EXCLUSIVE War forces Ukraine to divert $8.3bn to military spending, tax revenue drops – minister

Ukrainian servicemen sit atop an armored fighting vehicle as Russia’s attack on Ukraine continues, at an undisclosed location in eastern Ukraine, in this photo released April 19 2022. Ukrainian Ground Forces Press Service/Handout via REUTERS

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KYIV, May 12 (Reuters) – Ukraine has been forced to spend 245.1 billion hryvnias ($8.3 billion) on its war with Russia instead of development, the finance minister said on Thursday. giving insight into the enormous economic cost of February 24 in Moscow. invasion.

The figure, which has not been disclosed by the Ukrainian government before, lays bare the economic whirlwind in which Ukraine navigates as its soldiers try to hold off the new Russian offensive in the east of the country.

The spending – drawn from some funds originally budgeted for development – ranged from buying and repairing weapons to emergency aid for internally displaced people, Finance Minister Serhiy Marchenko said. . There are 2.7 million officially registered displaced people, according to data from the Ministry of Social Policy, although the actual figure is much higher.

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The government collected only 60% of its projected tax revenue for April, a shortfall that was topped up to the equivalent of 79.5% by grants from foreign partners, Marchenko told Reuters in written comments. exclusive.

Marchenko said Kyiv urgently needs foreign support to bolster as it is forced to channel billions more into emergency spending.

Marchenko said Ukraine received nearly $2 billion in external funding in April, of which $719 million came from grants. The figure for the period since February is $5.4 billion, including $801 million in grants, he said.

“If we do not take into account foreign aid, we now estimate the receipt of income in May-June at the level of 45-50% of (what was) expected, provided that the situation does not worsen” , said Marchenko.

DEBT SERVICE COMMITMENT

The $8 billion in wartime spending equals more than a month of total state spending, measured by annual 2021 spending of 1.84 trillion hryvnias ($62.28 billion).

Marchenko said Kyiv was discussing various types of external financial support.

He listed the funds Ukraine hoped to obtain through a special drawing rights (SDR) account launched by the International Monetary Fund.

Developed countries can direct part of their SDRs to the account.

“Currently, the Finance Ministry team is negotiating with our international partners, especially the G7 countries on sending their share of SDRs to support Ukraine,” Marchenko said.

He added that Ukraine expected to receive a loan of around C$1 billion (about $767 million) from Canada in May through the account.

“We urge our partners to provide part of the funds in the form of grants to reduce (our) debt burden which is already increasing due to martial law as well as the need for financing,” Marchenko said.

The minister said Ukraine remains committed to servicing its debt regardless of the war.

“Our position on this issue remains unchanged. We continue to service our debts and the amount of our expenditure on this is not large compared to the financing needs of the budget,” he said.

“Furthermore, we currently don’t even have reliable medium-term forecasts that would allow us to model the trajectory of debt in the future.”

CENTRAL BANK LOANS

The government has also borrowed about $2.4 billion by placing domestic war bonds and does not plan to issue any other new commercial debt instrument, Marchenko said.

In addition, Ukraine’s central bank provided the government with financial assistance of 100 billion hryvnia ($3.4 billion) by buying war bonds directly to its portfolio.

Marchenko said the war prompted the government to seek help from the central bank.

“We are trying to maximize commercial funding through government war bonds and the volume of aid from our partners, and only ultimately rely on central bank funding,” he said.

He said such an amount should not lead to higher inflation.

($1 = 29.5420 hryvnias)

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Reporting by Natalia Zinets; Written by Tom Balmforth; Editing by William Maclean

Our standards: The Thomson Reuters Trust Principles.

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