Ukraine must clinch a new loan program with the International Monetary Fund, the country’s finance chief said, as efforts to fight off invading Russian forces push its budget and international reserves to the limit.
Finance Minister Serhiy Marchenko said Kyiv needs more foreign aid from its longstanding donor, and preliminary discussions on a new assistance package are under way. His statement followed an appeal by central bank Governor Kyrylo Shevchenko, who called last week for a new deal with the Washington-based lender.
“Now we are having preliminary discussion with the IMF team in a way to have a new program, because we really need it,” Marchenko said in an interview with Bloomberg Radio on Thursday. “Now we are deciding on what basis it can be prepared, because it’s very uneasy for us and for the IMF team to prepare a very sophisticated macro-financial structure, macro-financial forecast by the end of this year.”
Ukraine has already received $1.4 billion in emergency financing from the IMF this year, part of the more than $6 billion funneled it has received since Russian President Vladimir Putin launched his attack in February.
Moscow’s forces have killed tens of thousands of Ukrainians, hammered the economy and devastated cities, ports, transport links, agriculture warehouses and factories. That has pummeled public finances by wiping out revenue while also forcing the government to spend more to buy weapons and take other measures to defend itself.
The Finance Ministry sees international aid as the main source of financing for a ballooning budget gap. Kyiv expects to receive $4.8 billion from western partners in June, more than three times as much as in the previous month but still short of the monthly need of $5 billion, according to Marchenko.
The dilemma has opened a rift between Marchenko’s ministry and the central bank, which hiked its key interest rate 15 percentage points to 25% last week.
Policy makers made the decision in part to stabilize the hryvnia and attract investment. But the Finance Ministry has refused to translate the increase into the coupons of its war bonds, arguing that it can’t afford to pay that high a price.
Potential buyers should consider purchasing the debt both an investment and as an act of good will, Marchenko said, adding that his stance may change.
“We will see how the situation will develop further,” he said. “We are not fully independent, and we will look for different scenarios.”
After the war bonds attracted their lowest interest yet in an auction last week, Marchenko said the government is prepared to rely on two other sources of financing to plug the budget: international aid and help from state-owned banks.
The government is seeking to raise as much as $20 billion from its western partners by the end-year, Marchenko said at a public event in Kyiv on Thursday. He also confirmed that Ukraine will continue to be able to service its sovereign debt.