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Ukraine Is Confronting Substantial Financial Struggles Amidst Conflict And Global Changes

Ukraine’s Finance Minister, Serhiy Marchenko, voiced worries regarding the country’s capacity to secure crucial financial assistance as global focus turns to upcoming elections and escalating geopolitical tensions. Speaking at the conferences of the International Monetary Fund (IMF) and World Bank in Marrakech, Marchenko delineated the challenges Ukraine is encountering in obtaining essential funding.

Marchenko mentioned, “I observe a lot of fatigue, I perceive a lot of frailty among our associates; they desire to overlook the war, but the war is still continuing, full-scale.” He additionally underscored that Ukraine is putting in double the effort compared to previous meetings in April to convince international partners to offer support.

The ongoing confrontation with Russia has resulted in Ukraine encountering a considerable budget shortfall of $43 billion in 2024. Conversations during this week’s conferences have been somewhat overshadowed by the conflict between Israel and Hamas, compounding Ukraine’s difficulty in securing support.

The Finance Minister emphasized that “geopolitical shifts and internal political contexts in different countries” are impacting governments’ readiness to support Ukraine, referencing upcoming elections in the United States and the European Union next year.

To cover the budget deficit, Ukraine has allocated additional tax revenues and funds from internal debt, but a significant portion of next year’s spending requirements relies on external assistance. This includes commitments from the IMF program totaling $5.4 billion, with anticipations of contributions from Japan, the United Kingdom, the United States, and the European Union.

The European Union is formulating a $52.6 billion package for Ukraine spanning 2024 through 2027, with Ukraine seeking 18 billion euros of that in 2024, matching the package received for this year.

Marchenko also expressed appreciation for initiatives to harness frozen Russian state assets, previously seen as an “achievable goal” and now evolving into a plan, though legal concerns have added complexity to the recovery process.

Following Russia’s invasion in February 2022, most of Ukraine’s bilateral lenders have suspended repayment obligations until 2027, and the country has agreed to a two-year freeze on $20 billion of international bonds through August.

In an endeavor to address its financial struggles, Ukraine has been engaging in dialogues with major investors regarding the restructuring of international debt and the possibility of procuring fresh financing. Marchenko conveyed that they are gearing up for discussions with private creditors without specifying a timeframe.

“Our inherent inclination is to preserve access to the market,” he added. Credit enhancement notes have been contemplated as one of the methods to raise funds, contingent on Ukraine’s future economic growth and other economic factors. However, deliberations on this topic have not been a primary focus at the conferences in Marrakech.

Despite the obstacles, Ukraine remains positive about its economic prospects, with Marchenko forecasting a 5% growth in 2024. Additionally, adequate gas storage for the winter is anticipated to provide economic stability amid potential price fluctuations.

Image Source: Alexey Fedorenko / Shutterstock

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