The West’s aid to Ukraine is (severely) delayed. What will happen to the budget?
How much does Ukraine’s budget depend on international aid?
Critically so. Last year, Ukraine spent $106 billion, half of which was spent on the war. Ukraine covered the defense costs on its own, while the rest was covered exclusively with the help of partners and government bonds. Most of this money was spent on the social sphere – salaries, pensions and other payments.
This year, budget expenditures are projected to remain at almost the same level – $89.5 billion. Ukraine will again be able to cover half of it on its own – all this money will go to defense. But another $37.3 billion needs to be raised. Most of it should be covered by the aid from the US and EU, which is currently suspended. This includes $11.8 billion from the United States and $19 billion from the European Union. Japan and the UK also promised to give several billion.
Ukraine can receive another $5.4 billion from the International Monetary Fund, but a number of conditions must be met. These include restarting the Bureau of Economic Security, completing the audit of NABU, assessing the effectiveness of tax breaks, improving the banking system, and passing a law on a new court to hear cases against government agencies.
But the IMF money will have to be used to pay off debts to the IMF, says Maria Repko, so it will not save the budget. The Fund’s assistance has a different meaning: how Ukraine fulfills its obligations to the Fund will determine whether the West will give us money in the future.
Will Ukraine be able to finance the budget on its own?
No, it won’t. Because of the war, Ukraine’s state budget has doubled, and the deficit is about 20% of GDP. Russia’s economy is ten times bigger, and Ukraine will definitely not be able to finance the war with it on its own.
What will happen then?
There are no good options. The National Bank can start printing more hryvnia, as it did in 2022, when it was unclear how much aid we would receive. Back then, the NBU printed about 400 billion hryvnias, which it used to buy military bonds from the government, and in fact lent the money to it. This tool allows you to quickly cover the need for money, says Repko. But it has a negative impact on the economy. It was the hryvnia issue and subsequent inflation that caused the hryvnia to depreciate rapidly in the nineties. If the hryvnia falls now, it will worsen Ukraine’s reputation and confidence in the currency, and make it harder to get loans in the future.
“A moderate and controlled emission, as we saw in 2022, can be carried out without catastrophic consequences. But it is very easy to lose control, it is like letting the genie out of the bottle. It will be difficult to curb inflation and devaluation,” Repko said.
Origin: Babel.