Page 36 - UKRRptJun22

6.0 Public Sector 6.1 Budget
Verkhovna Rada increases military expenditures by $8.3 billion. The Ukrainian parliament amended the state budget increasing spending on national security and defense by Hr 247.7 billion ($8.3 billion), Yaroslav Zheleznyak, first deputy head of the parliamentary finance committee said on May 31.
Ukraine is headed for a fiscal balance crisis. It is currently burning through $5bn a month in war and general expenses, but has received about $11bn from international donors. The bulk of the budget is covered by the National Bank of Ukraine (NBU) and war bonds which account for about $6bn of income but tax collection has plummeted by around 80% and the government is living hand to mouth on international handouts.
6.1.1 Budget dynamics - results
Ukraine came into this crisis with a decent macro and public finance profile - a fiscal deficit of 3-4% of GDP and public sector debt to GDP ratio of sub-50%. It ran a close to balanced current account position and held close to $30bn in FX reserves. Market external debt due to year end was pretty light at a few billion bucks.
But the war has decimated public finances and estimates are that Ukraine has a budget financing shortfall of close to $5bn a month. Now so far it has received around $11bn in Western financing and this week got another promise from Western allies of close to $17bn in additional financial support. This should see it through to the fall, at least, if fighting continues. But unfortunately most of this Western support has come in the form of loans - sad that the West is only lending Ukraine the money to fight this war which is really providing a bulwark for the West against Russian aggression. But assuming that remains the case, and if the war continues to year end, with a possible 30-40% real GDP contraction, Ukraine’s debt/GDP ratio could well then be over 100%.
I assume Ukraine will service its debts - or be helped servicing its debts by Western official creditors - while the war is on-going. I doubt the West would want Ukraine to face the distraction and disruption of a default and debt restructuring while the guns are still sounding. But once the war ends a DSA with a 100% plus/minus public sector debt to GDP ratio might suggest debt restructuring/reprofiling is in order. The public sector likely will roll out the usual jargon of “burden sharing” by the private sector - as with the 2015 restructuring.
36 UKRAINE Country Report XXXX 2018 www.intellinews.com