Ukraine's war funding in doubt

By bne IntelliNews October 10, 2023

After the failure to get a US spending bill through Congress a week ago that included a $300mn allocation for Ukraine, US President Joe Biden has proposed a one-time $100bn package for Ukraine to take the questions over Ukraine’s future funding off the table.

Worries that international aid to pay for Ukraine’s fight against Russia are growing. Despite US assurances that the money Ukraine needs to continue the war will be made available, the failure to pass the $300mn allocation has effectively frozen US aid for Ukraine, although the Pentagon says there is still $5.2bn in the kitty from previous allocations, according to the Wall Street Journal – enough to continue to supply Ukraine’s war machine for another six months.

Of $25.9bn worth of weapons allocated to Ukraine by the Pentagon, only $1.6bn remains, according to US reports. US Defence Ministry Comptroller Michael McCord noted that without additional funding, the US will reduce or delay the supply of air defence, ammunition, drones and breakthrough equipment to Ukraine, the WSJ reports.

Washington also used funds from the Ukraine Security Assistance Initiative (USAI) to support Ukraine, but now that budget has been exhausted.

Separately the EU is discussing a €50bn four-year package but questions have been raised over that funding too. Hungarian Prime Minister Viktor Orban said last week that the package should be cut in half, as €25bn would be enough to fund Ukraine’s defence.

And following an election in Slovakia last week, the apparent Prime Minister Robert Fico has halted arms deliveries and cut financial aid for Ukraine, although the coalition government that is expected to emerge from the current talks is anticipated to continue to back Brussel’s commitment to continuing to support Ukraine.

Ukraine’s 2024 budget was announced last week and almost half of the anticipated income will come Ukraine’s international partners. Prime Minister Denys Shmyhal says Ukraine needs $42bn of funds from its international partners in 2024 to make ends meet, Interfax Ukraine reported on October 7.

Biden is preparing to seek Congressional approval for his $100bn package that will cover Ukraine's needs for approximately two years. The urgency of his aid package is also an attempt to remove the issue of supporting Ukraine from the political agenda ahead of next November’s US presidential elections.

Sources within the administration have indicated strong support for the concept of a substantial aid package, recognising the critical role it plays in assisting Ukraine during this challenging period, yet Republican resistance to further funding the war is fading slowly according to reports.

At the same time US Treasury Secretary Janet Yellen is set to address priorities at the annual meetings of the International Monetary Fund (IMF) and the World Bank due this month. The White House has been urging members of the development banks to inject fresh capital into both, to boost their ability to support Ukraine.

The 2024 budget anticipates receiving $18bn from the European Union next year, approximately $12bn from the United States, and funds from multi-year programmes initiated by Japan and Norway, amounting to $5.5bn and $7.5bn respectively.

Ukraine is also due to receive $15.6bn over four years from the IMF under the current Extended Fund Facility (EFF). The IMF last week signed off on its second assessment of Ukraine’s success in sticking to the reforms demanded by the deal. The successful implantation of the IMF package, which still has several review stages ahead, is crucial as most other aid is tied to the provision that Ukraine has a functioning IMF deal in place, according to Andriy Pishnyi, the head of the National Bank of Ukraine (NBU).

Since the onset of the Russian invasion, Ukraine has secured approximately $65bn in partnership assistance in the form of soft loans and grants. Of this, $32.6bn was obtained in 2023, primarily from key partners such as the European Union, the United States, the IMF, Canada, Japan, and other allies, Interfax Ukraine reports.

The EU High Representative for Foreign Affairs Josep Borrell said during the visit to Kyiv last week. "Our military support to Ukraine has reached the figure of €25bn and altogether, military, civilian, humanitarian, has reached the figure of €85bn," Borrel said in the statement posted on the EU web portal.

The National Bank's chairman anticipates the completion of the second revision of the IMF program by December. A successful outcome would pave the way for Ukraine to receive a tranche of $900mn, further bolstering the IMF's total funding for Ukraine in 2023 to reach $4.5bn.

While Ukraine faces certain challenges in implementing the programme, including issues related to business inspections and the legislation concerning Politically Exposed Persons (PEP), Pishnyi remains optimistic about the country's overall readiness. Ukraine may not be in an ideal situation, but it is on a promising trajectory to secure the financial support it needs.

CNN analysed the international aid that countries have supplied to Ukraine and found that some of Europe’s smallest countries have allocated the largest shares of their GDP to Ukraine. Norway and the Baltic states lead the pack as the most generous. European allies have given Ukraine a larger share of their GDP than the US has as well.

It is reported that the US has allocated the largest overall amount of assistance to Ukraine in absolute terms for military, financial and humanitarian aid, about $113bn. The European Union has provided a total of about $85.1bn, which does not include the contributions of individual EU member states, which are considered separately.

At the same time, Washington's contribution to military aid to Ukraine is 0.3% of the US GDP, while Norway and the Baltic states such as Lithuania, Estonia and Latvia spent a much larger share of their GDP on aid to Ukraine, with more than 1% each.

But unless the deadlock in Congress is broken and Kyiv satisfies the IMF this flow of funds could start to slow from here.

Polish President Andrzej Duda said on October 8 that the outbreak of a war in Israel would only make Ukraine’s position more difficult, because it will take the world’s attention away from Ukraine.

"There is no doubt it benefits Russia and Russia’s aggression against Ukraine because it’s taking the world’s attention away [from it]," the Polish president said, noting that Warsaw has to consider the events in Israel from the perspective of its own interests.

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