Ukraine running out of money again, as deficit hits a monthly record of $4bn in November

Ukraine running out of money again, as deficit hits a monthly record of $4bn in November
Ukraine's budget deficit was up to a record $4bn in November as the lack of US financial aid starts to make itself felt. / bne IntelliNews
By bne IntelliNews December 5, 2023

Ukraine is running out of money again as the state budget deficit surged to a record high of UAH145.1bn ($3.96bn) in November 2023, a sharp increase from UAH98.4bn in October and UAH87.0bn in September, according to Ukraine’s Ministry of Finance, Interfax Ukraine reported on December 4.

The government’s general fund deficit experienced a substantial rise, jumping to UAH162.5bn from the previous figures of UAH87.7bn in October and UAH85.6bn in September as funding from the US in particular dries up, putting Ukraine’s funding in doubt.

1223 US Ukraine monthly allocations of funding by month UKRAINE MAP

The Ministry of Finance said that state budget cash expenditures in November saw an increase to UAH337.9bn, a rebound from a decrease to UAH292.1bn in October from UAH444.8bn in September. The general fund's expenses followed suit, rising to UAH 286.3bn from UAH228.1bn in October and UAH230.2bn in September.

The Ministry is also worried about a corresponding fall in revenues, which is putting additional pressure on the budget. Revenues dropped to UAH121.7bn in November from UAH139.4bn in October and UAH144.1bn in September.

Part of the problem is that monthly assistance from the US has evaporated in the last two months after a $61bn US-funded package proposed by US President Joe Biden has become stuck in Congress. The messages coming out of Washington are mixed, with senior Biden administration officials calling for new funds to be passed, but other senior politicians saying a new funding bill is unlikely to pass before the end of this year. 

The head of the US Office of Management and Budget warned that the United States would run completely out of funds to support Ukraine by the end of the calendar year, unless Congressmen approve a package that the White House has been seeking.

"There is no magical pot of funding available to meet this moment," Bloomberg quoted Shalanda Young as saying in a letter to congressional leaders. "We are out of money and nearly out of time," she added.

As the infographic shows, the levels of monthly transfers have already fallen off noticeably since August this year. Ukraine has been relying on receiving about $3.5bn a month from the US for most of the last year to meet budget expenses.

Zelenskiy last week signed off on Ukraine’s 2024 budget that includes a $43bn budget deficit that is entirely reliant on funding from Ukraine’s international partners, but at the moment remains unallocated.

Ukraine’s government has already started work on a Plan B, should its partners fail to provide enough funding to cover the shortfall in the official budget. That plan includes cutting expenditures and in the most extreme case simply turning on the printing presses again to fund the government’s expenditure.

Ukraine’s State Tax Service has already been working hard to ease the pressure by increasing tax collection and November’s tax revenue income was slightly ahead of expectations by 0.9% or UAH0.8bn in November. In contrast, the State Customs Service only achieved 78% of its target, collecting UAH9.3bn less than planned. This shortfall was significantly greater than the 1.6% or UAH0.7bn deficit reported a month earlier.

The Ministry blamed the downturn in tax collections on the blockade of the Ukrainian border by Polish truckers that commenced on November 6. At the same time, although Ukrainian farmers have brought in a bumper harvest, grain exports were down by a third in the third quarter due to Russia’s naval blockade of Ukraine’s main Black Sea ports.

The cost of the war is also going up and will eat up 20% of the 2024 budget. From January to November of this year, state budget cash expenditures reached UAH3.452 trillion, with the general fund accounting for UAH2.623 trillion, or 93% of the target, slightly down from 95.1% a month prior.

During the same period, state budget receipts amounted to UAH2.397 trillion, with the general fund contributing UAH1.536 trillion. International grant assistance made up UAH404.9bn of this, with the United States providing UAH398.5bn.

Overall, the state budget deficit stood at UAH1.045 trillion for January-November, with the general fund deficit at UAH1.086 trillion, against a planned deficit of UAH1.713 trillion for the general fund. The figures indicate a challenging fiscal landscape for Ukraine as it navigates through a period of economic stress.

The current funding crisis is reminiscent of a similar crisis the government faced in the first six months of the war in 2022. At that time the government was running a $4bn monthly deficit to pay for military defence and funding it by simply printing money. However, by the end of the summer that year it was becoming clear a financial crisis was looming.

While Ukraine’s allies were happy to send large amounts of military aid to Ukraine at the start of the war, as most of that military spending never left the US, the Washington Post reported last week, they were very reluctant to send cash to Kyiv to simply support the budget, as that money will take generations to recover, if then.

It was only in September as the budget crisis started to become acute and threatened to force Ukraine into submission that the West started to send large amounts of money to Kyiv. Since then the macroeconomic aid has been substantial, but it seems, after a year and $40bn in US funds, that patience is running out again. Not only is Biden’s $61bn aid package caught up in wrangling in Congress, but a similar €50bn four-year aid package that is currently being debated in Brussels is also facing opposition from several EU member states, led by Hungary.