Financial support for Ukraine falling short, says Janet Yellen

Ukraine’s partners urgently need to advance fresh funding to plug the country’s financing gap after existing commitments fell short of what is needed, two top policymakers have warned.

Janet Yellen, the US Treasury secretary, said the commitments from countries and multilateral lenders announced to date were inadequate, as she urged governments to step up their assistance. “Ukraine’s immediate financing needs are significant,” she told a conference in Brussels.

Separately, Gita Gopinath, the first deputy managing director of the IMF, told the Financial Times that disbursements so far had been relatively small and that fresh financing was urgently needed to keep the economy going and prevent “serious macro destabilisation”. 

“The important point is to get the money quickly to Ukraine and as much as possible in grant financing form,” Gopinath said.

Ukraine’s finance minister in April appealed for immediate financial support of tens of billions of dollars to plug Kyiv’s fiscal deficit, estimating that government spending would exceed revenues by between $5bn and $7bn a month. Kristalina Georgieva, the IMF’s managing director, subsequently estimated that Ukraine would need $15bn over three months to prop up its finances.

US president Joe Biden in April asked Congress to provide economic aid of $8.5bn to help Ukraine, as part of a wider funding request to Congress of $33bn. The EU is seeking to advance assistance of a similar scale to the US economic aid for Ukraine, with Brussels preparing for an announcement in the coming days.

Speaking at the Brussels Economic Forum on Tuesday, Yellen said that while the Ukrainian government was continuing to function, it required budget funding to pay soldiers, employees and pensioners and to meet its citizens’ basic needs. “What’s clear is that the bilateral and multilateral support announced so far will not be sufficient to address Ukraine’s needs, even in the short term,” she said.

Speaking on Monday, Gopinath said actual disbursements to Ukraine totalled only $3.3bn in March and $1.6bn in April. There was a big push on the topic during the IMF and World Bank spring meetings in Washington last month, she said, and “there is more that is happening in the next several days”. She added: “It is all hands on deck and everybody is trying to move as fast as possible.”

Gopinath added: “The global community is extremely engaged on seeing how to make this financing available. But in terms of actual disbursements, as of now the numbers are small.”

EU officials have this week been locked in talks aimed at finalising a big new package of assistance for Ukraine. Valdis Dombrovskis, European Commission executive vice-president, told the FT earlier this month that the EU would be bringing forward a new round of so-called macrofinancial assistance, on top of an emergency loan of €1.2bn it had already approved.

The EU is seeking to commit a similar amount to the US’s $8.5bn, according to people familiar with the discussions, but the final figure has yet to be settled. Officials say the commission is seeking to raise the money with the help of member state guarantees. But the process of getting agreement and pushing the lending through could take many weeks, meaning there are likely to be further delays before any cash reaches Ukraine.

Alongside its plans for short-term support for Ukraine, the EU is also working on options for the reconstruction of the country once the war is over, which could also be unveiled as soon as this week.

Ursula von der Leyen, the commission president, has warned that the project could cost several hundred billion euros and she has advocated a recovery package that would bring “massive investment” as well as necessary reforms. Budget commissioner Johannes Hahn has spoken of the need for a new Marshall Plan for Ukraine.

The commission is likely to float the idea of extra common borrowing backed by member states as one of the ways to raise the necessary cash. Other methods include support from the multilateral development lenders and EU member states, as well as the EU’s own budget, although this is already subject to hefty demands.

The Ukrainian reconstruction will ultimately require “massive support and private investment for reconstruction and recovery, akin to the task of rebuilding in Europe after 1945”, Yellen said in her speech. “Ukraine will have to take this one step at a time, but we can help today and acknowledge and prepare for what is coming.”

Josep Borrell, the EU’s top diplomat, this month called for the assets of the Russian state to be directly targeted to fund the rebuilding of Ukraine.

Gopinath told the FT it was too soon to express any opinion on the idea of confiscating the Russian central bank’s foreign exchange reserves, but that it was something the IMF would be discussing internally. “We discuss any policy that can have repercussions for the international monetary system,” she said. “We will study it carefully.”