Minister of Finance of Ukraine Sergii Marchenko's Speech at Meeting of the EU Economic and Financial Affairs Council (ECOFIN)

Dear colleagues,

First of all, I am sincerely thankful to each of you for making me part of this meeting today – especially to my French colleague, Minister Bruno le Maire, who invited me.

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Today is the 41^st day of war.

We, Ukrainians, started this morning from a one-minute silence – to mourn those killed, murdered, tortured to death, raped, burned, bombed by russia. Every morning Ukraine mourns its fallen and observes a minute of silence in tribute to their memory – then the country takes a deep breath after – and with all the strength captured in fists – keeps fighting – on all the fields, each on its own.

My field is financial.

We see that across the US, Europe, the Middle East, and Asia, reactions to the war are having a transformational impact on geopolitics, global governance, and the global economy.

Traditional relationships and alliances are being tested now, and, in some cases, up-ended.

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Same as on the military front, we have withstood the heaviest blow (and I’m afraid the first but not the last) on the economic and financial fronts, but the situation remains difficult.

The losses caused by the war are catastrophic. The russcist occupiers continue to destroy not only military facilities, but also transport, energy and industrial infrastructure, which was built by generations of Ukrainians. One of the largest industrial enterprises, the Azovstal and Ilyich plants, were almost completely destroyed. The latter was built in the late XIX century, and it survived World War II. Many companies have suspended their operations either because of a military threat or because of blocked access to the markets or raw materials. According to the preliminary estimations, about 30% of companies have completely stopped their activities, 45% - reduced production.

As the Ministry of Finance, we estimate that budget losses amount to about UAH 2 bln (that is EUR 60 mln) per day.

Infrastructure losses in a month of war were tentatively amounted to USD 119 bln. That is USD 4.25 bln every day.

If we consider military losses, increasing military and social spendings, support programmes, losses of the economy and businesses - that's hundreds of billions of US dollars.

The fighting is taking place in the area that accounts for almost three-quarters of Ukraine's GDP and employs about 10 million people before the war – which refer to almost 64% of the employed population.

Russia's aggression has caused economic losses not only for Ukraine, this aggression will have consequences without exaggeration for the whole world. We are already witnessing the destabilization of the world and European energy markets, another surge in inflation, the shutdown of European enterprises due to the inability to supply components from Ukraine.

Thus, the European Central Bank, based on the first estimates of the consequences of the war, has already downgraded the forecast estimates of the Eurozone this year from 4.2% to 3.7%. At the same time, the inflation forecast for the current year deteriorated from 3.2% to 5.1%. Of course, these are only the first forecast adjustments, and there is a high risk of worsening projections in the future.

Every day of the war leads to significant losses of the EU economy and, consequently, the standard of living of every EU citizen, in particular due to the loss of supply chains, one of the biggest migration crises since World War II, and worsening expectations of economic agents.

According to expert analysis, EU indirect losses from Russia's war in Ukraine are higher than the direct economic losses from the embargo on Russian oil and gas. Therefore, the purchase of Russian energy resources is not only financing the killing of thousands of our citizens, but also financing economic losses and deteriorating living standards of EU citizens. Especially given the available opportunities to diversify supply routes from the Middle East, the United States and Canada, as well as the implementation of energy efficiency measures.

The longer Russia's aggression continues in Ukraine, the greater economic consequences for Europe and the world are. Ukraine ranks first in the world in terms of sunflower oil exports. The world second rank is the export of barley and rapeseed. Third - in the export of rye. Ukraine provides almost 10% of the world's grain supplies. According to experts, 400 million people in the world depend on Ukrainian grain supplies.

If we do not have a successful sowing campaign by the beginning of May, the world will be threatened by a global food catastrophe.

Experts from the Food and Agriculture Organization of the United Nations (FAO) predict an increase in world food and feed prices by more than 20%. This, through the system of intersectoral linkages, will also have an impact on overall inflation, particularly in the EU.

But despite the large-scale destruction of the domestic economy, thanks to the stock of financial strength accumulated over the years between the active phases of Russia's attack on Ukraine, assistance from international partners and timely action taken by the President, the Government and the NBU, we can already see a gradual resumption of economic activity.

Many enterprises applied for relocation.

Sowing activities in Ukraine were started in 20 regions of Ukraine. Sowing can be carried out on 6 million hectares of land. This is 80% of the area sown last year.

The Government is already developing a plan for the reconstruction of Ukraine, which will be the basis for a package of measures in all areas. Martial law and post-crisis recovery require new approaches to fiscal, debt, tax and customs policies. Maintaining the stability of public finances and the financial system as a whole remains a significant challenge.

We trust in your support not only during the war time, but also to help us rebuild our country after our victory.

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As the Minister of Finance, first of all I have to think proactively about safeguarding our financial system.

The year of 2022 should have been the year of our success build-up, given our results of 2021. If not the war.

Nevertheless, during the war, we are managing to keep the Ukrainian financial system operational, safeguarding and increasing the priority budget expenditures, while ensuring the settlement of all necessary payments.

Obviously, the revenue collection dramatically decreased as economic activity was severely damaged.

Despite the state of war, the government ensures a timely payment of pensions and social benefits as well as salaries, which are paid through the budget, such as for employees of healthcare and educational sectors.

It is hard for us to estimate correctly by how much exactly the fiscal gap has widened at this moment of time, bur it is widening with every day of war.

We take all steps to close it as much as possible.

Firstly, by the maximization of the concessional funding. And in this regard the EU, the European Commission played one of the crucial roles. In particular, I’m talking about the swift decision to establish a new emergency macro-financial assistance (MFA) programme for our country amounting to €1.2 bln, and the allocation of the first tranche of €600 mln in such a short period of time. And here I’d like to separately thank the EU colleagues for making this happen.

Secondly, we try to secure commercial funding as well. When the full-scaled war started, we made a decision to issue War Bonds, during this period we already raised over US 1 bln in five auctions.

Most of you are finance people here. You will understand me well. With all I’ve said – we have to engage ourselves in a much more ambitious fund-raising exercise.

We need to be mindful, we always have to be.

We definitely have the option to simply print money. I’ll be frank with you - this is the last option I’ll turn to. After we win the war, we will have a range of problems to solve, and I wouldn’t add curing hyperinflation to them.

Moreover, we are mindful with the fact that GDP contraction with the increase of debt ratio may lead to unsustainable debt level, which I cannot allow for. 

Given this, most objectively right decision lies within the framework of attracting a rapid concessional financing and grants allocations.

The form of grants is now by far more important for us as it allows for quick access to liquidity without increase of the debt stock.

Moreover, we all realize that after the war we will need financing for the huge country reconstruction.  So, it’s better for us if we have more grants now – rather than loans – so we don’t have to allocate most of the budget to debt servicing, rather than for reconstruction of the country.

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What instruments exist already to increase the support?

- EU. Ukraine would be grateful to the EU for setting up a separate multi-year facility to support Ukraine both in the loan and grant formats, or if it proves easier – making Ukraine eligible for the funds from the Next Generation EU facility.

- World Bank Trust Fund. As a quick way to support Ukraine to survive financially through April, we ask you to contribute to Multi-Donor Trust Fund, which was established to channel partner grant contributions in support of the World Bank DPL. Any country can join this mechanism, and some of you present here already did.

- IMF-administered mechanism of channeling SDRs to Ukraine. This is the initiative we proposed – to create a trust fund where the IMF members can channel their financial resources including SDRs, with the goal to provide supplementary to IMF financing of a significantly larger magnitude. Donating even a fraction of the amount each country possesses will make a big difference for us. Canada, Chrystia Freeland personally, is now leading the process of implementing such an initiative, together with the IMF and other partner countries.

These are those tools, which we are discussing with different partners. I would be grateful if each of your governments could consider them.

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Dear colleagues, now I’d like to step in not as the Minister of Finance of Ukraine, but as the Ukrainian citizen.

The Ukrainian government, and I personally, are thankful for the massive package of economic sanctions and blocking decisions made by your governments, by EU.

These sanctions were mainly aimed at stopping fueling Russian money in this war and isolating Russia’s economy, they are multilateral in nature and target various sectors.  

Still, we all witness that the actual implementation of sanctions has proceeded at different paces and with different focuses, depending, among others, on each particular country’s economic and political relationship with Russia.

But after what the world has seen from Kyiv region (I’m sure you all have seen these horrible photos, this footage from Bucha town, these grave mass atrociries – and this is only one the numerous episodes which already exist in Irpin, Mariupol, Kharkiv and other cities), I’m confident to tell you that these sanctions imposed on Russia are not enough.

Let me be clear and straight here – this is the evidence of the Genocide of the Ukrainian people.

We see that Russia has no problem with being ambitious enough in killing our people.

So, I think EU countries should have no problem with being ambitious enough in imposing more sanctions on Russia - even if it has effect on their wellbeing.