Financial assistance to Ukraine essential to keep services running

Ukraine needs resources to run the government and is receiving emergency aid from the IMF and the World Bank – Copyright AFP/File JIM WATSON

Delphine TOUITOU

As the crisis worsens in Ukraine, humanitarian and security aid is pouring into the country, but financial support to keep the government going is also essential.

“The economy is collapsing,” said Adnan Mazarei of the Peterson Institute for International Economics, a Washington-based think tank.

With Kyiv unable to access tax revenues, “it is absolutely crucial for the international community to provide rapid assistance not only for humanitarian purposes, but also to retain some of the basic government functions,” he said.

And with a flood of refugees leaving the country in the face of the Russian invasion, often taking their savings with them, the banking sector also needs support, Mazarei said.

Of the $13.6 billion in aid expected to be released by Washington this week, $1.8 billion is for ensuring ‘continuity of government’, preventing cyberattacks and supporting the energy sector , according to the bill introduced in the US Congress.

The Executive Board of the International Monetary Fund (IMF) meets on Wednesday and is expected to approve a $1.4 billion emergency plan for Kyiv.

The World Bank has already released nearly $500 million of what is expected to be a $3 billion aid package, dubbed “Financing Economic Emergency Recovery in Ukraine” or “FREE Ukraine”.

These sums are large compared to the size of Ukraine’s economy, valued at $155.5 billion at the end of 2020, according to World Bank data.

The IMF already had an ongoing $2.2 billion program with the government that was due to end in June.

– Money without conditions –

But IMF Managing Director Kristalina Georgieva said on Tuesday night that since the military assault on Moscow began, the focus has shifted “from ‘reforms’ to ‘crisis management'”.

Additional financing from the IMF, under its Rapid Financing Instrument, accelerates assistance and imposes few conditions.

The same is true for the World Bank.

Axel van Trotsenburg, the World Bank’s chief operating officer, stressed in an interview with Sky News on Wednesday that the government desperately needed “budgetary resources to pay pensioners, to pay civil servants’ salaries, to keep the health system in walk”.

But experts warn that the aid is unlikely to be enough to avert a major economic crisis in the country which, even before the Russian invasion, was one of the poorest countries in Europe.

“Money flows can never really replace lost production,” said Homi Kharas, an economist at the Brookings Institution in Washington, noting in particular the trade halt.

“Silver can help reduce the impact of this a little bit, but certainly won’t be able to compensate for it.”

Mazarei said the international community must prepare for the post-conflict period and the impact of war on neighboring countries as well.

“Even when this war stops, even if the Russians turn around and leave, there is a huge problem of rebuilding Ukraine,” he said.