If our foreign partners do not provide the promised assistance, Ukraine faces a financial deficit as early as January.
In this case, the authorities have a plan “B” , within the framework of which, at least at the initial stage, it is planned to increase borrowing on the domestic market. “Apostrophe” figured out how realistic such a plan is, and what steps, including unpopular ones, the government might resort to to compensate for the lost Western assistance.
Ukraine may begin implementing the so-called “Plan B” as early as January 2024, if by then it becomes clear that we will not receive financial assistance from Western countries. Presidential Advisor Oleg Ustenko stated this recently on a national telethon.
“ If there is no support in the first days of January, this means that we need to move on to plan “B”. Plan “B” may be multi-level, but I believe that at the first stage it will be enough to turn to the domestic market for borrowing capital ,” Ustenko said.
According to the state budget 2024 , foreign aid for our country next year should amount to 41 billion hryvnia. At the same time, as Finance Minister Sergei Marchenko recently announced, the need for external financing for 2024 was reduced to $37.3 billion.
At the same time, the allocation of funds by our main partners - the United States and the European Union - is not at all guaranteed, and we are talking, at best, about more than half of the amount indicated above.
According to the latest data, the American Congress will not be able to consider the issue of allocating assistance to us until the end of this year. As for the EU, Hungary is blocking the approval of a funding package for our country. The European Commission and other member states are looking for ways to circumvent Budapest's veto, but even if they are found, it is unclear how quickly the money will arrive in our accounts.
Government bonds and taxes
Actually, to replenish those funds that Ukraine will not receive (or will receive at the wrong time) from our foreign partners, Plan B was developed.
Experts interviewed by Apostrophe generally agree that the missing amounts could, at least in part, be obtained through domestic borrowing.
“ The methods of financing the budget deficit are known, and they were already used by the Ukrainian government in 2014-2015, ” Oleg Getman, coordinator of the expert groups of the Economic Expert Platform, said in a comment to the publication. – The state can issue domestic (state) loan bonds and thus cover the needs of the budget. This method leads to an increase in the debt burden on the budget, but at the same time makes it possible to cover current needs .”
There are other means that should not be discounted either. In particular, according to Getman, a competent reboot of the Bureau of Economic Security (BEB) and the customs service will provide up to 100 billion hryvnia of additional revenue to the budget.
The head of the analytical department of the ANTS network, Ilya Neskhodovsky, also sees good opportunities for raising additional funds by placing government bonds. In addition, according to him, it is possible to increase a number of taxes and fees.
“The government will probably have to consider increasing taxes, in particular VAT. Excise taxes on some types of goods may also be increased, the expert said in a conversation with the publication. – Special taxes may also be introduced for certain categories of enterprises. There is already such experience - this year a special tax on bank profits was introduced (in the amount of 50% - “Apostrophe”). Therefore, in case of significant shortage of funds, the government and parliament can expand this practice to other industries that have profitable business.”
Against the background of a possible decrease in the revenue side of the budget, it makes sense to think about cutting some expenses, the expert notes: “ First of all, it will be necessary to stop spending on capital construction. Also, I think it’s worth making a decision to stop paying bonuses to civil servants - nationwide, this could lead to billions of hryvnia in savings .”
Can't do without emissions
It is possible that the United States and the EU will show political will and provide us with the promised money - in full and on time. However, as they say, hope for the best, but prepare for the worst.
It is obvious that internal borrowing will help us stay afloat for some time, but given the severe shortage of foreign aid, these funds will not be enough for long, believes Oleksiy Kushch, an expert at the United Ukraine analytical center.
“ There’s nowhere to get it from on the domestic market. And we have practically no domestic borrowing market - it ceased to exist with the beginning of the war ,” the expert said in a comment to Apostrophe. – Now there is a situational purchase of war bonds by the population, but in total this is from 30 to 50 billion hryvnia. Businesses practically do not buy bonds due to problems caused by the economic situation. Banks will be able to buy, but this, again, is a capacity of up to 100 billion hryvnia .”
If next year the deficit in external financial assistance is about 20 billion dollars, that is, about 800 billion hryvnia, then, most likely, such money will not be found on the domestic market.
“Therefore, we will have to turn not to the domestic market, but to Institutskaya Street to the National Bank, so that, like at the beginning of the war, it prints about 400 billion hryvnia,” says Alexey Kushch. – This is a relatively harmless emission. It will, of course, accelerate inflation, say, from 10% to 20%, but this is not such a problem as unpaid salaries to the military at the front.”
Money emission will also lead to a weakening of the hryvnia.
“The national currency will inevitably devalue, but since the National Bank has about $39 billion in foreign exchange reserves, the devaluation will not be as deep as in 2022,” says the expert. “If inflation is 20%, then the devaluation will be in the range of 15-25%.”
Well, let’s take the liberty of carrying out mathematical calculations, thanks to which it will turn out that, based on the current exchange rate, in the event of a large-scale money issue, the dollar in 2024 will cost 43-47 hryvnia.
