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    Posted by sashimi on July 13, 2022, 2:11 pm, in reply to "Re: Fears grow over plight of Ukraine’s public finances"

    13 July 2022
    Sam Fleming in Brussels, Ben Hall and Roman Olearchyk in Kyiv and Colby Smith in Washington

    Ukraine's international partners are sounding the alarm about the mounting
    pressure on Kyiv's public finances as Russia's invasion drives down tax revenue
    and its allies struggle to provide rapid financial support.

    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.

    Valdis Dombrovskis, European Commission executive vice-president, said Ukraine
    was facing "massive short-term financing needs" and more work was needed to meet
    them. He urged EU member states to provide financial guarantees sufficient for
    the commission to advance a planned €9bn package to Kyiv.

    Ukraine's budget crisis has become acute because of a slump in tax revenues and
    customs duties since the invasion began almost five months ago together with
    higher war spending.

    A halt to grain and steel exports has deprived Kyiv of foreign currency
    earnings. Ukraine is being forced to burn through its foreign exchange reserves
    at an accelerating pace, as the central bank purchases government bonds to plug
    its financing gap.

    The G7 and EU have announced official financing commitments to Ukraine worth
    $29.6bn. According to Dragon Capital, a Kyiv-based investment bank, Ukraine's
    allies and international financial institutions have thus far disbursed $12.7bn
    to the country.

    EU leaders in May pledged additional support of up to €9bn, on top of a previous
    €1.2bn emergency loan; they are still negotiating how to structure that
    financial support. Officials warn the EU's full assistance package is unlikely
    to be settled before the August break.

    Germany in particular has been questioning the idea of providing all of the
    assistance in the form of loans, diplomats say. Berlin has already contributed
    bilateral support of €1bn to Ukraine, and on Tuesday it backed the EU's
    additional €1bn loan.

    The German finance ministry said the commission would put forward a further
    proposal to reach €9bn and that as soon as this was available, it would be
    assessed by the member states. "Together with our international partners we
    stand by Ukraine," it added.

    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.

    But Ustenko said Ukraine needed an extra $4bn a month for the next three months
    to cover the cost of emergency accommodation and housing repairs for millions of
    people and to fund a basic minimum income for people who have lost their jobs.

    "We will try to survive in any case, but without financial support from our
    allies it will not only be difficult to do so, it will be next to impossible."

    The fiscal strains are showing more broadly. Naftogaz, the state-owned energy
    company, on Tuesday asked holders of $1.5bn of its bonds to accept a delay in
    payments as it seeks to preserve cash for purchasing gas. It would amount to the
    first default by a Ukrainian state entity since the war began.

    The Naftogaz move may signal a change of approach by the Ukrainian government to
    its foreign bondholders. Until now, Kyiv has refused to reschedule its debt
    payments, saying it was important to maintain the confidence of international
    investors.

    Ukraine's central bank said last week that it had used up $2.3bn or 9.3 per cent
    of its international reserves in June alone, partly because it is monetising the
    deficit at an increasing pace.

    The National Bank of Ukraine bought $3.6bn worth of government bonds last month,
    more than double the $1.7bn rate for April and May. The central bank still has
    enough reserves to cover three months of imports.

    The US on Tuesday announced an extra $1.7bn in direct economic assistance to the
    government of Ukraine. "This aid will help Ukraine's democratic government
    provide essential services for the people of Ukraine," Treasury secretary Janet
    Yellen said as she announced the support.

    US international development agency USAID and the Treasury have provided $4bn in
    direct budgetary support to the Ukrainian government, meaning they are halfway
    towards the total commitments made under bipartisan legislation.

    Additional reporting by Guy Chazan in Berlin

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