Dhe Ukraine is calling for more tanks, rocket launchers, ammunition and money. to defend against the invaders. But armaments and financial commitments alone are not enough to stabilize the economy that has gotten out of balance. Simple means might help. For example, less bureaucracy and more customs officers at the border. The European Economic Association (EBA) in Kyiv complained about traffic jams because Poland uses too few veterinarians and plant protection inspectors. At some checkpoints, only 25 trucks a day passed the border instead of 80 as before the invasion. The EBA is not alone in such lawsuits. “The current logistical problems, which are also caused by unnecessary bureaucracy, must be solved as quickly as possible,” says Michael Harms, Managing Director of the East Committee, to the FAZ. “All the actors involved should ensure smooth processes as soon as possible.”
The Agricultural Trade Association recently wrote to the Federal Ministry of Agriculture about truck traffic jams of up to 38 kilometers at the border and waiting times of five to six days. The result is a “destruction of the value of the goods by 25 percent”. Waiting times accounted for 40 percent of transport costs. “They have the same effect as an export tax, they lower the domestic price for all agricultural products by 80 to 90 euros per ton,” calculated the agricultural traders. With a harvest of 73 million tons, Ukrainian farmers lost 5.8 billion euros in sales revenue.
Whether the details are correct or not – exports by sea and rail are picking up speed – a lot of money is at stake. Farmers depend on it, as does the state, which lives off taxes on their profits and whose tax base collapsed during the war. According to official data, exports have fallen by 30 percent since January, gross domestic product (GDP) is likely to shrink by around a third, and inflation has risen to 24 percent. The central bank keeps interest rates high at 25 percent. The fact that foreign exchange reserves recently climbed to $25.4 billion is a result of the payment delay that Ukraine agreed with bondholders worth a good $3 billion and euros.
Reserves “won’t last long”
It is “too early to relax,” warns central bank governor Kyrylo Shevchenko in the “Financial Times”. Reserves have shrunk by almost 18 percent since January. “They won’t last long if we keep using them up.” He advises thrift and warns against financing the war from the printing press.
The emergency budget for 2023 is before Parliament. According to Prime Minister Denys Schmyhal, half goes to the military and 35 percent to pensions and social affairs. The deficit reaches 20 percent of GDP, $38 billion. The International Monetary Fund (IMF) sees the 2022 deficit at more than 17 percent of GDP, four times as much as in the previous year. After all, growth should come back: Kyiv is based on almost 5 percent for 2023.
The money gap cannot be closed without new financial commitments. President Volodymyr Zelenskyj is counting on a third each coming from the EU, the Americans and the IMF. But donors like the EU are already weakening. Financial experts are skeptical that Brussels will make tens of billions available for accession candidate Ukraine, since the 9 billion euros this year were already controversial. This makes it all the more important for Kyiv to raise its own money using domestic government bonds and increasing tax and customs revenues.