Espreso. Global

Ukraine needs medium-term financing plan to withstand Russia

29 April, 2024 Monday
11:27

Reuters analysts estimate that despite the fact that Ukraine received $61 billion from the United States last week, it is not enough to counter Russia. Ukraine still needs a medium-term financing plan and mobilization of frozen assets from Moscow's central bank

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Reuters reported the information.

According to analysts, the latest aid package from the United States, along with assistance from other countries, should help Ukraine hold out until about the end of next year. However, Kyiv risks running out of weapons again at the end of 2025. 

Even if Joe Biden is re-elected as US president, he will probably have a hard time getting more money from Congress. And if Donald Trump returns to the White House, American support for Ukraine will be jeopardized.

A multi-year funding plan, on the other hand, would have several advantages: it would boost Ukrainian morale and give Western arms manufacturers more confidence to ramp up production.

At the same time, if Putin realizes that Ukraine can hold out for many more years, his calculations may change. 

According to the analysts, Ukraine is unlikely to be able to recapture a large territory, as this would mean attacking Russia's well-protected positions at a time when Kyiv is having difficulty mobilizing new soldiers. 

Therefore, according to the outlet, there are two possible scenarios for Ukraine: a peace agreement or freezing the war.

According to the Stockholm International Peace Research Institute (SIPRI), despite the fact that Ukraine spent 37% of its GDP on defense in 2023, which is $65 billion, these expenditures were less than Russia's $109 billion.

Western aid helped fill this gap. According to estimates by the Kiel Institute for the World Economy, the United States and Europe gave Kyiv €88 billion in aid last year, of which €47 billion was military support and the rest was financial and humanitarian aid. 

How much money Ukraine will need in the future, however, depends on whether it will defend itself, which costs less, or counterattack. But given that the Kremlin is increasing its own military spending, Ukraine is likely to need at least as much annually as the allies allocated in 2023, i.e. €88 billion.

According to analysts, the main way to get more money for Ukraine is to mobilize Russian assets that Western countries froze at the beginning of the war, amounting to about $320 billion. The options include confiscating these assets, using them to secure a loan that Western countries could provide to Ukraine, or transferring the interest they generate to Kyiv.

Currently, the US is pushing a plan to raise funds for Kyiv by capitalizing the interest payments that accumulate at the Euroclear clearinghouse in Belgium, where most of these assets are held. The special purpose vehicle would likely issue bonds backed by future interest rates and disburse the proceeds to Ukraine. The United States hopes to convince its G7 partners to support this idea at the summit in June. 

  • On April 20, 2024, the US House of Representatives held a historic vote to approve a $95 billion aid package for Ukraine, Israel, and Taiwan.
  • On April 24, US President Joe Biden signed a package of bills to provide $95 billion in aid to Ukraine, Israel, and Taiwan and to confiscate Russian assets under a shortened procedure, which had been approved by the Senate earlier in the day.
  • The same day, the US announced a new $1 billion military aid package for Ukraine and disclosed its contents.
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