EU to send Ukraine €3bn this month in first tranche of €18bn package, but will it be enough?

EU to send Ukraine €3bn this month in first tranche of €18bn package, but will it be enough?
The EU and US have promised to cover Ukraine's expected $38bn budget deficit this year and Brussels has just sent the first €3bn tranche, but as the war drags on the costs are escalating as the revenues dwindle. / bne IntelliNews
By Dominic Culverwell in London January 16, 2023

The European Union will send the first tranche of its €18bn package this week, Economic Pravda reported on January 16.

The first distribution will amount to €3bn, according to Vice President of the European Commission Valdis Dombrovskis and Prime Minister of Ukraine Denys Shmyhal, who both signed the memorandum of understanding (MoU). “This will allow Ukraine to cover its most urgent needs with stable income funds during the year," Dombrovskis said.

However, the funding may not be enough for Ukraine to cover its vast debts that have accumulated since the start of Russia’s full-scale invasion. Last year, Ukraine suffered a €4-5bn monthly deficit and this year the war-torn country is expected to face a $38-40bn budget deficit.

Finance Minister Serhiy Marchenko warned in the autumn that the first quarter of 2023 will pose the biggest challenge for Ukraine in terms of covering the budget deficit. He noted that despite the funding from international allies since the start of Russia’s full-scale invasion, more money has been going out than coming in, threatening the exchange rate, macro stability and inflation.

External debt for 2023 amounts to $11.307bn, with the first quarter seeing the largest amount due – $3.235bn, according to data from the National Bank of Ukraine (NBU). In the second quarter, Ukraine must pay $2.014bn; in the third, $2.996bn and $3.062 in the final quarter. The government, the NBU and Ukrainian enterprises will pay the debts.

With the war bleeding into 2023, Marchenko stated that the EU funding as well as pledged support from the US will not be enough, Ukraine Business News reported. He stated that Ukraine needs help from large economies and global financial institutions to find new funding methods to keep the country afloat.

The government suggested the formation of a financial Ramstein platform wherein G7 countries and financial institutions will meet to discuss key developments and forecasts. In addition, the platform will ensure that financial assistance is distributed effectively and timely, guaranteeing the basic needs for Ukraine’s population.

"It would be useful to create a co-ordination format for financial support of Ukraine, similar to what was created in Ramstein for defence support," Ukrainian President Volodymyr Zelenskiy said in October.

Allies have continued to pledge financial aid in 2023 and after a virtual summit last month, the G7 announced the formation of a multi-agency Donor Coordination Platform to provide ongoing short- and long-term support, both militarily and financially. Each member will designate a senior government representative to “oversee the set-up of the platform and ongoing co-ordination efforts''.

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