Ukraine is demanding financial support to ensure the country’s “survival”.

Ukraine’s finance minister has asked for immediate financial assistance of tens of billions of dollars to plug the gaping budget deficit caused by the Russian invasion.

Government spending exceeded revenue by about $2.7 billion in March, and Ukraine expects the war-related gap to widen to $5-7 billion a month in April and May. Gross domestic product of Ukraine in 2021 was $164 billion.

“In the worst case scenario, we are under a lot of stress [financial] condition,” Sergii Marchenko said in an interview with the Financial Times. “Now it’s about the survival of our country.”

“If you want us to keep fighting this war, win this war . . . then help us.”

Marchenko painted a gloomy picture of the Damage to the Ukrainian economy caused by Russia’s large-scale invasion 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 against Russia, the government wants its western partners to provide financial assistance and approve emergency loans from the IMF and World Bank.

About 30 percent of Ukrainian companies have suspended all activities and 45 percent are operating at reduced capacity, he said. Electricity consumption fell by 35 percent. 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 from the war up to $600 billion.

Marchenko called on Russia to pay reparations for the “destruction of private and public property” during the war and said Kyiv had assembled an international legal team to pursue claims against Moscow.

But the priority was short-term funding. As Ukraine seeks to limit its budget gap, the government has already made more than $6 billion in spending cuts, but it’s not enough, the minister said.

“We can cut some spending, but it can’t fill the gap,” he said.

Sergii Marchenko, Minister of Finance of Ukraine.
Sergii Marchenko, Minister of Finance of Ukraine: “Many politicians advise us to talk about it [debt] Restructuring, but it’s not our policy” © Ministry of Finance of Ukraine

Revenue is a little over half of pre-war levels, he added. The budget deficit in 2022, which was forecast at 3.5 percent of GDP before the invasion of Russia, would be “multiples” of that depending on the length of the war, he said.

The government continued to fulfill its core obligations of paying salaries, pensions and public services his debts, he said. The country made a $292 million payment last month on a dollar-denominated Eurobond maturing in September and will continue to honor its commitments to avoid defaults or restructuring, he added.

“Many politicians advise us to talk about restructuring, but that is not our policy,” he said. Ukraine wanted to have access to both concessional and commercial financing and to continue issuing foreign debt.

The government is in talks with the US to secure guarantees that would allow it to issue Treasury bonds at rates below those currently demanded by the market, which are “far above the optimum for us to borrow now.” , he said.

That This was announced by the IMF on Friday that it had opened an account to channel grants and loans to Ukraine to help it “meet its balance of payments and budgetary needs and help stabilize its economy.”

Marchenko urged rich countries to use the account to channel funds they received from the IMF last August when it made an allocation of its $650 billion Special Drawing Rights, or SDRs, a form of reserve assets that equivalent to newly minted money. The allocation was intended to help countries deal with the economic impact of the coronavirus.

Members of the G7 group of the world’s largest economies received around $290 billion in allocations, which were split among the IMF’s 190 member countries, roughly equal to their share of global production. Marchenko urged rich countries to donate or lend between 5 percent and 10 percent of their allocations to Ukraine’s war effort through the new IMF account.

“This allocation was not used, many countries just parked it,” he said. “That’s probably the easiest thing [form of support].”

Last month, the US Congress approved $13.6 billion in military and humanitarian aid to Ukraine and other war-torn countries. While welcoming this, Marchenko said Ukraine would “not get a penny” as it would be provided in the form of direct aid rather than cash. “This is not direct budget support. We cannot use it to fill the deficit,” he said. Ukraine is demanding financial support to ensure the country’s “survival”.

Adam Bradshaw

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