Loans and grants received from the United States, the European Union, Japan and Canada are of great importance in covering government expenditures, especially the timely implementation of social benefits and pensions. Prolonged lack of financial investments by partners may affect the weakening of the hryvnia, increase inflation and lead to the need to increase financial pressure.
Presidential Advisor Oleg Ustenko recently said that if there is no support from the West in the first days of January, “Plan B” should be moved to. According to the expert, it is enough to turn to the domestic market to borrow at the first stage. That is, we are talking about increasing the volume of government bond issuance, which will help cover extremely important social expenses of the state budget.
Interviewed Focus experts are confident: the disaster has not yet occurred, and if the pause in providing financial assistance to Ukraine lasts no more than two months, Ukraine will be able to cover the costs on its own.
“The technical delay in Ukraine’s financing can indeed be covered by a significant amount of domestic resources. As of December 15, the NBU’s debt to banks in certificates of deposit alone reached UAH 356 billion and will increase by the end of the year,” says economist Vitaly Shapran.
If aid is not received in January, the most important expenditure items will be covered from government bonds, gold and foreign exchange reserves.
Financial analyst Andrey Shevchishin is confident: Bonds (government bonds) are the only mechanism that will not cause undue pressure on the general situation, since the main expectations at the moment are that we are talking about a temporary pause in the provision of Western aid and not. Complete cessation of financing.
“We have our own margin of safety; these are gold and foreign exchange reserves that can be used partly to cover the budget deficit and can also cover expenses with additional borrowing from the domestic market through government bonds. So this is one of the ways. If this is not enough or the demand for government bonds is low, then perhaps other means will be used – this is a matter through government bonds, where the bonds will be bought back to finance the budget deficit. At the same time, obviously, the Central Bank restricted the reduction of the discount rate, which was recently reduced by only 1 percent (from 16% to 15% annually); Meanwhile, this was significant because annual inflation reached 5.1% in November. Maintaining the attractiveness of government bonds. Now the situation is such that the most important items of expenditure will be financed through government bonds and foreign exchange reserves,” commented Andrey Shevchishin.
Experts also talked about the possibility of the government introducing an emissions mechanism that would finance spending through large amounts of government bonds.
“As for the opening of the NBU printing press, I assure you that it was not closed. Thus, the monetary total M0 (cash in circulation) has increased by 32 billion UAH since the beginning of the year, and M1 (cash Hryvnia in circulation and balances in demand accounts ) – from the sources of replenishment of the mass of UAH 134 billion hryvnia one is the systematic repurchase of international aid and NBU loans on the foreign exchange market into gold and foreign exchange reserves. In 2022, in fact, there was a high risk of the hryvnia mass rushing to the foreign exchange market when the blockade on certificates of deposit was lifted, but now, the reserves of the Central Bank amount to 38 as of December 1 Once it remains above a billion dollars, this probability drops to zero. Therefore, I do not see any risks to financial stability from reactivating this source of liquidity, moreover, in order to stimulate economic growth, this had to be done gradually and earlier, and bank funds were a source of lending, not a yoke for the budget. to the real sector“, explained Vitaly Shapran.
According to him, Ukraine should continue its efforts to transfer frozen Russian assets. “I am optimistic and believe that we need to move quickly not to aid at the expense of US and EU taxpayers, but to financing using frozen Russian assets that will minimize the risk of technical delays. it is moving in this direction,” says Vitaly Shapran.
Experts do not exclude that if there is no new aid from the EU and the USA for a long time, the government will have to make difficult decisions, including increasing taxes and using the emissions mechanism.
According to Andrei Shevchishin, various scenarios for the receipt of international aid now need to be taken into account. “For example, I personally assume that the funding gap is 25 percent in the base case. We can also consider different volumes that need to be met through different mechanisms. Of course, this will involve borrowing from the domestic market (government bonds), the use of gold and foreign exchange reserves, tighter management of taxes and customs duties, and possibly an increase in customs duties and taxes to raise revenues. state budget. If there is a catastrophic lack of funds, you will have to resort to the emission mechanism at some pointThe expert added that the use of the issue will affect the growth of inflation and the hryvnia, which may lose value.
“We already see that the hryvnia is weakening and the NBU increased the volume of interventions last week, but this is still a pause in providing financial assistance and this pause may last a month or two,” Andriy Shevchyshyn said.
Important
If a negative scenario emerges, if the country does not receive the lion’s share of Western aid planned in 2024, the government will have to revise the state budget expenditure items. “If assistance is not received, a certain revision in budget expenditures can be expected; Defense will certainly remain a priority, but other spending that the government deems non-critical may also be reduced. So far, we have not seen the need for such a reduction due to the sufficient amount of foreign aid,” says Maxim Samoiluk, economist at the Center for Economic Strategy (CES).
Previously Focus He reported that international support for Ukraine decreased significantly in the last months of 2023. The Institute of World Economy in Kiel calculated that the partners promised to transfer 2.11 billion euros to Ukraine from August to October. This is almost ten times less than in the same period last year.
Let us also remind you that the Speaker of the House of Representatives, Mike Johnson, did not support the proposal to extend the work of both houses of the US Congress for another week. This will allow additional funding to be accepted to Ukraine before Christmas.
Source: Focus
John Holton is a seasoned author and journalist, known for his expertise in economics. He currently works as a writer at 24 news breaker, where he provides readers with in-depth analysis and commentary on the latest economic developments. With a background in finance and a talent for explaining complex economic concepts in a clear and accessible way, John’s writing is a must-read for anyone interested in staying informed about the economy.