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Sergii Marchenko at IMC2022: Financial policy and economic stability in recent years helped to cope with the first consequences of the war

Today, September 12, Minister of Finance of Ukraine Sergii Marchenko gave an online speech at the International Monetary Conference 2022 on the topic "What's Required to Rebuild the Country". The event, which is held in Munich, Germany, was attended by representatives of the largest international financial organizations and international banks.

The main topics of the speech were the state of Ukraine's economy before the full-scale war and the consequences of the invasion of the Russian Federation, the country's financial needs for the implementation of the recovery plan, and sources of financing for post-war reconstruction.

The key points of Sergii Marchenko's speech:

  • State of the economy until February 24, 2022.

In 2021, despite the COVID crisis and turbulence in financial markets around the world, Ukraine demonstrated economic resilience. Debt to GDP was reduced to less than 50%, and the budget deficit to less than 3% of GDP. After two years of the pandemic crisis, the Ukrainian Government demonstrated overperformance of the budget.

On February 24, 2022, the situation changed dramatically. This day became a new stage of the centuries-old Ukrainian-Russian war and a challenge for the European civilization.

  • Management of public finances under martial law.

We’ve lived through more than 6 months war period. Thanks to a complex of coordinated political measures, the Government withstood the first shock caused by the Russian invasion on February 24. The full-fledged work of all state institutions, the liquidity of the financial sector and its capitalization, payment systems, revenue administration, and the work of executive authorities were preserved. The financial policy of the first months of the war and the economic stability of recent years helped to cope with the first consequences of unprovoked Russian aggression.

As a result of a full-scale invasion, the revenues of the state and local budgets decrease, and defense expenditures increase. The Government of Ukraine is taking all necessary steps to maintain macro-financial stability. During martial law, the Government finances only critical expenses, including the army, pensions, wages of teachers and medical workers, and all social and humanitarian needs.

Since the beginning of the full-scale invasion of russia, the Ministry of Finance of Ukraine began active work on attracting international funds to overcome the consequences of the war. The total volume of concessional financing raised since February 24 is almost USD 18 billion. Key donors include the United States, Canada, the United Kingdom, Japan, France, and Italy. But the monthly deficit of USD 5 billion wasn't fully financed.

  • Recovery financing

At the same time, Ukraine's financing needs include not only direct budget support, but also financing the restoration of thousands of liberated towns and villages, restoration of destroyed roads, bridges, schools, engineering networks, etc.

The Government and the World Bank prepared and presented last week the first quantitative assessment of the damage caused by Russia, the "Ukraine Rapid Damage and Needs Assessment". Over the next 18-36 months, to meet the most urgent needs, Ukraine needs about USD 105 billion for preparing for the coming winter, repairing critical transport, supporting the next cropping season, social needs, and demining.

We try to ensure all priority expenses by attracting mostly concessional financing and grants. This is extremely important for us in order not to increase the debt burden. The Ukrainian Government relies on the support of foreign donors.

  • Debt policy.

In August, investors supported consent solicitation transactions initiated by Ukraine. The 3-week negotiations with bondholders and GDP warrants holders resulted in the successful amendment of all of Ukraine’s sovereign international Eurobonds and GDP warrants, as well as state-guaranteed Eurobonds. Ukraine's international partners in the G7 and the Paris Club (with the exception of Russia) noted Ukraine's exemplary debt servicing and called on bond and warrants holders to approve Ukraine's proposals.

Deferral of debt payments to bondholders will reduce pressure on the state budget of Ukraine during the war. Between August 2022 and August 2024, about USD 5.9 billion will be saved for other important budget purposes.

Ukraine created the conditions for the country to regain access to international financial markets in the shortest possible time after the victory on the battlefield. Early market access will be critical to funding reconstruction projects for the country after the war.