The US Treasury warned that emergency measures such as money-printing being used by Kyiv to prop up its public finances risked damaging its ability to provide critical public services over time, underscoring the need for allies to meet commitments to provide tens of billions of dollars of grants and cheap loans as quickly as possible.
EU finance ministers meeting in Brussels on Tuesday agreed on a fresh €1bn emergency loan for Ukraine, but they are struggling to land an agreement on a wider package for the country.
Oleg Ustenko, an economic adviser to Ukraine’s president Volodymyr Zelenskyy, said the country now needed $9bn a month from its western backers to plug the budgetary shortfall, almost double its previous request. The finance ministry said its assessment of the gap was still $5bn a month but even that was way more than western capitals had so far provided.
The World Bank has predicted that Ukraine’s gdp will shrink by perhaps 45% in 2022. (“Our estimate is 44%,” Mr Marchenko grimaces.) And both estimates are, of course, hugely uncertain. Customs revenues, a significant part of the government’s tax take, have crashed to around a quarter of their pre-war level thanks to lower imports and the suspension of many duties. Military salaries are another big burden. It all adds up to a financing gap of around $5bn every month, he says. That is roughly 5% of Ukraine’s depleted gdp for every month that the war goes on.
How to fill that? In part, Mr Marchenko says, by having the central bank print more money. In part, too, by issuing war bonds, on which the government currently is paying around 11% interest, which is less than the inflation rate. But the main source will need to be foreign. And that, the finance minister says, is how he spends most of his day, lobbying foreign governments for help. America is where he has the highest hopes [emphasis mine].
On top of that, estimates of the cost of rebuilding Ukraine after the war are at around half a trillion dollars. You can be sure that is going up the longer the war rages on and the country's land and physical capital become further degraded and destroyed.
Most of the media coverage has centered on sending military kit to the Ukrainians. The fiscal angle is perhaps more important and certainly underrated.
How long will Ukrainians want to hold out as their economy diminishes, their currency becomes worthless and their government goes bankrupt, even if they manage to keep Russia at bay in the East?
How long is the West (especially Europe) willing to put money into the effort?
How long is Vladimir Putin willing to hold out?
I would say that the balance here is that Russia has the time and resolve to see it through.
A better question though, is whether a peaceful settlement now and efforts to repair Ukraine with less territory is better than trying to bleed Russia dry? To me, clearly the answer is peace, for the welfare of all involved. That doesn't mean there is a peaceful solution now, but it means we should be looking for an offramp, or at least telling Ukraine that we are not enabling them to avoid one.
I think the onus is on those who would completely destroy something to save it. They need to make the case for belligerence. Instead, it's those who want this to all end who are on the back foot.
Most of the media coverage has centered on sending military kit to the Ukrainians. The fiscal angle is perhaps more important and certainly underrated.
How long will Ukrainians want to hold out as their economy diminishes, their currency becomes worthless and their government goes bankrupt, even if they manage to keep Russia at bay in the East?
How long is the West (especially Europe) willing to put money into the effort?
How long is Vladimir Putin willing to hold out?
I would say that the balance here is that Russia has the time and resolve to see it through.
A better question though, is whether a peaceful settlement now and efforts to repair Ukraine with less territory is better than trying to bleed Russia dry? To me, clearly the answer is peace, for the welfare of all involved. That doesn't mean there is a peaceful solution now, but it means we should be looking for an offramp, or at least telling Ukraine that we are not enabling them to avoid one.
I think the onus is on those who would completely destroy something to save it. They need to make the case for belligerence. Instead, it's those who want this to all end who are on the back foot.