Düsseldorf, Berlin, Brussels Serjiy Marchenko is fighting his own battle for Ukraine these days. While Russian troops shelled Kyiv, Kharkiv and Mariupol on Wednesday, Ukraine’s finance minister issued war bonds. He raised the equivalent of $277 million (8.1 billion hryvnia) from investors to fund resistance to the Russian invasion.
The interest rate is 11 percent – well below the yield on 10-year Ukrainian government bonds, which has soared to almost 30 percent with the invasion of Russia. On Tuesday, Ukraine early repaid over $300 million in interest on its bonds to international investors – a small sign of normalcy in the chaos of war.
Thanks to the immense international support, the country has enough funds to cover all current expenses such as pensions, social security spending, wages and payments to the army, the finance minister said. Marchenko knows that the international community will pay billions in aid to Ukraine this year.
Because parallel to the military defense, it is important to prevent the country’s supply and financial situation from collapsing completely. “The economic front in the ongoing Russo-Ukrainian war is just as crucial as the military front and demands the same international attention,” says Swedish Ukraine expert Anders Aslund of the Atlantic Council.
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According to the finance ministers of the G7 countries, 48 billion dollars in financial support have flowed to Ukraine since the annexation of Crimea in 2014 until the end of 2021. And this year, according to Aslund’s estimate, at least another ten billion dollars will be added. But they are also necessary, because Ukraine will need an estimated 8.5 billion dollars this year for debt service and deficit financing.
The International Monetary Fund (IMF) announced on Wednesday night that it would be able to decide on emergency financing as early as next week. Talks are also underway with Ukraine about an aid program that could add an additional $2.2 billion by the end of June.
The World Bank plans to provide aid totaling three billion dollars in the coming months. An initial payout of $350 million is expected to flow this week. According to insiders in Ukraine, this should be free to use, i.e. not subject to conditions. Another $200 million is to be paid in emergency aid for health and education.
1.2 billion euros come from the EU
The EU has already offered 1.2 billion euros in financial aid. France wants to provide loans of a similar amount so that Ukraine can buy electric locks from Alstom. The US wants to give a billion dollars in loan guarantees, Canada half a billion.
And then there are the donations from companies and individuals to the country. Japanese internet billionaire Hiroshi Mikitani announced over the weekend that he would donate 1 billion yen (7.7 million euros) to the Ukrainian government.
The government should help the people who are victims of violence. Meanwhile, the state-controlled Sberbank has blocked Russians who want to donate money to Ukrainian aid organizations and independent media. More and more Russians are unanimously reporting this, on condition that they are not named. The Kremlin wants to curb the growing resistance in Russia to the Ukraine attack.
War bonds, aid packages, donations: the hope is that the billions will help keep the chaos in Ukraine as small as possible. Because the supply situation in the country is deteriorating. Health Minister Viktor Ljaschko speaks of problems in distributing medicines to pharmacies and hospitals. The government is working to open humanitarian corridors for drug deliveries. The national currency hryvnia is under immense pressure.
The agricultural sector, which is important for the economy, is affected by supply problems. The ports on the Sea of Azov can no longer handle shipments – not for exports out of Ukraine, not for aid deliveries into Ukraine. They are being fired upon by Russia. Truck drivers under the age of 60 are not available for overland transport if the goods are to be shipped abroad because men of military age are not allowed to leave the country. Border crossings are blocked again and again.
Maintaining production is becoming increasingly difficult
Companies in Ukraine, including foreign ones, are increasingly having problems maintaining production, and not just because of direct attacks on cities. They are also coming under increasing pressure as successive men under the age of 60 are drafted into the army away from the workbench, the forklift and the computer.
Some female employees have fled with their children and parents. In particular, the companies that are still operating do not want to be quoted by name because they do not want to become the target of possible Russian hacker attacks.
“Not everything has stopped,” said the country’s former finance minister, Natalie Jaresko, to the Handelsblatt. “There are parts of the country where business is still going strong.” But in the north-east, for example, it was not possible to continue working because of the immense bombing, because everyone was in bunkers and air-raid shelters underground. Added to this is the high level of damage caused by bombing of the energy, water and telecommunications infrastructure.
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The Ukrainian economy had developed well in recent years despite corruption problems. High prices for export goods such as agricultural products and iron ore helped economic growth. National debt fell from 80 to 54 percent of economic output. At the end of last year, foreign exchange reserves were $31 billion, their highest level in a decade.
All of this is now waste. “Right now, there isn’t even a way for us to estimate the extent of the damage that was done,” says Jaresko. She demands that the frozen funds of Russian oligarchs and politicians after the war flow as reparations into the reconstruction of Ukraine. Because it would take “many billions of dollars.”
Ukraine expert Aslund estimates that the mere threat of an all-out invasion of Russia has already cost Ukraine billions. Insurance has become more expensive, bond interest rates have risen, investments have failed, and the currency has weakened. In his view, international financial support is all the more important.
Critically, however, he adds that the Ukrainian government of President Volodymyr Zelensky must make some improvements in return: reduce corruption, reform the legal system and no longer select cabinet members solely on the basis of their degree of friendship with the president.