Ukraine asks for financial support to ensure the country’s “survival”
Ukraine’s finance minister called for immediate financial support of tens of billions of dollars to fill a gaping budget gap caused by Russia’s invasion of the country.
Government spending exceeded revenue by about $2.7 billion in March and Ukraine expects the gap to widen to $5 billion to $7 billion a month in April and May due to the war . Ukraine’s gross domestic product was worth $164 billion in 2021.
“We are very stressed, at worst [financial] condition,” Sergii Marchenko said in an interview with the Financial Times. “Now it’s about the survival of our country.”
He added: “If you want us to continue to fight this war, to win this war. . . so help us.
Marchenko painted a grim picture of the damage to Ukraine’s economy caused by the full-scale invasion of Russia in late February. Damage to civilian and military infrastructure has been estimated at $270 billion so far, he said, with nearly 7,000 residential buildings damaged or destroyed.
Although Ukraine has received significant military aid to defend itself against Russia, the government wants its Western partners to provide financial assistance and approve emergency loans from the IMF and World Bank.
About 30% of Ukrainian businesses had ceased all operations and 45% were working at reduced capacity, Marchenko said. Electricity consumption has been reduced by 35%. Trade had collapsed, with exports halving between February and March and imports falling by more than two-thirds. The Kyiv School of Economics on Monday estimated the total economic losses of the war at up to $600 billion.
Marchenko demanded that Russia pay reparations for “the destruction of private and public property” during the war and said kyiv had assembled an international legal team to file claims against Moscow.
But the priority was short-term funding. As Ukraine tries to limit its budget deficit, the government has already made spending cuts of more than $6 billion, but it has not been enough, the minister said.
“We can cut some expenses, but that can’t close the gap,” he said.
Revenues were running at just over half the pre-war level, he added. The budget deficit in 2022, projected at 3.5% of GDP before the Russian invasion, would reach “many multiples” depending on the length of the war, he said.
The government continued to fulfill its basic obligations to pay public sector salaries and pensions and to repay its debts, he said. The country last month made a $292 million payment on a dollar-denominated Eurobond maturing in September and would continue to meet its obligations to avoid default or restructuring, he added.
“A lot of politicians advise us to talk about restructuring but that’s not our policy,” he said. Ukraine wanted to be able to access concessional and commercial financing, and to be able to continue issuing external debt.
The government was in talks with the United States to obtain guarantees allowing it to issue sovereign bonds at interest rates lower than those demanded by the market at the present time, which were “well above the optimum for us to borrow now,” he said.
The IMF said on Friday it had opened an account to channel grants and loans to Ukraine to help it “meet its balance of payments and fiscal needs and stabilize its economy.”
Marchenko called on rich countries to use the account to channel funds they received from the IMF in August, when it allocated $650 billion of its special drawing rights (SDRs), a form of reserve asset which is equivalent to newly minted silver. The allocation was intended to help countries cope with the economic impact of the coronavirus.
Members of the G7 group of the world’s largest economies received about $290 billion of the allocation shared among the IMF’s 190 member countries, roughly in line with their share of global output. Marchenko urged rich countries to donate or lend between 5 and 10 percent of their allocations to Ukraine’s war effort through the IMF’s new account.
“This allocation has not been used, many countries have simply blocked it,” he said. “It’s probably the easiest [form of support].”
Last month, the US Congress approved $13.6 billion in military and humanitarian aid to Ukraine and other war-affected countries. Although Marchenko welcomed this, he said Ukraine “wouldn’t get a penny” because it would be provided in the form of direct aid rather than cash.
“This is not direct budget support. We cannot use it to make up the shortfall,” he said.