Ukraine needs the economic lifeline of its Western allies. Without a new injection of funds to keep the State's machinery afloat, the country, which has been resisting the large-scale war launched by Russia for almost 700 days and which dedicates a large part of its budget to defense, will be forced to leave without salary to up to two million public employees and without social assistance to one million already in the first quarter of the year. These are the conclusions of an analysis of the situation of the budgets that the Ukrainian Government has sent to the United States, the European Union and other Western allies and to which EL PAÍS has had access. Ukraine thus urges Washington and Brussels to move forward with the support packages that total some 100 billion euros and that remain frozen and pending approval due to political friction in both capitals.
On the EU side, the community partners are already considering alternative formulas to guarantee the economic support promised to Kiev without counting on Hungary, in case they do not get Viktor Orbán to lift the veto of the promised 50 billion euro economic lifeline. That decision must be adopted at the decisive European summit on February 1.
In the analysis received, Ukraine abounds in all those very sensitive disbursements that depend on Western support. The text emphasizes that, taking into account the available resources and the performance of “priority expenses” for the defense and security sector, as well as the payment of the state debt, there is “a risk of non-compliance with expenses” in the payment of salaries for more than 1.4 million employees in charge of the budgets of scientific and educational institutions, as well as for more than 50,000 people working in budgetary and state institutions. Also to cover payments for maternity leave to some 700,000 people and another 160,000 people who receive social aid because they have very low incomes.
The country invaded by Russia, recalls Tymofy Milovanov, president of the Kyiv School of Economics, lost almost 30% of its GDP last year, according to data from the International Monetary Fund, due to the large-scale war. “The Ukrainian economy is resilient, but it is in a difficult situation. It is very oriented towards war,” Milovanov, who was Minister of Economic Development, Trade and Agriculture between 2019 and 2020 and who advises the Office of the Ukrainian President, Volodymyr Zelensky, points out by phone. There are many economic activities related to defense and there have been many foreign aid packages that, together with the efforts of the private sector and the work of volunteers, have kept the economy afloat.
“European funds are needed to maintain the economy, they would go to the state budget because currently all taxes go to defense efforts against Russian aggression. And that means that there is hardly anything left for the rest,” says Milovanov. Added to this is the prospect of expanding the recruitment that Zelensky has announced, through which the Ukrainian army could call up up to half a million more people. That would also be another element of pressure on the budget. “If there is no financing, there will be an economic crisis, waves of refugees and a weaker defense, which will allow the Russians to gain ground,” says the renowned Ukrainian economist. “If they take too long, Ukraine will have to cover the budget deficit as a first step and cut spending even further, which will lead to social unrest and a macroeconomic financial crisis,” he says.
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The European Union wants the special four-year €50 billion package for Ukraine (€33 billion in loans and €17 billion in grants) to be part of a broader review of the multiannual financial framework (the multi-year budget outline of the EU), which also includes funds to address migratory flows or boost competitiveness. However, despite the different calculations that have been considered, advanced by EL PAÍS, it has not been possible for Orbán – who did lift the veto for the community club to open accession talks with Ukraine – to agree for now to provide that amount.
As backup plans, the rest of the States are considering these days disbursing the money through bilateral plans, with the macro-financial aid tool that is already used to provide assistance to Kiev or through a formula with EU debt, similar to the one that was used during the pandemic, to provide support to the Member States, with which it would have about 20,000 million, as the Financial Times. This formula, warns a high-ranking community source, is based on loans and would require parliamentary approval from several partners, which could delay the arrival of the funds.
The collapse of economic support from the EU and the United States, where some 50 billion euros promised by President Joe Biden are blocked by internal political fights – mainly by the Republicans – worry Kiev. And fear increases the unease when the EU candidate country looks at the economic and social consequences of a long war. Russia is taking advantage of the delay in Western economic support to fuel the theory that the US and the EU will eventually tire of helping Ukraine. “Those funds [occidentales de apoyo] “They will not be able to change the course of events,” Kremlin spokesman Dmitri Peskov said this Wednesday. “This money is allocated to the detriment of EU economies, which are already going through difficult times,” he said in a telephone press conference, cited by Interfax.
In Besele, a village on the Donbas front line and not far from Avdiivka, the Ukrainian stronghold city, where some of the most intense fighting is taking place this winter; Vitaly and Lena say that they receive their pension every month through the public postal service, which despite the bombing and the constant rain of artillery reaches many villages in the hottest areas of the battle. The 72-year-old man, a former driver, receives a pension and aid of around 3,500 hryvnias (just over 83 euros) for the time he spent as a liquidator in Chernobyl. His wife, Lena, 69, explains that she receives 3,000 hryvnias (about 71 euros). “We don't know anything, we are afraid of everything,” laments Vitaly, who fears he will stop receiving his pension. The cuts also scare Luba Mikhailovna, a civil servant. “We are resilient and without the defense forces, Ukraine would not exist, but we also need help for the rear that keeps the country running,” she says.
The International Monetary Fund (IMF), which has described the Ukrainian economy as “resilient,” has warned that the invaded country can withstand a delay of a couple of months in receiving economic aid from its Western allies, but that more time can put the country in a very difficult situation. “As the war drags on, it puts pressure on Ukraine's public finances,” IMF Director Kristalina Georgieva said in a statement. On December 12, the IMF released a 900 million package for financial assistance. Furthermore, coinciding with Christmas, Ukraine received some 1.2 billion euros from the World Bank, Norway and Switzerland, which could provide a brief respite, since they are funds intended to support the Administration in social and emergency aid payments. as explained by the Ukrainian Minister of Finance, Sergii Marchenko, in a note.
“It is not charity,” says Jacob Kirkegaard, researcher at the German Marshall Fund (GMF). “For Europe and the United States, it is a matter of strategic interest for Ukraine to win this war because if Russia wins it it will be a direct threat to several EU member states. And, therefore, for everyone,” adds the expert by telephone, who is confident that kyiv will receive, even if late, the aid packages: “If Ukraine does not obtain military and financial support, Russia will win.”
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