Brussels is drawing up plans for a new round of emergency loans to Ukraine as it seeks to help allies’ efforts to fill a gaping government funding gap amounting to billions of euros a month.
Valdis Dombrovskis, the European Commission’s executive vice-president for economic policy, said EU officials were both seeking to speed up a €600 million payment under the existing emergency block and to propose a new round of loans.
This could be achieved either by completing the funding or by providing a new emergency loan, he said. “We are currently evaluating both options,” Dombrovskis told the Financial Times in an interview. “The goal is of course to really bridge that funding gap.”
Last month, Ukraine’s finance minister called for immediate financial support of tens of billions of dollars to fill a budget gap caused by Russia’s invasion of the country. Sergii Marchenko has said government spending will outstrip revenues by $5 billion to $7 billion a month as the war continues.
Kristalina Georgieva, managing director of the IMF, later estimated that Ukraine would need $15 billion over three months to bail out its finances.
Marchenko said the response from foreign governments and multilateral institutions to his pleas for help had been positive, but the pledges made fell far short of Ukraine’s needs.
The IMF, World Bank, US, UK and other donors “have agreed on our estimate of what we need”, he said. “Now it’s time to fill the glass.”
Dombrovskis revealed the EU’s latest plan on Wednesday, a day before US President Joe Biden announced a request to Congress for a Ukraine-related package that included $8.5 billion in economic aid. for Kyiv. Other Western partners have also provided support to the country, including Canada and a number of EU member states through bilateral facilities.
Earlier this year, the EU agreed on an emergency package of 1.2 billion euros of so-called macro-financial assistance to Ukraine, in addition to its regular support to the country.
So far, however, Ukraine has received only about $4.6 billion in budget support from foreign donors and lenders. It also raised about $3.7 billion by selling war bonds in local markets, including $800 million last week, according to the finance ministry. At least $1.4 billion worth of bonds were purchased by the central bank, a form of money printing. Marchenko said Ukraine was hesitant to repeat.
From April to December, Ukraine faces local and external debt repayments of around $15 billion, bringing its estimated gross financing needs at the end of the year to between $40 billion and $50 billion. dollars, according to Timothy Ash, senior emerging markets debt strategist at BlueBay Asset Management.
With $27.6 billion in foreign exchange reserves at the start of March and foreign and local funding, the government would be able to continue servicing its debt for at least the next few months, Ash added.
Marchenko said maintaining debt repayments was a priority as the government wanted to maintain access to local and international capital markets.
But at some point, analysts believe kyiv’s debt will be restructured. “When hostilities end, I cannot imagine [restructuring the debt] will not be discussed, and private sector participation will surely be part of that,” Ash said. “I don’t see why tens of billions of western taxpayers’ money [should be spent on supporting the Ukrainian government] without bondholders being asked to contribute.
Dombrovskis said the topic of supporting Ukraine’s immediate needs was discussed at the April IMF and World Bank meetings in Washington, describing it as a “work in progress”.
“It’s difficult but it’s important to do it,” he said. “There was a will on all sides of [make] this effort and make sure that this support for Ukraine is there to maintain the normal functioning of the state.