Ukraine Finance Minister: "Hundreds of Billions of Dollars in Financial Support Needed Beyond Weapons"

Sergii Marchenko, Ukrainian Minister of Finance [Image source= Sergii Marchenko Facebook]

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[Asia Economy Reporter Park Byung-hee] Ukraine's Finance Minister Serhiy Marchenko urgently appealed for financial support from the international community, stating that Ukraine needs hundreds of billions of dollars immediately.

According to major foreign media on the 11th (local time), Minister Marchenko said that the government’s fiscal deficit is rapidly increasing due to the war with Russia. In March, the Ukrainian government recorded a fiscal deficit of about $2.7 billion (approximately 3.3361 trillion KRW). The fiscal deficit for April and May is expected to increase two to three times, reaching between $5 billion and $7 billion.

Minister Marchenko said, "The Ukrainian government is under tremendous pressure in the worst fiscal situation," adding, "The financial problem now threatens the survival of the nation." He added, "If Ukraine continues to fight Russia and wants to win, the international community must help us."

Minister Marchenko also mentioned specific property damages caused by the war and demanded war reparations from Russia. He revealed that an international legal team has been formed to demand reparations from Russia.

Minister Marchenko stated that the estimated property damage to civilian and military facilities since Russia’s invasion is about $270 billion. He added that nearly 7,000 residential buildings have been destroyed or damaged. He also explained that about 30% of Ukrainian companies have completely ceased operations, and about 45% have reduced their business activities. Electricity consumption has also dropped sharply by 35%. Minister Marchenko explained that exports halved in February and March, and imports decreased by more than two-thirds, describing trade as being in a state of collapse.

Kyiv Economic University estimated on the same day that the economic losses caused by the war could reach up to $600 billion.

However, Minister Marchenko emphasized that the most urgent issue is short-term government funding. He said the Ukrainian government is striving to reduce the fiscal deficit and has already cut government expenditures by more than $6 billion, but it is still insufficient to cover the deficit.

He revealed that fiscal revenues have been reduced by half compared to before the war. He also explained that the fiscal deficit this year is expected to be about 3.5% of the GDP before the Russian invasion. However, he added that depending on how long the war with Russia continues, the fiscal deficit could increase several times over.

He emphasized that despite the rapid increase in the fiscal deficit, the Ukrainian government is fulfilling its financial responsibilities, such as repaying bond principal and interest, and paying salaries and pensions to public officials. He stressed that the government paid $292 million in bond interest last month. While many politicians advise debt restructuring, he said that debt restructuring is not the policy direction pursued by the Ukrainian government. He said the Ukrainian government wants to continue issuing bonds to secure funds, but currently, the interest rates on Ukrainian bonds are at an unsustainable level, and discussions are underway with the United States to issue government bonds at rates lower than market rates.

Minister Marchenko also proposed using the International Monetary Fund (IMF)’s Special Drawing Rights (SDR) as a way for developed countries to support Ukraine. SDR refers to an international currency that the IMF can create, and countries holding SDR can exchange them for other member countries’ currencies such as dollars or euros when facing balance of payments difficulties.

Last year, the IMF issued a record $650 billion SDR for the first time since 2009 to respond to the COVID-19 crisis, allocating them according to member countries’ contribution shares. The SDR issued by the IMF during the 2009 global financial crisis was $250 billion.

Of the $650 billion SDR issued last year, $290 billion was allocated to the Group of Seven (G7) countries.

Minister Marchenko said he hopes that the G7 countries would donate or lend only 5-10% of their allocated SDR to Ukraine. He explained, "Many countries have only received SDR allocations but have not used them," adding, "SDR may be the easiest way to help Ukraine."

He also mentioned that the U.S. Congress passed a $13.6 billion weapons and humanitarian aid bill last month. Minister Marchenko said it is appreciated, but since it is not cash support, the Ukrainian government does not receive a single penny in cash, and it does not help cover the government’s fiscal deficit.

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