Financial aid to Ukraine: What Western partners give money for and its implementation
Foreign partners plan to provide Ukraine with about $34 billion financial support in the near term. The aid consists of loan proceeds and grants that do not have to be repaid. The largest donors are the European Union, the United States, the European Investment Bank, the World Bank, and the United Kingdom. Of the promised amount, $12.7 billion has already arrived in Ukraine’s accounts. In this blog, I will look at whom, and for what purposes, financed Ukraine during the war.
A lot of income was received in August and the international reserves of Ukraine grew by 13.6%, amounting to over $25 billion. Another favorable factor for savings increase is the deferral of payments on debt obligations, which was previously agreed with investors. According to the estimates of the NBU, these funds will be enough to provide imports for the next 4 months. Thus, August was the period when the most foreign aid was received for almost $5bln, which allowed not to make additional hryvnias, and the pressure on the currency market slightly eased.
The Ukrainian Ministry of Finance has developed an infographic that clearly shows state budget funding sources since the full-scale invasion’s start. The data are current as of August 30, 2022. The lion’s share of the budget is covered by the National Bank and the sale of government bonds, but in war conditions, it is challenging to ensure the functioning of the budget independently.
The NBU has been emitting money for at least 4.5 months to meet all the budgetary needs that need to be covered over and above Western aid. This happens because even considering all these receipts, we still have a huge budget gap of $5 billion a month. The NBU data shows that from January to July 2022 the government spent almost 45% of the consolidated budget on military needs. It is worth noting that the financing of Ukraine’s economic system is aimed exclusively at social and humanitarian programs. Grants and loans for the military sector are separate items and are not included in these expenditures. For example, this money is used to finance the supply and manufacture of weapons, as well as the training of the Ukrainian military.
Constant financial support from our Western partners is a strong argument for us to have confidence in our allies. Many European and U.S. politicians are in favor of supporting Ukraine as long as necessary. On June 7, the European Commission offered Ukraine an additional €5 billion in macro-financial assistance. This is in addition to the €10 billion already provided as financial, humanitarian, and military aid. The government expects to receive this money by the end of September. Even earlier, on September 5, the European Commission announced its readiness to sign a new €500m budget support program. These funds are planned to be used to support internally displaced people and the agricultural sector.
Foreign aid to Ukraine’s financial sector helps ensure economic stability, continued support for the army and internally displaced people, a successful heating season, and other state social and humanitarian expenses. Amid forecasts that the economy will shrink by a third in annual terms, we have become largely dependent on international receipts, but this also means that Ukraine has not been left to its own problems. There is already talk of the post-war reconstruction of Ukraine with the help of the EU, G7 countries, and other world economic leaders. This gives confidence in a quick recovery and the ability to continue to pay the government’s loan obligations.
