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13 Dec. 2023

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Will Ukraine get help after Zelenskyy's visit to the US?

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Will Ukraine get help after Zelenskyy's visit to the US?

Ukraine's 2024 budget is one-third empty, US aid is stuck in Congress, and EU funds are being blocked by Orban. Find out what the results of Zelensky's meeting with Biden were and what Ukraine will do if it is left without Western money

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In the second year of the war, the Ukrainian economy is doing better than in 2022, but the budget for 2024 is one-third empty. This is primarily due to the fact that Ukraine's own resources cover only the needs of the army, while civilian expenditures, at least until now, have been covered by external financial assistance, in particular from the EU and the US.


However, further assistance from partners is in question and has already fallen to its lowest level, as EU funds continue to be blocked by Hungarian President Viktor Orban, and the issue of US support for Ukraine is closely intertwined with America's internal political problems, and therefore stuck in Congress.


Does Ukraine have a plan B, what will it do if it is left without Western money, and did Zelenskyy's recent visit to the United States help solve this problem - we will analyze further in the article.


How much money is missing from Ukraine's 2024 budget?


The total deficit in Ukraine's state budget for 2024 is $41 billion. That is the amount of money the country plans to receive from its partners to cover all the needs of the state. But is it realistic to get that much money?


Currently, the Ministry of Finance has agreements to receive less than a third of the required amount. These are concessional loans from the UK and Japan, as well as some tranches from the IMF. Negotiations on raising funds are also underway with Canada, Norway, and South Korea. However, even if successful, these loans cannot be compared to the funding that Ukraine expects to receive from the EU and the US.




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What will Ukraine do without Western money?


The authorities remain cautiously optimistic about further support from Western partners. But at the same time, they note that in the absence of sufficient external funding, they will take unpleasant steps that, unfortunately, will be felt by everyone. The radicality of these steps will depend on the amount of money that the country's budget will lack.


In particular, we are talking about abandoning non-critical expenditures, such as capital construction or development programs. And it might seem that this is not critical for society, but the problem is that the budget has almost no such expenditures, and therefore, the refusal will bring almost no benefit. The government also talks about redistributing local budgets, but the amounts in question will not be able to save the situation globally.


Another solution that can be used is more radical and its consequences will be tangible for Ukrainians - an increase in taxes. However, the authorities already resorted to it in 2023, and this step did not have much impact on the population.


The next step may be devaluation, as if the hryvnia is weaker, the country will be able to receive more customs payments. In addition, the equivalent of international aid in hryvnia will increase, which means that Ukraine will be able to cover more expenses with the same amount of money. However, this is only a temporary solution, as it will not be able to compensate for the shortfall of tens of billions of dollars, and will inevitably have negative consequences for the country's economy.


The penultimate option is to cut critical expenditures, such as social payments for government salaries. But even with austerity and no increases in social benefits, the government will be able to save no more than $3 billion.


The last step the government can take in the worst-case scenario is to issue new debt. However, the population of Ukraine will inevitably feel the consequences of this decision, as "printing money" to close budget gaps will lead to inflation and hryvnia depreciation.


At the same time, the Ukrainian government is looking for alternative ways to finance the budget. And one of these options is to use the frozen assets of the russian central bank and russian oligarchs around the world, which have already begun to be partially transferred to Ukraine.


How did Zelenskyy's visit to the United States go and will Ukraine receive assistance?


The first piece of good news is that the IMF Board of Directors approved a revision of the program. This means that Ukraine will receive money to cover the budget deficit. But we are talking about a shortfall in the current year, namely $900 million, which is not enough now. This means that the country will close 2023 without radical decisions and steps, but the next year is still in question.


The second good news is that Ukraine and the United States will continue to cooperate in the security and defense sector so that Ukraine can produce more weapons and equipment with the support of American companies. Moreover, the U.S. government plans to provide a new aid package worth $200 million.


And following the closed-door talks between Zelenskyy and Biden, the latter urged Congress not to give russian dictator vladimir putin a "gift" and to approve aid to Ukraine before Congress goes on vacation.


Given that Ukraine has bipartisan support, even though the issue of aid has become intertwined with internal US conflicts, there is a chance that Congress will pass the bill. However, this depends not so much on Zelenskyy's visit as on Biden's willingness to make concessions to Republicans and the level of Democratic support for such "concessions."


We remind you! The poll showed that Americans are more sympathetic to Zelenskyy than to the current and former US president. Read how American citizens feel about Ukraine and military support now and which of them continue to consider russia an ally in our previous article.


Photo: Depositphotos


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