Ukraine prepares a Plan B in case international funding dries up

By bne IntelliNews December 1, 2023

Ukraine’s government is preparing a Plan B to fund its operations in case international funding dries up in 2024, UBN reported on December 1.

Ukrainian President Volodymyr Zelenskiy signed Ukraine’s 2024 budget into law at the end of November that includes a $43bn deficit and 20% of GDP spending on security. However, with enthusiasm for continued financial support of Ukraine flagging in the US, Ukraine’s funding is in increasing doubt. Congress has failed to pass a $106bn spending bill proposed by US President Joe Biden that includes a $61bn allocation for Ukraine. Currently the deficit in Ukraine’s budget is unfunded.

Ukraine is also expecting to receive money from a four-year €50bn assistance package from the EU, but that too is being held up by objections from Hungary and is also not certain to be approved in full when it is debated at an upcoming EU summit in mid-December.

In response the government is actively working on a contingency plan to cope with reduced assistance.

The first stage of this contingency plan would allow the government to survive through at least the first quarter, and probably the first half, of 2024 without resorting to drastic measures like sequestration.

However, if the issue of financing remains unresolved, Ukraine will proceed to the second stage of its plan B that involves cutting certain programs and reallocating tax revenues to address budget shortfalls.

The last resort, considered the third stage, would involve resorting to turning the printing presses on. This would entail increasing the money supply through methods such as central bank interventions. While this approach can inject funds into the economy, it would result in a reversal of the falling rates of inflation and a less stable exchange rate. It is worth noting that officials and economists view this option as highly unlikely and a measure of last resort.

Ukraine remains actively engaged in negotiations with its international partners, including the EU and the United States. Ukrainian officials express confidence that they will reach agreements that will secure increased funding for the 2024 budget. The government hopes for a positive response from its Western allies, which would alleviate the need to implement the contingency plan.

 

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