Financial support for Ukraine is insufficient, says Janet Yellen

Ukraine’s partners urgently need to advance new funding to fill the country’s financing gap after existing commitments fell short of what is needed, two senior politicians have warned.

Janet Yellen, the US Treasury Secretary, said pledges from countries and multilateral lenders announced so far were insufficient, as she urged governments to step up aid. “Ukraine’s immediate financing needs are significant,” she told a conference in Brussels.

Separately, Gita Gopinath, the first deputy managing director of the IMF, told the Financial Times that disbursements so far had been relatively low and new financing was urgently needed to keep the economy going and prevent a “serious macroeconomic destabilization”.

“The important point is to get the money to Ukraine quickly and as much as possible in the form of grant funding,” Gopinath said.

In April, Ukraine’s finance minister called for immediate financial support of tens of billions of dollars to close Kyiv’s budget deficit, estimating that government spending would exceed revenue by $5-7 billion a month. Kristalina Georgieva, managing director of the IMF, later estimated that Ukraine would need $15 billion over three months to bail out its finances.

US President Joe Biden in April asked Congress to provide $8.5 billion in economic aid to help Ukraine, as part of a broader congressional funding request of $33 billion. The EU is seeking to advance aid of a similar scale to US economic aid to Ukraine, with Brussels bracing for an announcement in the coming days.

Speaking at the Economic Forum in Brussels on Tuesday, Yellen said that if Ukraine’s government continues to function, it needs budgetary funding to pay soldiers, employees and pensioners and to meet the basic needs of its citizens. “What is clear is that the bilateral and multilateral support announced so far will not be enough to meet Ukraine’s needs, even in the short term,” she said.

Speaking on Monday, Gopinath said actual disbursements to Ukraine totaled just $3.3 billion in March and $1.6 billion in April. There was a lot of pressure on the subject at the IMF and World Bank spring meetings in Washington last month, she said, and “more is happening in the coming days.” She added: “Everyone is on deck and everyone is trying to go as fast as they can.”

Gopinath added: “The global community is extremely engaged to see how to make this funding available. But in terms of actual disbursements, so far, the numbers are low.

EU officials were locked in talks this week to finalize a major new aid package for Ukraine. Valdis Dombrovskis, executive vice-president of the European Commission, told the FT earlier this month that the EU would offer a new round of so-called macro-financial assistance, in addition to an emergency loan of 1.2 billion euros that it had already approved.

The EU is seeking to commit a similar amount to US$8.5 billion, according to people familiar with the discussions, but the final figure has yet to be set. Officials say the commission is seeking to raise funds with the help of guarantees from member states. But the process of securing a deal and moving the loans forward could take several weeks, meaning there are likely to be further delays before the money reaches Ukraine.

Alongside its short-term support plans for Ukraine, the EU is also working on options for rebuilding the country once the war is over, which could also be unveiled as early as this week.

Ursula von der Leyen, the president of the commission, warned that the project could cost several hundred billion euros and she advocated a recovery plan that would bring “massive investments” as well as the necessary reforms. Budget Commissioner Johannes Hahn spoke of the need for a new Marshall Plan for Ukraine.

The commission is likely to float the idea of ​​additional common borrowing backed by member states as one way to raise the needed cash. Other methods include support from multilateral development lenders and EU member states, as well as the EU’s own budget, although this is already subject to heavy demands.

Ukrainian reconstruction will ultimately require “massive support and private investment for reconstruction and recovery, similar to the task of reconstruction in Europe after 1945,” Yellen said in his speech. “Ukraine will have to take one step at a time, but we can help today and recognize and prepare for what is coming.”

Josep Borrell, the EU’s top diplomat, called this month for Russian state assets to be directly targeted to fund Ukraine’s reconstruction.

Gopinath told the FT that it was too early to express an opinion on the idea of ​​confiscating foreign exchange reserves from the Russian central bank, but that it was something the IMF would discuss internally. “We discuss any policy that may affect the international monetary system,” she said. “We will study it carefully.”

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