KYIV, Ukraine — The Ukrainian government has struggled to raise money in the bond market during the war and is paying investors more than they collect, a central bank statement indicates. the country’s deep dependence on foreign aid.
About one-fifth of Ukraine’s territory is occupied by Russian forces. Important sectors such as steel production and agriculture were directly damaged by the war. And with cruise missiles Volleys hit cities all over UkraineHuge uncertainty pervades all of the country’s businesses.
The economy is projected to shrink by about 40% this year, draining tax revenues and indefinitely delaying previously planned spending that would have spurred growth.
The Central Bank statement, published on Monday, pointed to a more subtle aspect of Ukraine’s financial shortfall caused by the war: the inability to raise money in the market. Are from Russia invaded on 24th FebruaryUkraine has not been able to reverse the debt accumulated since before the war. The central bank said the country paid investors about $2.2 billion more than it earned from bond sales during that time.
All of this has left Ukraine’s public finances, already reeling at the best of times in the post-independence era, deeply dependent on support from the United States, the European Union, and European countries. Europe donates individually and other donors.
The Treasury Department sold $6.7 billion in bonds during that time despite hostilities in southeastern Ukraine, missile attacks in the capital, and an advance by Russian troops within about 12 kilometers. from central Kiev during the first month of the war.
Much of those sales are seen as politically motivated – with investors wanting to support the government or unable to invest elsewhere due to capital controls. The rate the Treasury Department pays on government debt is below market, due to risk and other more market-based indicators of expected borrowing costs.
In a peculiarity of Ukraine’s wartime monetary policy, the Central Bank maintained its lending rate, on average, around 25%, much higher than the interest rate on Ukrainian bonds, which was around 15%.
Ukraine’s moves to cover summer deficits by printing money to pay soldiers’ wages and other wartime expenses have pushed up inflation. Now, the Central Bank is trying to reduce inflation, while the government is looking for lower interest rates to reduce borrowing costs.
The budget approved by the Ukrainian parliament for next year includes a deficit of about $36 billion. About half of the planned spending is for the military, police and other military spending. The deficit this year is even higher, at about $5 billion a month.
The International Monetary Fund, which rescued Ukraine through a series of post-independence financial crises, stopped making large-scale lending during the war.
“They are worried about the sustainability of the debt,” said Tymofiy Mylovanov, a former economy minister and now a professor at the Kyiv School of Economics. “If the IMF is worried about debt sustainability and funding, imagine what private investors are thinking.”
President Volodymyr Zelensky said in his nightly address Monday that after Russian missile attacks on Ukraine’s power grid, about 9 million people lost power. The power outage brought economic activity to a near standstill in some towns.
Donors weighing the cost of defending Ukraine must also consider the potential cost of continued instability in Eastern Europe if Ukraine remains unstable, Mr. Mylovanov said.
“Ukraine will be a net recipient of foreign aid for a long, very long time and in very substantial amounts, precisely because it will be so important to European security,” he said. However, prolonged instability in Europe will cost more than supporting the Ukrainian government, he said.
