Financial assistance to Ukraine: how much is required, and how much will the West give?

"Despite Ukraine celebrating recent victories on the battlefields , her government is facing a looming problem on the financial front: how to pay for the massive costs of the war effort without causing uncontrollable price spikes for ordinary people or piling up debts that could hamper post-war reconstruction." -writes in his article for AP News journalist David McHugh.

Expensive, more expensive and even more expensive

War and preparations for it are more than expensive, and the pace of its conduct in Ukraine is so high that even the most powerful armies in the world are already experiencing certain difficulties on the issue of supplying weapons and ammunition for the Armed Forces of Ukraine. At the same time, literally all the first persons of the allied countries almost daily assure that military support will continue "as much as needed"Also, despite the associated costs, the West as a whole continues its sanctions policy against the Russian Federation: literally today, restrictions on the level of the cost of Russian oil came into effect, which has already caused a rise in prices on stock exchanges around the world.

However, the warring country, in addition to intelligence, training, weapons and ammunition, requires more than substantial financial support. This is due, first of all, to the fact that the economy of Ukraine itself is practically in a coma: many industrial facilities are simply destroyed, commodity-money chains are either broken or blocked, and mass mobilization could not but affect the level of staffing with qualified employees of literally every from Ukrainian companies. In addition, government social spending has risen sharply, as the number of "temporarily displaced persons" has reached an unprecedented scale in history. At the same time, Kyiv has practically no resources or reserves to cover its financial needs, and the level of gold and foreign exchange reserves does not allow any serious relying on them.

The structure of the NBU gold and foreign exchange reserves according to the IMF for October 2022

As can be seen from the table, Ukraine's monetary reserves, i.e. currency and gold, amount to just over US$9,1 billion, with the remainder being securities and deposits. It is clear that such funds, even if we allow their 100% implementation, will be enough only for a very short period of time.

How we were helped financially this year

In this regard, the general need for allied donor support is understandable, which at present can hardly be overestimated. This is not to say that such assistance is not being received: as of October 2022 Kiel Institute for World Economics Counts US$126 Billion the total amount of assistance provided. However, less than half of them are purely financial - US$52,6 billion.

The total amount of foreign aid to Ukraine in 2022 according to the Kiel Institute for the World Economy

Meanwhile, Ukraine's state budget deficit is growing rapidly. According to Presidential Advisor Oleg Ustenko, it currently reaches US$ 5bn monthly. Approximately the same amount is considered by the International Monetary Fund, however, as an "upper limit for 2023" - at least, so recently Managing Director of the Fund, Ms. Georgieva. She assured that the fund is seriously working with the government of Ukraine on the next year's budget, however, the head of the IMF did not announce any specific figures for the planned assistance to Ukraine.

According to Finance Minister Sergei Marchenko, the 2023 budget has been drawn up with the expectation of funding from the United States, the IMF and the European Union, while the government expects to reduce the state budget deficit to 3-4 billion dollars a month.

What are we promised for 2023?

Let's say right away that there are no officially fixed and confirmed amounts of financial assistance yet. According to the American press, the Congress is going to have time to adopt before January 1 a certain "aid package" in the amount of US $ 50 billion, which, according to the senators, "should be enough for Ukraine to survive next year". The package is planned to be considered and adopted promptly, until the moment when the majority in Congress passes to the Republicans - but after the first week of December on the promotion of the relevant bill nothing yet. In addition, it is not yet clear whether this huge amount includes military supplies, and to what extent from the total budget.

The European Union has also not yet officially announced the provision of its financial contribution, the amount of which is tentatively determined in EUR18 billion, although the European Parliament voted for its allocation on November 24. The entire amount is planned to be divided into 12 months, that is, € 1,5 billion in each of them.

The parameters of financial injections from the IMF, as we have already written, have not yet been determined.

It is very important to understand that the conditions for the provision of foreign aid in 2023 will be significantly different from the current ones. Although it is still unknown under what exact conditions we were provided with all this huge amount of military and financial assistance, in the future it will there will definitely be loans. In any case, the EU has already stated this with complete certainty. The IMF, as a purely financial structure, also basically does not give free money, and in the United States, voices are becoming more and more insistent, demanding, if not reducing assistance to Ukraine, then at least putting it under strict control.

Thus, the financial assistance of the Western community to Ukraine for 2023 does not yet have clear binding formats, and, in fact, will greatly depend on the global economic situation, as well as on the political decisions of the governments of the allied countries, which, in turn, are quite domestic disincentives, including rising prices, limited energy supply, and public dissatisfaction with deteriorating living conditions, are strong. In addition, despite the war, the same European Commission proposed to put one of the conditions for obtaining loans "reducing the level of corruption in Ukraine"- and we know that such a requirement can be quite a heavy cudgel in the hands of European bureaucrats, as it has happened more than once in the past.