Ukraine is racing to cobble together money to pay for basic public services and benefits, with its deputy prime minister warning the country will soon be forced into “survival” mode without an influx of funding.
The country’s financial hole comes as more than $110 billion in aid from Europe and the U.S. has been held up by political infighting, with Kyiv saying it may have to delay pay for millions of public servants and pensioners unless Western assistance arrives soon.
Russian invasion plunged Ukraine into economic crisis
Ukraine’s Prime Minister Denys Shmyhal this month sounded the alarm in a letter to international donors seen by Bloomberg, saying financing is urgently needed next month to help plug the $37.3 billion hole in Kyiv’s annual budget. Ukraine’s spending has almost doubled following Russia’s invasion in February 2022, with half of the country’s budget for the coming year set to go to the military. Amidst severe economic uncertainty, Ukrainians have been protesting for months to demand that local governments freeze spending on road repairs and parks and spend the money on weapons instead, The New York Times reported.
If attempts to raise cash fail, Kyiv may be forced to print money again
Kyiv has been searching for ways to generate new sources of income since September, when Western economic support began to falter – and may be forced to turn to risky measures such as tapping its central bank for cash once again. So far it has increased a windfall tax on banks to 50% and transferred revenues from a 1.5% supplemental income tax from local to central government. It has also resumed tax inspections that were paused at the start of Russia’s full-scale invasion. Even so, it is fiscally impossible for Ukraine to compensate for the lack of EU and U.S. aid, economist Yurii Gaidai told Economichna Pravda. As a last resort the Finance Ministry will consider stop-gap measures including raising tax revenues or devaluing Ukraine’s currency, the hryvnia, Bloomberg reported.
EU readies its “Plan B” to fund Kyiv
In early December, European leaders attempted to ratify a $55 billion, four-year package for Ukraine. But the plan, which required the unanimity of the 27 EU leaders, was scuttled by Hungary’s Viktor Orbán, the only EU leader to meet with Vladimir Putin since Russia’s invasion. Now the EU is preparing a back-up plan to sidestep Hungary’s veto and gather up to $22 billion for Kyiv, the Financial Times reported. But before going ahead with “Plan B,” European leaders will try once more to convince Hungary’s Viktor Orbán to accept the original $55 billion package at a summit in February.