Sergii Marchenko at the G7 meeting: Ukraine relies on the financial support of the G7 countries and the EU to ensure priority expenditures in 2023

Minister of Finance of Ukraine Sergii Marchenko gave a speech at the G7 meeting, during the working visit to the USA. The session was attended by G7 finance ministers and central bank governors, the IMF, the World Bank, and the European Commission leaders. 

The topics of discussion were the macroeconomic consequences of russia's war against Ukraine and the state of the Ukrainian financial system.

The Minister of Finance told about the implemented measures by the Government of Ukraine during the full-scale war to ensure financial stability in the country, the estimated deficit of the State Budget in 2023 and plans for recovery next year.

During the meeting, the G-7 countries assured that they will continue to support Ukraine as much as necessary.

Key points of Sergii Marchenko's speech:

Thanks to the support of the G7 countries and other donor countries and international financial organizations, the Government of Ukraine continued to function fully, providing all priority services to the population. Ukraine continues to fight for its land and democratic values.

During the full-scale war, Ukraine needed additional financing in the amount of USD 5 billion per month. But despite your countries' considerable efforts, we have not been able to fully finance our deficit.

As the Minister of Finance, my main task is to ensure the priority expenditures of the population: payment of pensions, social benefits and wages. During the 7 months of the war, the Ministry of Finance of Ukraine did everything possible to ensure financial stability in the country.

Almost USD 6 billion was saved thanks to the support of investors in Ukrainian eurobonds for our solicitation to change the conditions of the corresponding obligations issued on the international market. The changes provide for the suspension of the repayment terms of all 13 eurobond series by 2 years.

We are working to maximize revenue of the State Budget. Recently, we have been observing an increase in tax revenues: if in April the budget received UAH 45 billion, then in August the revenues amounted to UAH 65 billion. In March, we received only UAH 7 billion in customs duties, in August the customs duties increased fourfold - almost to UAH 30 billion.

We also continue to issue war bonds, ensure the financing of the security and defense sector, social expenditures, pension payments, wages for teachers and healthcare workers in full. The Government of Ukraine systematically provides support to forced displaced people who have lost their jobs and houses.

Ukraine has already received financial support from foreign partners in the amount of USD 20.7 billion, of which almost 50% are grant funds that do not require repayment, so the debt burden is not increasing.

We expect EUR 5 billion from the EU and USD 4.5 billion from the US this year, which will allow us to ensure all priority budget expenditures until the end of 2022.

However, the State Budget deficit in 2023 is estimated at USD 3.5 billion per month.

Despite the war, we developed a draft of the State Budget for 2023, which has already passed the first reading in the Parliament. This is the budget of a country at war, so our priorities are to finance the army, support the population and maintain macro-financial stability.

The Government plans to increase financing of the security and defense sector at the level of 17.8% of GDP. The real GDP growth forecast is 4.6%, inflation is about 30%, the average exchange rate is about UAH 42 per dollar. The budget deficit is planned at the level of 20% of GDP.

In the draft budget, we take into account the possible continuation of hostilities in 2023. This will increase infrastructure damage, displaced populations, increase economic negative consequences and poverty. If our needs will not be fully funded, it will lead to an economic decrease.

We have already reduced non-priority spending and directed it on critical needs and support for our defense efforts and the citizens most affected by war.

Therefore, taking into account the budget deficit next year in the amount of USD 38 billion, Ukraine is relying on systematic financial support from the EU countries and the G7.

In 2023, we need to continue attracting external concessional financing and grants to cover the budget's priority social expenditures and to implement fundraising for rapid recovery.

The priority is to restore basic infrastructure services. We should provide normal conditions for those who were forced to leave the country and IDPs to return home. It is important to restore all public social services for our citizens, including education, healthcare, housing and social protection.