Ukraine’s 2024 budget is missing $29bn of international funding

Ukraine’s 2024 budget is missing $29bn of international funding
Ukraine's Finance Minister Serhiy Marchenko says there is a $29bn gap between what international partners have promised in financial support and what the budget calls for in spending. / bne IntelliNews
By Ben Aris in Berlin November 14, 2023

Ukraine’s 2024 budget is missing $29bn of international funding, according to Finance Minister Serhiy Marchenko, who admits that the government is now hunting for ways to make up the shortfall, Interfax Ukraine reported on November 13.

The Rada has approved the 2024 budget that includes a deficit of UAH1.57 trillion ($43bn), or 20.6% of the projected GDP, and calls for $41bn in external financing. Ukraine’s international partners have promised billions in macroeconomic aid to help close the gap. But as of now, there is a gap of $29bn between what the budget has allocated for expenditure and what has been promised by Ukraine’s international partners, Marchenko said, speaking at a webinar organised by the Centre for Economic Strategy.

In recent months, Ukraine fatigue has been building and several attempts to vote through new financial support for Ukraine in the US have failed putting Ukraine’s ability to cover the budget deficit in increasing doubt. International donations are needed to cover almost half of all its spending in 2024.

The government is already feeling the pinch. Ukraine needs to raise more than $9bn in international aid by the end of the year to fund the budget, the National Bank of Ukraine (NBU) said on November 6, adding it expects a gradual decrease in funding over the next two years.

EU foreign policy chief Josep Borrell warned at the Congress of the Party of European Socialists in Malaga on November 6 that the US's support for Ukraine “will most likely decrease”, and the EU should have the political willingness to continue to send aid regardless.

Since the beginning of the year, Ukraine has received about $34bn in loans and grants from its partners. International support is expected to continue, and the amount of funding in 2023 to reach $42bn for the full year, with Europe bearing an increasingly large share of that burden.

US funding was already falling before the recent troubles in getting new allocations through the House of Representatives came up. The EU became Ukraine's largest donor for the first time in October, after Ukraine received another €1.5bn tranche of macro-finance, the ninth such EU tranche this year, from a total of €15bn earmarked in support for 2023. EU funding will continue next year as part of a new four-year €50bn package currently being discussed in Brussels, but that programme is also in doubt after Hungary threatened to block it unless Ukrainian language laws that penalise Hungarian speakers in western Ukraine are repealed.

Ukrainian Prime Minister Denys Shmyhal said earlier this month that Ukraine anticipates receiving $18bn from the European Union in 2024, approximately $12bn from the United States, and funds from multi-year programs initiated by Japan and Norway, amounting to $5.5bn and $7.5bn, respectively.

Marchenko now says that collecting this money may prove to be difficult. "This is my problem, how to cover them. This is the government's problem, the embassies' problem, the president's problem. We are looking for how to close these $29bn," Marchenko said as cited by Interfax.

Marchenko pointed out that if the funding gap remains in the range of $5-10bn, it is a problem that can be solved "within the budgetary framework". This could involve reductions in certain expenditures and potential increases in taxes. However, if the gap rises to $20bn, he said it was not clear how the shortfall could be funded.

Marchenko admitted that he currently doesn’t have a solution on how to cover all the funding requests from the Ministry of Defence and the Armed Forces of Ukraine for the coming year. Ukraine’s economy is already approaching the limit of what it can bear in terms of taxation and domestic borrowing, making the search for new internal resources an urgent priority, according to Marchenko.