Once again, Ukraine’s hard-won economic stability is in jeopardy due to a significant budget deficit and the inability of its two main supporters and friends, the US and the EU, to determine whether to continue providing help.
Progress Ukraine has achieved against inflation might be jeopardised if offers of help are not received by the beginning of February, when EU leaders gather to vote on aid, and if no money arrives by the end of March. It has aided common people in continuing to pay their rent, put food on the table, and fend off Russian attempts to destroy the moral fibre of their community.
When they met at the World Economic Forum in Davos, Switzerland, U.S. Secretary of State Anthony Blinken and President Volodymyr Zelenskyy of Ukraine discussed the matter.
We’re committed to continuing to help Ukraine. “We’re working very closely with Congress to do that,” Blinken stated. I am aware that our colleagues in Europe are acting similarly.
The following are important facts regarding the Ukrainian economy and the need for financial support from allies:
HOW IS THE ECONOMY OF UKRAINE DOING?
According to the IMF, Ukraine’s economy has demonstrated “remarkable resilience.” Due to Russia’s dominance over the centre of Ukraine’s heavy industry, during the first few months of the conflict in 2022, the nation lost a third of its economic production due to occupation and damage.
In addition, the need for the central bank to print money to close massive budget deficits caused inflation to skyrocket to a staggering 26%.
But last year saw a turn around, with the economy expanding by 4.9% and inflation dropping to 5.7%, which was better than several large nations like Germany. The financial system in Ukraine has continued to run, along with the opening of clinics and schools and the payment of pensions.
For those like Nadiia Astreiko and her 93-year-old mother, who survive on their combined $170 monthly pension, it is a lifeline.
Astreiko, 63, stated, “Everyone’s life has changed because of the war.” It’s challenging financially as well because I now have to count every dime. For us, it’s rather difficult.
Nearly all of the tax revenue received by Ukraine goes towards financing the conflict. That still leaves a large deficit since there are other expenses necessary to maintain society, such as pay for state personnel, teachers, physicians, and nurses, as well as pensions for the elderly.
The central bank of Ukraine printed fresh currency at the start of the conflict, which is a risky stopgap that might lead to inflation and devalue the hryvnia.
Ukraine was able to put an end to the practice as donor payments grew more consistent and reliable, and the budget approved by parliament in November did not depend on them.
According to Hlib Vyshlinsky, executive director of the Centre for Economic Strategy, a policy institute in Kyiv, one significant achievement was increasing old-age pensions, which may be about equal to $100 per month, to account for inflation.
Reintroducing money printing and the ensuing inflation, according to him, “would push a lot of people into real poverty.”
Vyshlinsky stated that Ukraine needed “a decision by the start of February, and the money by the beginning of March” in order to prevent that from happening again.
HOW DOES IT AFFECT ORDINARY PEOPLE?
Ukraine’s poverty compares favourably to that of the rest of Europe. Like Astreiko and her mother, millions of individuals spend 80% of their income on food and the remaining amount on medications for Astreiko’s mother.
The two have meat once or twice a week and fish twice a week. Astreiko collects or produces her own fruit, vegetables, and mushrooms in the forest, cans them, and freezes them for the winter.
She maintains that concerns over the economy are secondary because her grandkids reside in Kyiv, where frequent missile attacks are occurring and troops are dying.
“We’re going to make it.” Astreiko wished for the conclusion of the conflict.
Businesses like Dmytro Felixov’s concert.ua website, one of the most popular in Ukraine for buying tickets to plays, concerts, and comedy acts, have been able to survive thanks in part to the economic recovery. He has experienced several crises, like as the Crimean Peninsula annexation by Russia in 2014.
He claims that increased interest in Ukrainian culture has resulted from the conflict and a “certain cultural renaissance.” He predicts that by 2025, profits would reach their pre-war levels, stating, “Our business will survive.”
Felixov’s firm is no longer seriously impacted by the regular missile assaults. Sales of tickets fell by 20% on December 29 amid a record number of missile and drone assaults by Russia, he claimed, but they increased to normal the next day.
He claimed that whereas people used to attend concerts to unwind, they now do it to assist them relax.
WHAT IS THE CURRENT STATUS?
In order to reduce the deficit and stay away from money creation, Ukraine’s budget for this year asks for $41 billion in donations.
on a $52 billion aid package over four years. The accord, which needs the support of all 27 EU countries, was rejected by Hungary. However, in advance of a leaders’ meeting on February 1, the bloc is trying to figure out how the other 26 nations would get the necessary funds.
Less clear is the position in Washington, where Republicans in Congress have linked funding for Ukraine to border security measures meant to stop unauthorised immigration. There’s still no decision.
In October, the White House requested $11.8 billion from Congress to fund the budget for a full year. Office of Management and Budget Director Shalanda D. Young stated in a letter dated October 20 that the funds will “ensure that Putin does not succeed in collapsing the Ukrainian economy.”
In Davos on Tuesday, Zelenskyy expressed his belief that more help from the EU and the US will arrive “in a matter of weeks.”
The IMF was instrumental in mobilising support and authorising a four-year, $15.6 billion credit programme for Ukraine. Because it imposes conditions to assure effective economic policy and compels Ukraine to reform its legal and tax institutions and fight corruption, that money leveraged $115 billion more from other donors.
The question of taking control of $300 billion in Russian assets overseas that have been blocked by nations backing Ukraine is being discussed. The money has the potential to break the impasses over public funds in Washington and Brussels, but there are worries about the potential legal ramifications and the overall economic effects of taking such an extreme measure.