertain, minutes of its March meeting showed.

The Reserve Bank delivered its 10th consecutive rate hike two weeks ago to take the cash rate to 3.6% as board members judged inflation in Australia is “too high” and the labor market “very tight,” minutes of the March 7 meeting showed Tuesday.

Even so, the RBA board returned to the question of standing pat during its discussions.


“Members agreed to reconsider the case for a pause at the following meeting, recognizing that pausing would allow additional time to reassess the outlook for the economy,” the minutes showed. ”At what point it will be appropriate to pause will be determined by data and the board’s assessment of the outlook.”

While the minutes are dated given the banking sector stress that has roiled financial markets across the world, they show Australian policymakers were already focused on economic uncertainties ranging from the outlook for household consumption to credit growth.

“Members noted that monetary policy was in restrictive territory and that the economic outlook was uncertain,” the minutes showed. “The outlook for consumption remained a key source of uncertainty.” Board members also discussed the “significant financial pressures” that some households are experiencing.

Overnight indexed swaps have swung significantly since the banking crisis in the US and Europe and now imply the RBA will stand pat at its April 4 meeting and then begin cutting in August. Money markets now signal that the global monetary tightening cycle is all but done.

All eyes will be on a number of major central bank meetings over the coming days, led by the Federal Reserve with its decision likely to influence the RBA’s call next month.

Assistant Governor Chris Kent this week sought to alleviate concerns the banking crisis will become systemic, maintaining Australian lenders are “unquestionably strong” with solid balance sheets and capital positions.

Australia has lagged international peers in the scale of its rate increases, reflecting Governor Philip Lowe’s efforts to bring the economy in for a soft landing. The minutes showed the RBA’s tightening bias remained intact however, with a monthly inflation indicator and retail sales data – due next week – gaining extra prominence.

The RBA’s rapid-fire rate hikes have created a political problem for Prime Minister Anthony Albanese as he tries to persuade a heavily indebted electorate grappling with rising living costs that the pain of increased borrowing costs is preferable to entrenched inflation.

The government will release its budget in May, which is likely to have some targeted cost relief measures, although Treasurer Jim Chalmers has said it will keep a tight leash on fiscal spending to avoid further fueling consumer prices.

©2023 Bloomberg L.P.

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Lower taxes, more government spending: What might Quebec’s next budget include?



The province’s economy is currently doing better than many expected, so the Quebec government will have some wiggle room in drafting this year’s budget, set to be unveiled on Tuesday.

What does that mean? More Quebecers are employed with good jobs than some economists had forecast. Crucially, for Finance Minister Eric Girard’s budget math, that also means those people are paying more taxes and fewer people are relying on social safety net programs.

That is welcome news for a government that has foreshadowed both spending increases and tax relief in its upcoming budget — “having your cake and eating it too,” according to some economists and political analysts.



Quebec finance minister ‘disappointed’ with Ottawa’s funding proposal


Rosemary Barton Live speaks with Quebec’s finance minister, Eric Girard, about Ottawa’s health-care funding proposal. Girard says he is ‘disappointed’ with the $1 billion that has been allocated to Quebec, adding that the offer ‘will not make a difference.’

It’s a strategy economists usually warn against. When the economy is going well, they say, governments shouldn’t necessarily offer tax relief but should instead take advantage of increased tax revenues to pay down debt — which Quebec has a lot of, some of which is due to recent expensive COVID-19 and inflation relief plans.

But that isn’t what the budget is likely to show on Tuesday. As usual, the finance minister has been close-lipped about the contents of the documents, but Girard did say that the government will stick to the commitments it made during last year’s election campaign — which likely means more spending, not less, along with a tax cut that some are criticizing as untimely.

So, here’s what you can expect:

Lower taxes

One controversial promise that the CAQ has made is a pledge to cut taxes by one per cent for the two lowest tax brackets.

If the government comes through on that promise, which Girard has suggested it will, that would save a taxpayer earning $55,000 a year $378, but it will save higher-income earners even more.

During the election, Legault said Quebecers making $80,000 a year would save $630 in taxes per year.

It’s a proposal that has some economists raising their eyebrows.

Nearly 35 per cent of Quebec’s population will not earn enough income to benefit from the tax break according to l’Institut de recherche et d’informations socioéconomiques (IRIS).

“It would be an unfair tax cut because it would mainly favour taxpayers with higher incomes,” said Guillaume Hébert, a researcher with IRIS, in an interview.

The government has said the $2-billion measure would be paid for by the government reducing its payments to the Generations Fund, a rainy day fund.

That money, IRIS contends, would be better spent in the public sector, in the health or education system, for example.

The timing of the tax cuts, when the government is handling debt from COVID-19 relief measures and is promising to increase spending, is also causing concern.

“At some point, you want to make these promises, that’s fine,” said Moshe Lander, a senior lecturer in economics at Concordia University, “but it has to be accompanied by government spending cuts elsewhere or higher taxes, not lower taxes.”

But that isn’t what most observers expect.

A man speaking at a podium in front of Quebec flags.
Premier François Legault has often said Quebec taxes need to come down to be more in line with rates in other provinces. (Sylvain Roy Roussel/Radio-Canada)

Increasing spending

In the lead-up to the 2022 election, where the CAQ secured a second four-year mandate, François Legault’s party made lots of expensive promises — $29.6-billion worth.

Not all of those promises are expected to appear in this year’s budget, but spending increases are likely.

“I think that they will increase health-care spending quite significantly and I think education is a major priority,” said Daniel Béland, the director of the McGill Institute for the Study of Canada. “So it’s a government that likes to be popular, right? [Legault] doesn’t like to bring bad news.”

It’s a combination, Béland said, of tax reductions and spending increases that appears to makes more sense as a political decision than an economic one.

It’s also a combination that would lead to a greater budget deficit — which happens when the government is spending more on programs than it receives from taxes.

But that deficit, Lander predicts, will be lower than expected – possibly around the $5-billion mark. A lower deficit than expected, however, deserves no praise because it is coming because of economic prosperity that the government did not engineer, he said.

“When a government tries to take credit for that and says that, you know, the deficit is smaller, they don’t deserve a pat on the back,” said Lander.

The smaller deficit, however, will allow them to couch the budget in optimistic language and a commitment to get back to budgetary equilibrium at some point down the line, Lander predicts.

“They’re gonna create the magic act of smaller deficit than expected on a path to balancing budget while at the same time cutting taxes and raising spending.”


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