Berlin, Niigata Ukraine’s President Volodymyr Zelensky is expected in Berlin at the weekend. The meetings with Chancellor Olaf Scholz (SPD) will be about further help for the war-torn country.
A few thousand kilometers away, support for Ukraine was also at the top of the agenda for the finance ministers of the large industrialized countries (G7). At their meeting in Niigata, Japan, it was the first topic they discussed for three quarters of an hour on Thursday evening. From the point of view of Federal Finance Minister Christian Lindner (FDP), this is the right priority: “We are not going into routine,” said Lindner in Niigata.
But even if Ukraine remains a priority in faraway Japan, financial aid to the country is becoming an increasing challenge. Funding for the aid is secured until March 2024, but negotiations are now beginning on how to proceed afterwards – and who should pay for the support.
According to estimates by the International Monetary Fund (IMF), Ukraine will need at least 115 billion US dollars over the next four years to keep its state-owned enterprise running. Depending on how long the war lasts, there could be more. In the worse scenario, the IMF expects $140 billion.
For the government in Kiev, the financial aid is just as important as the delivery of tanks and ammunition. While Ukraine was kept afloat financially in the past year primarily through bilateral payments from western industrialized countries, the IMF is now also involved. At the end of March, the IMF approved a $15.6 billion aid program to run for four years.
IMF involvement is important for the US and Europeans. The Monetary Fund not only has tremendous financial power, but also experience in helping countries in crisis. But the participation of the IMF also brings with it problems: Actually, the Monetary Fund can only grant rescue loans if it can be sure of actually getting the money back.
The conditions for the Ukraine program were relaxed. After all, the financial situation is difficult to predict because of the war. The economy shrank by 30 percent last year. For the current year, the IMF considers a further minus of three percent possible, but also slight growth of one percent. The exact financial requirements are correspondingly uncertain.
The participation of the IMF helps – but also creates difficulties
One thing is clear: the IMF will only pay out its aid tranches if the financing of the Ukrainian state has been clarified for at least twelve months. The Europeans, the USA and other western industrialized countries have assured the IMF that they will provide the appropriate funds. In addition, the government in Kiev will not have to make any interest or repayments on existing loans until 2027.
“During the IMF’s regular program reviews, we have to ensure that the country is fully financed for twelve months,” said government circles in Berlin. At the moment this is still the case. But it is unclear how things will continue after March 2024. “So the problem of the 2024 financial gap will soon arise,” it says.
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The IMF said there were “good prospects” for financial support during the four-year program. However, the Monetary Fund also makes it clear that “significant public financing in the form of loans on very favorable terms and grants is required” to restore debt sustainability and secure medium-term financing for Ukraine.
Which states pay how much
The western states will therefore have to organize further payments. Compared to 2022, there would not have been as many new aid commitments in the past few months, writes the Institute for the World Economy (IfW), which lists all support measures in a “Support Tracker”.
In Niigata, G7 finance ministers renewed their pledge to support Ukraine for as long as needed.
(Photo: AP)
Almost 13 billion euros were announced, especially from Denmark, Finland, Norway and Sweden. Japan was also generous as G7 chairman, the country has now pledged a total of 5.1 billion euros.
Germany transferred 1.5 billion euros to Ukraine last year, most of it in real grants that Kiev does not have to pay back. In addition, the Europeans help mainly through loans from the EU. Last year, the EU gave loans of 7.2 billion euros. Loans of EUR 18 billion have been committed for this year, of which EUR 6 billion have already been disbursed.
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So far, support from the EU has been a comparatively convenient way for Europeans. The states do not have to spend money themselves. The EU takes out loans and passes them on to Ukraine. However, they must be secured via the EU budget.
How long can the EU continue to provide loans?
The question is how long this will continue to work, they say. The framework for credit protection could soon be exhausted. Then the Europeans would have to increase the EU budget accordingly in order to make further loans possible. Not all states seem willing to do this so far.
This is how the Handelsblatt reports on the Ukraine war:
And there could also be problems with the second major donor, the USA. US President Joe Biden is under increasing pressure domestically because of the generous aid to Ukraine. Unlike the Europeans, the US government gives Ukraine not just loans, but real grants. They have pledged 24.5 billion euros so far.
In Berlin, people are worried: “How long will the Americans go along with this, that they give grants, while the Europeans mostly give loans?”
In Niigata, G7 finance ministers renewed their pledge to support Ukraine for as long as needed. What that means in concrete terms for future financial aid remained open. The finance ministers will soon have to answer this question.
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