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Sergii Marchenko: The price of war is not estimated in funds or budget deficit, but in human lives

On February 2, Minister of Finance of Ukraine Sergii Marchenko took part in the plenary session during the visit of the College of the European Commission.

Key points of the speech of the Minister of Finance of Ukraine:

EU financial assistance

The Ukrainian Government is grateful to the European Commission for its strong support for our country, for the EU's clear position and readiness to continue assistance to Ukraine. This appeal backed by unprecedented 2023 package of Macro-Financial Assistance gave confidence and strength to everyone in Ukraine - the government, business and population. It was vitally important on the eve of this winter - the hardest since the World War Two.

The war has already led to multiple catastrophic consequences in Ukraine that will have long-term effects. And we need sustainable unique solutions to overcome them.

Multi-Agency Donor Coordination Platform for Ukraine

One of these decisions is to launch a Donor Coordination Platform for Ukraine, which is also referred to as Financial Ramstein. The Platform is designed for better coordination of economic support for Ukraine’s immediate financing needs and future economic recovery and reconstruction efforts.

It is a basis for open and honest dialogue between Ukraine and donors, clear and effective coordination of our joint efforts.

At this stage, the Platform unites efforts of the EU, G7 countries, as well as the key financial institutions. Understanding the power of the European Commission.

On January 26, the inaugural meeting of the Steering Committee of the Platform was held, which brought together high-level officials of the stakeholders. A number of key issues were outlined at the first meeting. In particular:

The first. The vital importance to ensure predictable and rhythmic budget support for Ukraine as we still have a USD 10 billion budget gap. It is a necessary for keeping the country running and resisting the aggressor.

The second. Priorities, identified by the UA Government that require rapid donor funding, including: Restoration of the energy sector, humanitarian demining, restoration of the damaged housing; restoration of critical and social infrastructure, economic support. About USD 17 billion is needed to implement the priority recovery, while the amount for the most urgent repairs for 2023 is USD 5.7 billion.

The third. The need to elaborate appropriate mechanisms, ensuring efficient, accountable and transparent use of donor funding.

It is important that the conditionalities of the certain donors financing were in line with the Ukraine’s reforms agenda. We are glad that these ideas met understanding from all participants of the Platform’s Steering Committee.

The Donor Coordination Platform for Ukraine should become an example of a new generation of cooperation. Transparent, accountable and inclusive. As the scale of the challenges we are facing today requires completely new approaches.

Only our joint efforts can bring closer Ukraine’s victory and minimize the price of the war. The price, the most terrible value of which is actually estimated not in funds or budget deficit, but in human lives.

We believe that the financial ‘Ramstein’ will generate strong solutions and effective vital support.

Consequences of Russia's war against Ukraine

Almost a year ago Ukraine’s economy had a solid foundation: debt to GDP was less than 50% and the budget deficit was 3.5%. But then a full-scale war broke out. And we found ourselves in a new reality with completely different financial needs.

The damage done by russian aggression to the economy of Ukraine resulted in its contraction by 30,3% in 2022 due to the military occupation, massive destruction and severe humanitarian crisis. Inflation jumped to 26,6% - however it looks still manageable comparing with some other countries without the war.

Such developments, obviously, severely affected public finances because of the sharp revenue decline and increase of the war-related, humanitarian and social expenditures.

Ukraine’s budget deficit this year amounts to USD 38 billion. 

Prompt and coordinated decisions of the European Commission and other key EU institutions were undoubtedly crucial for maintaining the economic and financial situation in Ukraine at an acceptable level.

In this context, we are grateful to the EU Side for the launch of the ninth EU MFA program for a record amount of EUR 18 billion and disbursement of the first instalment of up to EUR 3 billion already in January of this year.

Due to the difficulties caused by the war in replenishment of the State Budget revenues, it is extremely important for Ukraine to receive concessional financing under MFA on a regular and systematic basis.

Reforms in Ukraine

The Government of Ukraine reiterates the determination to ensure proper and full implementation of the conditions agreed by our Sides for obtaining the financing, and also to implement structural reforms, which in turn will become a key element in the recovery of Ukraine and its economy after the end of the war.

We have already performed part of the conditions agreed for the first quarter, in particular Tax, Corporate governance, Banking, Anticorruption spheres.

Cooperation with IMF

EU MFA package of EUR18 billion and USD 9.9 billion of grant support from the U.S. are a great achievements of our partners and strong support to Ukraine, but it still leaves Ukraine about USD 10 billion short. 

We hope that successful implementation of the Monitoring Program will pave the way to a fully-fledged program with the IMF, with the respective financing from the second quarter of 2023. It will help us to close the remaining gap.

Strong external support continue to be vital for Ukraine, and ensuring of the stable implementation of the budget is a key prerequisite for keeping the country running and resisting the aggressor.