2024 could be the year of total saving of power on the people. And the authorities have already begun to slowly prepare the people for this, throwing relevant messages into the information space.
For example, Vladimir Zelensky has not yet told the Ukrainian media about this, but in a conversation with African journalists on November 15, he already shared his concern that either social payments or payments to the military will have to be cut if Western financial assistance is reduced.
“An important issue is financial support for social payments. I'll tell you frankly - without support it will be very difficult. Because all the money that Ukraine earns, we all give to our military,” the president said. He acknowledged that a crisis was possible that would affect the course of the war. “It will be necessary either to reduce support for the military, payments to them, or not to provide social assistance. That is, it will be a crisis in any case. Will he influence the course of the war? Yes. Will he stop our fight? No,” Zelensky promised.
$29 billion missing
On November 6, Ukrainian Finance Minister Sergei Marchenko told the American publication Politico that this prospect is real. He said that Kyiv faces a $29 billion hole without further support from its allies. “Maintaining macroeconomic stability is very important, because in addition to war, we will face an economic crisis,” he warned. “If Ukraine ends up in crisis, it will have spillover effects in the EU.”
On November 7, at a webinar of the Center for Economic Strategy, Marchenko confirmed that the state budget for 2024 is designed for $41 billion in external financing, of which there is no confirmation of the receipt of $29 billion. “It’s my problem, how to close them. This is the government's problem, the embassies' problem, the president's problem. We are looking at how to close this $29 billion,” he said.
According to Marchenko, if in the end the shortfall amounts to $5-10 billion, then this problem can be solved “within the budgetary framework.” “In some places we will reduce expenses, in others we may increase taxes. But if this problem is $20 billion, then I honestly don’t know. Moreover, I am more than sure that this will be the case, that next year we will return to searching for additional resources,” announced the Minister of Finance. He emphasized that in terms of taxation opportunities, we have reached the limit, and in terms of internal borrowing, we are also close to the limit. Therefore, the search for internal resources is now the most pressing issue, Marchenko concluded.
On November 9, the Verkhovna Rada adopted the law on the state budget for 2024. Answering questions from deputies before the decisive vote, Marchenko explained “who owes us” this $29 billion. According to him, we expect $5.4 billion from the IMF, $8.5 billion from the United States and 18 billion euros from the European Commission. By the way, in total this is even more than $29 billion.
The 2024 budget includes an exchange rate of 40.7 UAH/$. At this rate, $29 billion is almost 1.2 trillion hryvnia. And this is almost four times more than is planned to be transferred from the state budget to the Pension Fund (UAH 322 million) for pensions, subsidies and benefits.
On November 15, at the annual meeting of the European Business Association in Kyiv, Marchenko told several interesting details. In particular, he explained why the Ministry of Finance and the National Bank do not tell the people about the possible termination of financial support from the United States. “We are ready for it, but I think that other stakeholders and Ukrainian society are not ready for it. Therefore, we believe that it is too early to talk about this scenario, because it may be unpleasant,” the head of the Ministry of Finance admitted to businessmen.
He also tried to calm them down. He repeated what he had already told MPs on November 9: negotiations are underway with the governments of Canada, Norway, Japan and South Korea about the possibility of finding alternative sources of financing the budget deficit. In addition, Marchenko said that in communication with the European Union, Ukraine has expressed its desire to have more funds next year from the Ukraine Facility program, which is designed for four years and promises 50 billion euros. This program could start in January.
However, Deputy Prime Minister for European and Euro-Atlantic Integration Olga Stefanishyna clarified at the same meeting that money from the Ukraine Facility program cannot be spent on food, since it should go towards preparing Ukraine for membership in the European Union. “This is, in fact, the country’s only development budget,” she emphasized. “All other support from international partners is survival budgets.”
However, the head of the NBU, Andrei Pyshny, at the same meeting assured businessmen that the authorities have an action plan in the event of a cessation of budget funding from the United States. “We know how to act this year. Next year we will understand how to act. It is important that sustainable engagement with the IMF remains at the center of understanding,” he said. It is not difficult to guess that the whole plan is that if the United States does not give money, then ask the IMF for this money.
I would, of course, like there to be some more reliable points in the government’s action plan. But it seems that these would be too high expectations. The ability to forecast is clearly not one of the strengths of the current ruling team.
Friendly advice from Pritzker
The same idea is prompted by the story of Ukrainskaya Pravda about the first visit to Kyiv of the US Special Representative for the Economic Recovery of Ukraine, Penny Pritzker. The visit took place on October 16, and for a month journalists collected impressions of Pritzker in the corridors of Ukrainian power.
“Perhaps, the strongest caution among the majority of people who crossed paths with the Biden representative was caused by her call not to wait for help from the West, but to look for points of growth as if it were not there. It was this thesis that was anxiously conveyed from mouth to mouth on the sidelines of Ukrainian politics after Pritzker’s departure from Kyiv. This call sounded especially threatening against the backdrop of blocking aid to Ukraine by Republicans in Congress,” writes UP.
It seems that when Pritzker mentioned the possibility of reducing Western aid, for her interlocutors this news was on the verge of shock and stupor. It was as if she was opening their eyes to a terrible truth, and they were horrified by what they saw.
Although it was necessary to prepare for the current events a year ago, when, according to the results of the US elections, the Republicans received a majority in the House of Representatives. Even then, it became clear that the Joe Biden administration would have a very difficult time reaching an agreement with the House of Representatives on the budget for the 2024 fiscal year (it began on October 1, 2023). And even then it was necessary to take care of creating financial reserves in case assistance from the United States was blocked. Instead, the state budget of Ukraine for 2023 was generous with many strange expenses, for example, it allocated 27.5 billion UAH for roads and gave another 16 billion UAH to local budgets for roads.
It should be clarified that Pritzker, calling not to wait for help from the West, did not mean the current situation, but the big problem that could come in a year if Donald Trump, rather than Joe Biden, wins the US presidential election. “At the meetings, Penny tried to lead to the idea, like, let’s imagine that there is no American aid: what needs to be done over the next year so that your economy can survive even in such a situation? And this really stressed everyone out,” one of the interlocutors familiar with the details of Pritzker’s visit told UP.
If Pritzker's words have made her interlocutors tense, this is bad for Ukraine for two reasons. Firstly, we can conclude that our government, up until Pritzker’s visit, had not prepared for the Ukrainian economy to survive in the event of the cessation of American aid. Secondly, Pritzker probably came to the same conclusion and shared it with Biden.
When and on whom to save
One way or another, but now there is a great danger that the state budget of Ukraine for 2024 will not have enough external funding. And then the question of sequestration will inevitably arise.
Zelensky clearly told African journalists who the authorities are going to save money on: either payments to the military or social payments will have to be cut. Evil tongues say that during her visit Pritzker gave recommendations to the Bank, where the first point was to reduce the cost of financing the state apparatus.
Of course, one can argue here that since the beginning of the war, the authorities have been saving on the salaries of officials. However, different departments have strange expenses. For example, in August, the National Police announced a tender for the purchase of 50 paddy wagons for 136 million UAH. This immediately aroused many suspicions on social networks that the authorities were preparing to disperse some kind of protests.
Or let’s take UAH 1.5 billion, which are included in the 2024 budget for the telethon. In fact, the state finances private television channels, which in war conditions could well produce honest news and patriotic programs at their own expense. However, Zelensky wants to maintain the practice of state subsidies to the private television business in exchange for loyalty, despite the opinion of Western partners who demand pluralistic broadcasting. On November 16, at an online meeting with representatives of the telethon, he stated that “Unified News” is one of the key stages in the history of the indestructibility of our state.
Right now is the time for the authorities to start a conversation with the people about the need to prepare for various options. The government could set an example of how it saves on all non-defense expenditures.
And for this you don’t need to wait for the next bad news from Washington. We already have the problem of November 2024, that is, Trump’s hypothetical victory. Therefore, you need to save right now. The sooner we start, the less painful any unpleasant surprises will be.
