Delay of pensions and salaries. State budget deficit

Without Western aid, Ukraine will be forced to delay payments to civil servants, teachers and pensioners.

If the European Union and the United States do not provide the promised financial aid to Ukraine by the beginning of 2024, the government will have to postpone the payment of pensions and wages. Economy Minister Yulia Sviridenko warned about this.

We are talking about payments for 500 thousand civil servants, 1.4 million teachers, as well as 10 million pensioners.

Why did the problem occur?

As you know, today US President Joe Biden’s request for $61 billion aid to Kyiv is at a “dead end” in Congress, and the EU support package for 50 billion euros is blocked due to Hungary’s veto.

As Sviridenko explained, the lack of external support will push the Ukrainian economy back into “survival” mode after it starts to recover in 2023 with GDP growth estimated by the IMF at 4.5%.

“Partner support is very important. We need it urgently,” he told the Financial Times.

According to the minister, Ukraine is already experiencing a lack of funds, and approximately five billion dollars in payments from international donors and creditors in December “will not be enough” to cover spending needs. At the same time, Sviridenko hopes that the European Union will still approve aid to Ukraine in February and provide funding until the end of March.

High cost

At the same time, Ukraine has been trying to save money and change spending priorities since September, notes the Financial Times. In particular, the Cabinet of Ministers increased the tax on bank profits and transferred the income taxes of military individuals from local communities to the state budget.

However, given Ukraine’s current priorities – defense and debt repayment, this is still not enough. According to the most optimistic forecasts, in 2024 Kyiv will need $37 billion in external support.

Some Western officials believe that Kyiv will be able to sustain the budget without Western aid for several months. However, such a situation would lead to inflation and could damage the financial stability of the country. Sviridenko added that in 11 months of 2023, the state collected taxes $4.4 billion more than in the same period last year.

As the Financial Times notes, such continued economic recovery is necessary to encourage Ukrainian refugees to return home. Despite an unemployment rate estimated at 18.9%, Ukraine faces labor shortages in many sectors.

Since Ukraine’s export routes are limited by the war and its border with Poland is still blocked, the Cabinet’s strategy is to promote exports of higher-value processed and manufactured goods than raw materials.

Sviridenko also called on the new Polish government to stop blocking Ukrainian border crossings. Because of the Polish protests, Ukrainian exporters lost $160 million, and importers lost $700 million.

“Plan B”

After the publication in the FT, Sviridenko decided to clarify his words. He assured that the government of Ukraine has a “Plan B” in case of delays in receiving funds from Western partners. In addition, several options for the development of events are explored with partners.

“In the short term in the first months of the year, the government has an alternative plan of what to do if funding is delayed. However, in the long term there is a risk of delaying payments to social categories, as the priority will be to support security and defense. But I repeat again that the moment may not come and this is only one of dozens of options that we are evaluating,” he wrote on Facebook.

Sviridenko also emphasized that the West is giving signals that aid funding will still be accepted.

“We see clear signals from partners that there will be funding. In particular, the President of the European Council, Charles Michel, confirmed that we can hope for a positive solution,” he added.

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