Ukraine risks an economic collapse next year unless its Western backers plug a massive hole in its budget, according to Finance Minister Serhiy Marchenko.
An economic crisis would be “very, very traumatic not only for Ukraine but for all of Europe,” he told POLITICO from Kyiv.
EU aid to Ukraine runs out in December. The Commission has pledged a €50 billion package for the next four years, but Hungary and Slovakia have opposed further funding for Kyiv, citing corruption concerns. The problem is compounded by the U.S. Congress’s resistance to passing further aid to Ukraine, as proposed by the Biden administration.
Marchenko warned that Ukraine’s troubles would quickly spill over into the rest of Europe, through the channels of migration and inflation, notably in food and energy prices.
The International Monetary Fund expects Ukrainian gross domestic product to grow by 2 percent this year, after Russia’s full-scale invasion caused its economy to shrink by 30 percent last year. But Ukraine continues to rely on allies to cover its budget expenses, half of which — $42 billion — relate to the war.
“The budget is quite simple. We can spend our taxes and our domestic borrowing only on our military, and for the civilian part of our budget we will rely on our partners,” Marchenko said. The Rada, Ukraine’s parliament, is set to vote on the country’s budget for 2024 on Thursday.
Separately, the EU is facing complications over its plan to use billions of dollars in frozen Russian assets to help the country’s reconstruction efforts. While EU leaders have backed such moves, some European governments are privately worried about the risks to financial markets.
Anti-corruption
Of around $43 billion in external financing needs, pledges by the U.K., Japan, the IMF and others are set to cover around $10 billion. Kyiv’s own efforts could stretch to another $4 billion, leaving a $29 billion shortfall.
The EU and the U.S. have been the largest donors to Ukraine since 2022. But opposition to further aid in some EU capitals and in the U.S. Congress is a cause of concern.
All 27 member states countries need to agree on the EU aid package, which is tied to a request for a wider increase to the bloc’s budget.
“We are ready for discussion to understand what are the obstacles … and what else we should do,” Marchenko said. “It could be another package of reforms, it could be some ideas on how to strengthen our anti-corruption bodies.”
However, he added, delay in getting aid to Kyiv would be fatal.
“We need money from the beginning of next year,” he said.
Kyiv is already facing the real risk of slower and smaller support from the U.S. as it enters election year. Washington has temporarily suspended further aid to Kyiv. President Joe Biden is seeking congressional approval for $61.4 billion in aid for Ukraine as part of a broader funding request including funds for Israel and Taiwan.
But Republicans, who control the House of Representatives, are opposing an increase in funding for Ukraine.
“I believe [aid] will materialize; it’s a question of time,” Marchenko said.
Leveraging profits
Marchenko also asked for allies to channel to Ukraine around $300 billion of Russian assets frozen by G7 countries at the beginning of the war.
“It’s a rightful priority for Ukraine to get these Russian frozen assets for [the] reconstruction of Ukraine,” he said.
Speaking in Kyiv on Saturday, Commission President Ursula von der Leyen pledged to leverage the profits generated by those assets.
But Ukraine’s sights are on the principal, too, not just the interest.
Taxing the interest should be “an additional option” he argued. “Priority No. 1 is to use all Russian assets to help Ukraine to restore [its] capabilities and economy.”
