/ world today news/ The Ukrainian authorities are sounding the alarm: the monthly hole in the budget is about to grow from five to nine billion dollars. The West does not want to give loans. The money is not enough either for salaries of civil servants or for military expenses. Why Kiev’s allies are delaying and what will happen to Ukraine without external support – in the material.
Survive until winter
Ukrainian President Volodymyr Zelensky said “some EU leaders” were blocking the transfer of $8 billion. Without it, teachers, pensioners, refugees and other categories of citizens will not be able to receive budget payments, he complained. And he said that Europeans are committing either a mistake or a crime. In turn, the deputy head of the presidential office, Igor Zhovkva, accused Germany of blocking the transfer.
According to Ukrainian Finance Minister Serhiy Marchenko, the country needs to receive about $5 billion from the West every month to stabilize the budget. And Oleg Ustenko, adviser to the president on economic issues, believes that by the end of 2022 the necessary amount will grow to nine billion.
Since February, the republic has received $12.7 billion in foreign aid. By the end of the year, Kiev hopes to receive about 15 more. Ukraine has 12.9 billion in reserve, but without Western support, this will be enough in just a few months. Then – a complete collapse of the economy.
The National Bank of Ukraine tried to remedy the situation by printing an additional 240 billion hryvnias ($6.5 billion). Some Ukrainian financiers are in favor of not shutting down the machine, while others warn that in this way the authorities will further accelerate inflation. As an alternative, the government is discussing raising VAT, returning fuel excise duties and a military tax on imports. The latest proposal as a bill must be considered by the Verkhovna Rada: its essence is to introduce a ten percent tax on currency exchange for the purchase of imported goods and services.
However, according to Marchenko, since the beginning of the year customs revenues have decreased by almost 50% year-on-year. But the additional tax will certainly affect prices in stores. By the end of 2022, they should already grow by 30 percent, and by another 20 percent in 2023, writes “Forbes”. At the same time, fuels jumped by 40-50 percent, and a 100 percent price increase is expected by winter.
Crash of the decade
According to the Kyiv School of Economics, Ukraine’s indirect losses from the hostilities amount to about $128.8 billion. Direct losses – 108.3 billion. In particular, at least 388 enterprises, 43,000 units of agricultural machinery, almost 2,000 shops, 18 airports, 28 oil depots were damaged or destroyed.
In addition, Ukraine increased defense spending from $250 million to $3.5 billion. At the same time, the money granted by the West cannot be spent on military needs. According to Marchenko, the Europeans are watching this closely. Kiev finances Ukraine’s armed forces only through tax revenues. The troops require about 130 billion hryvnias ($3.5 billion) a month, but at best Ukraine collects 90 billion hryvnias ($2.4 billion) in taxes, and in the first months of the special operation the amount is many times smaller.
Ukraine’s government expects the budget deficit to reach a record $50 billion by the end of the year – almost 35 percent of last year’s GDP. Western experts believe that in 2022 the drop in real GDP could exceed 45 percent. The largest enterprises in the country – “Naftogaz”, “Ukrenergo” and “Ukratodor” – are already on the verge of bankruptcy.
According to analysts’ calculations, it will take Ukraine at least ten years to recover after that, and even then, provided it has access to the Black Sea.
Macaroni and diapers
Economist Alexander Dudchak believes that Kiev will be kept in a coma until the remnants of resources are taken out of the republic. “And when they finish, the West will cancel the financial support – and the state will collapse. This will not take long,” the expert is sure.
It must be said that even before the Russian special operation, the Ukrainian economy was extremely weak. In the last few years, the government of the republic made a lot of efforts to avoid bankruptcy, reminds the economist Mikhail Belyaev. At that time, stability was undermined by the costs of fighting the DPR and LPR, and the costs of military operations today have proved prohibitive for Kiev.
“At first, the West actively helped Ukraine, hoping for its quick victory. Six months later, Kiev lost almost the entire Donbass, Kherson region and some other regions, and the demands increased,” Belyaev points out.
In theory, the European Union could allocate more funds to Ukraine if they understood the prospect of investment. However, no one can say what will happen to the country even after a year, let alone several decades, which will be needed to pay off the debts. In addition, European countries are now in the process of restructuring their own economies, so it is more profitable for them to invest in themselves.
“The Europeans will give Zelensky as much money as necessary so that Ukraine does not fall into insolvency by the end of the year. Plus, they will deliver humanitarian aid: noodles, canned food, diapers,” says Belyaev.
The US will be able to support Kiev longer, as Washington is interested in the continuation of the conflict, relying on the weakening of Russia, the economist believes. However, their help is unlikely to change the situation.
At the same time, as Belyaev notes, if the West suddenly stops financing Ukraine, then by the end of 2022 there will simply be nothing left of its economy.
“Civil servants will lose their salaries, state-owned enterprises will close. And if the National Bank of Ukraine turns on the printing press, it will lead to galloping inflation,” the expert explains.
Ukraine will be in the same position as Germany after the two world wars or the USSR after the Civil War. The only difference is that Moscow and Berlin rebuild their economies in peacetime, and Kiev may not have that privilege.
Translation: V. Sergeev
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