Ukraine needs money to withstand the Russian military offensive. It needs it to buy weapons, rebuild its bombed-out energy infrastructure and pay pensions to war widows, all while its tax revenues are stagnating. Several agreements signed in recent weeks with the International Monetary Fund (IMF) and private creditors will give it oxygen to face the coming months.
With Russian attacks on energy infrastructure intensifying, Ukrainian GDP growth is not expected to exceed 3.5%, down from 5.3% in 2023. The budget deficit is expected to widen further to $43 billion (€38.8 billion). This rose from 3.6% of GDP in 2021 to 27% in 2023. The country now relies on foreign aid for almost half of its budget.
The IMF’s technical green light, announced on September 10, for the payment of a new tranche of aid of $1.1 billion, which still needs to be approved by the institution’s board of directors, will replenish the country’s coffers. Of the $15.6 billion in loans promised by the IMF in March 2023, $7.6 billion has already been disbursed.
Support from private creditors
Compared to the $100 billion in international aid received by Ukraine since the start of the war in February 2022, this new payment matters less for its size than for the reassuring signal it sends about the state of the country’s economy. Certainly, the institution’s economists who traveled to kyiv in early September warned against “Exceptionally high risks” on the horizon, and feel the country of“increase tax revenues in 2025 and beyond”of “fighting the black economy” as well as tax evasion. But at the same time they welcome the government’s efforts to “support financial and macroeconomic stability.”
“Strong armies must be supported by strong economies”, Ukraine’s Finance Minister Sergei Marchenko continues to repeat. On 3 September, the government submitted a bill to the Kiev parliament to increase a whole series of taxes, including the military tax. Rejected by one vote, the text will have to be amended before being submitted again.
While Washington’s aid is suspended following the outcome of the American elections in November, and the G7 countries continue to negotiate the terms of a $50 billion loan promised on the 260 billion euros of Russian assets frozen in Europe, Ukraine is trying to strengthen the support of private creditors.
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