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The Star
31-07-2025
- Business
- The Star
Analysis-Ukraine's huge financing gap set to widen as war heats up and reforms stall
KYIV (Reuters) -Ukraine's financing gap will widen significantly next year if Russia keeps up its intense attacks across the country and the government fails to act on demands for reform from foreign lenders, analysts say. The government spends most state revenues on the army and finances social and humanitarian spending with foreign aid, which state data shows has totalled $139 billion since Russia launched its full-scale invasion in February 2022. Central Bank Governor Andriy Pyshnyi said that only about a third of the $65 billion needed for both 2026 and 2027 had been pledged, with talks underway on the rest. A poll of eight economists by the Centre for Economic Studies, a Kyiv-based think-tank, showed Ukraine will need between $39 billion - this year's sum - and about $58 billion in external financing for next year alone. The task is urgent. "A key challenge for the government now is to look for $10-15 billion in addition to that volume of aid which partners have already pledged for 2026," ICU, a Kyiv-based investment house, said in a research note. Those negotiations may become more difficult after Ukraine missed key targets agreed with lenders - including the appointment of judges and other key officials - and the president tightened control over the two main agencies investigating corruption. The move by President Volodymyr Zelenskiy sparked Ukraine's biggest wartime street protests and prompted strong criticism from Kyiv's European allies, who made it clear that strong anti-graft measures were key to the country's EU aspirations. Zelenskiy backtracked and has submitted a new draft law to parliament, vowing to restore the independence of institutions set up to root out corruption, even at the highest level. The vote on the draft bill is set for later on Thursday. But some damage has been done already, experts say. "Although Europe is unlikely to walk away from Ukraine, future financial and military support will likely come under much more scrutiny, leading to delays that Ukraine can ill afford," said Evghenia Sleptsova, senior economist at Oxford Economics. STALLED REFORMS To unlock the next tranches of multi-year lending programs from the European Union and the International Monetary Fund, Ukraine needs to make various reform steps which include hiring more judges to the highest anti-corruption court, overhauling the agency tasked with managing nationalised assets and appointing a head of the bureau for economic security. In the first quarter of this year, Ukraine failed to meet several funding targets under the four-year 50 billion-euro Ukraine Facility approved by the EU last year, two officials with knowledge of the matter said. In June, Ukraine requested 3 billion euros instead of the 4.5 billion euros it was meant to receive for the second quarter, they said. The economy ministry, a coordinator for the facility, said Ukraine was meeting all its obligations despite wartime challenges and expected a tranche worth about 3 billion euros in August. The ministry said it hoped to receive a 1.45 billion euro tranche at a later stage. Ukraine also has a $15.5 billion support program with the IMF and plans talks on a new lending program, officials say. Danylo Hetmansev, a lawmaker from the ruling party and the head of parliament's committee for taxes and finances, said the delays in meeting key reform targets were baffling. "I cannot say that among the uncompleted tasks there was anything extremely difficult or unmanageable," he said on the Telegram app. Officials say that the government is working to implement all required reform steps but some more complicated tasks require more time. Ukraine overhauled its government on July 17, appointing experienced technocrat Yulia Svyrydenko as the first new prime minister in five years to revitalise economic management. The economy grew 2.9% last year but for this year, the central bank has cut its forecast to 2.1% as hopes for a quick end to the war as predicted by U.S. President Donald Trump have faded. "While many of us have previously assumed that 2026 would be easier, we now anticipate that the war will continue into next year," said Oleksandra Betlyi, researcher from the Institute of Economic Studies in Ukraine. She cited mining and agriculture among economic weak spots. As Russian troops advance in the eastern Donetsk region, Ukraine has lost key assets, including the country's only coking coal mine near the besieged city of Pokrovsk. Russian strikes have also damaged Ukraine's gas production, Betlyi added. Trump set a new deadline on Monday of 10 or 12 days for Russia to make progress toward ending the war in Ukraine, threatening to impose new sanctions if it failed to do so. Analysts pointed out that Ukraine would be unable to cut its defence spending significantly next year, even if a ceasefire was agreed this year, given that its much larger neighbour Russia has hiked military spending to record levels. Ukraine will spend a record 2.6 trillion hryvnias ($62 billion) or about 31% of GDP on defence this year. ($1 = 0.8725 euros) (Reporting by Olena Harmash; Editing by Mike Collett-White and Philippa Fletcher)
Reuters
31-07-2025
- Business
- Reuters
Ukraine's huge financing gap set to widen as war heats up and reforms stall
KYIV, July 31 (Reuters) - Ukraine's financing gap will widen significantly next year if Russia keeps up its intense attacks across the country and the government fails to act on demands for reform from foreign lenders, analysts say. The government spends most state revenues on the army and finances social and humanitarian spending with foreign aid, which state data shows has totalled $139 billion since Russia launched its full-scale invasion in February 2022. Central Bank Governor Andriy Pyshnyi said that only about a third of the $65 billion needed for both 2026 and 2027 had been pledged, with talks underway on the rest. A poll of eight economists by the Centre for Economic Studies, a Kyiv-based think-tank, showed Ukraine will need between $39 billion - this year's sum - and about $58 billion in external financing for next year alone. The task is urgent. "A key challenge for the government now is to look for $10-15 billion in addition to that volume of aid which partners have already pledged for 2026," ICU, a Kyiv-based investment house, said in a research note. Those negotiations may become more difficult after Ukraine missed key targets agreed with lenders - including the appointment of judges and other key officials - and the president tightened control over the two main agencies investigating corruption. The move by President Volodymyr Zelenskiy sparked Ukraine's biggest wartime street protests and prompted strong criticism from Kyiv's European allies, who made it clear that strong anti-graft measures were key to the country's EU aspirations. Zelenskiy backtracked and has submitted a new draft law to parliament, vowing to restore the independence of institutions set up to root out corruption, even at the highest level. The vote on the draft bill is set for later on Thursday. But some damage has been done already, experts say. "Although Europe is unlikely to walk away from Ukraine, future financial and military support will likely come under much more scrutiny, leading to delays that Ukraine can ill afford," said Evghenia Sleptsova, senior economist at Oxford Economics. To unlock the next tranches of multi-year lending programs from the European Union and the International Monetary Fund, Ukraine needs to make various reform steps which include hiring more judges to the highest anti-corruption court, overhauling the agency tasked with managing nationalised assets and appointing a head of the bureau for economic security. In the first quarter of this year, Ukraine failed to meet several funding targets under the four-year 50 billion-euro Ukraine Facility approved by the EU last year, two officials with knowledge of the matter said. In June, Ukraine requested 3 billion euros instead of the 4.5 billion euros it was meant to receive for the second quarter, they said. The economy ministry, a coordinator for the facility, said Ukraine was meeting all its obligations despite wartime challenges and expected a tranche worth about 3 billion euros in August. The ministry said it hoped to receive a 1.45 billion euro tranche at a later stage. Ukraine also has a $15.5 billion support program with the IMF and plans talks on a new lending program, officials say. Danylo Hetmansev, a lawmaker from the ruling party and the head of parliament's committee for taxes and finances, said the delays in meeting key reform targets were baffling. "I cannot say that among the uncompleted tasks there was anything extremely difficult or unmanageable," he said on the Telegram app. Officials say that the government is working to implement all required reform steps but some more complicated tasks require more time. Ukraine overhauled its government on July 17, appointing experienced technocrat Yulia Svyrydenko as the first new prime minister in five years to revitalise economic management. The economy grew 2.9% last year but for this year, the central bank has cut its forecast to 2.1% as hopes for a quick end to the war as predicted by U.S. President Donald Trump have faded. "While many of us have previously assumed that 2026 would be easier, we now anticipate that the war will continue into next year," said Oleksandra Betlyi, researcher from the Institute of Economic Studies in Ukraine. She cited mining and agriculture among economic weak spots. As Russian troops advance in the eastern Donetsk region, Ukraine has lost key assets, including the country's only coking coal mine near the besieged city of Pokrovsk. Russian strikes have also damaged Ukraine's gas production, Betlyi added. Trump set a new deadline on Monday of 10 or 12 days for Russia to make progress toward ending the war in Ukraine, threatening to impose new sanctions if it failed to do so. Analysts pointed out that Ukraine would be unable to cut its defence spending significantly next year, even if a ceasefire was agreed this year, given that its much larger neighbour Russia has hiked military spending to record levels. Ukraine will spend a record 2.6 trillion hryvnias ($62 billion) or about 31% of GDP on defence this year. ($1 = 0.8725 euros)
Reuters
24-07-2025
- Business
- Reuters
Ukraine's central bank holds key rate steady, says war risks will curb 2025 growth
KYIV, July 24 (Reuters) - Ukraine's central bank left its key interest rate steady at 15.5% on Thursday for the third consecutive meeting, saying it expects inflation to continue to ease but wartime risks will constrain economic growth. Economic growth will slow to 2.1% this year compared with 2.9% in 2024, it said in a statement. The central bank previously predicted 2025 growth at 3.1% but it cut its forecast due to more intense Russian attacks in recent months. "Going forward, the pace of recovery will depend on the course of the war," the bank's governor, Andriy Pyshnyi, told media. Russia's full-scale invasion in February 2022 devastated the economy, with gross domestic product plunging by about one-third in 2022. The economy posted modest growth in 2023 and 2024, but it is still about 20% smaller than before the war. Pyshnyi said that public spending and a steady inflow of international aid had helped the economy in the first half of the year. But more intense Russian air attacks and further destruction of production facilities, infrastructure and housing had restrained growth, he said. The war has heated up in recent months with swarms of drones launched by both Moscow and Kyiv, fighting raging along more than 1,000 km (600 miles) and dim prospects for peace. Officials said the war was also causing staff shortages amid persistent emigration. GDP grew by 0.9% year-on-year in the first quarter of the year, data showed. Bad weather also weighed on growth prospects, delaying crop sowing and hampering future harvests in the farm business that is a major sector of the economy, the bank said. Another key risk for the economy was an insufficient level of international financial aid, Pyshnyi said. The bulk of Ukraine's revenues goes to defence, and aid from allies is crucial for Kyiv's ability to finance social and humanitarian spending. The government has received $24 billion out of $54 billion expected in aid in 2025. He also said the government worked with the International Monetary Fund, the country's key lender, on approaches for a new support program. The central bank also said it expects inflation to reach 9.7% at the end of 2025 and forecasts it to slow to 6.6% in 2026.
Reuters
05-06-2025
- Business
- Reuters
Ukraine's central bank keeps benchmark rate on hold citing high May inflation
KYIV, June 5 (Reuters) - Ukraine's central bank on Thursday kept its benchmark interest rate unchanged at 15.5% for the second consecutive meeting, citing above-forecast inflation in May in its statement. Consumer prices climbed 15.1% in April year-on-year, and May inflation data is due to be released next week. The central bank expects price growth to start slowing in the summer months as the next harvest begins and an improved outlook in the energy sector this year compared with last year also helps reduce price growth. Central Bank Governor Andriy Pyshnyi said Thursday's decision would help keep the foreign exchange market stable and inflation expectations in check, in turn helping bring consumer price growth back towards the bank's 5% target. "Inflation is likely to have reached its local maximum in May," Pyshnyi told a news briefing. "In the summer, price growth will start to slow for a wide range of goods and services, and will gradually move toward the target of 5%." The decision was as expected - Kyiv-based investment house ICU said in a market poll ahead of the decision that more than 80% of those surveyed expected no change in rates. Pyshnyi also suggested that if inflation pressures persist, the central bank is ready to keep its main policy rate on hold for longer than indicated in its latest macroeconomic forecast, which pointed to no change until September at the earliest. Pyshnyi said that the war against Russia, now in its fourth year, remained one of the key risks for Ukraine's economy. He also said that this year, lower harvests due to cold spring weather pose another significant risk for inflation and economic development. Agriculture is a crucial sector for the Ukrainian economy. Agriculture Minister Vitaliy Koval told Reuters this week that the country's grain harvest may fall by 10% to around 51 million metric tons compared with 56.7 million tons in 2024. Ukraine is a global producer of grains and oilseeds, but the harvest is highly dependent on favourable weather conditions during both the autumn sowing and spring months.
Business Recorder
20-05-2025
- Business
- Business Recorder
IMF begins new review of war-torn Ukraine's $15.5 billion loan
KYIV: An International Monetary Fund monitoring mission started a new review of its $15.5 billion program to Ukraine on Tuesday, with discussions expected to focus on the war-torn economy and budget needs, the lender and Ukrainian officials said. IMF said in a statement that the policy discussions would be part of its eighth review of its four-year Extended Fund Facility program. 'We look forward to constructive and substantive discussions. We are starting from good positions,' said Central Bank Governor Andriy Pyshnyi. 'The programme remains a particular factor of resilience for us, especially during this time.' More than three years of the war against Russia have devastated the Ukrainian economy. Millions of people fled the fighting, cities and infrastructure were bombed, and exports and supply chains were disrupted. In the first year of the war, Ukraine's gross domestic product fell by nearly 30%. It is still lower than its pre-war levels, but delivered modest growth in 2023 and 2024. Pyshnyi said the talks were expected to touch on how to finance Ukraine's budget needs and ensure debt sustainability, both via attracting financing from partners and mobilising domestic revenues. Government officials said Ukraine's budget needs had been secured for 2025 thanks to financial aid from partners but uncertainty is growing over international economic support for the next year. Trump tariffs to 'weigh on' Pakistan's economy, says IMF Ukraine spends the bulk of its domestic revenues to finance its defence efforts and relies on financial support from Western allies to finance humanitarian and social spending. Ukraine's budget deficit is planned at about $38 billion this year. Officials would also discuss the financial sector and further reforms needed to strengthen its stability, including state regulations of credit bureaus and developing financial market infrastructure, Pyshnyi said.
