Kyiv plans to cover its budget deficit primarily through more than $40B in external financing next year. At the same time, more than two-thirds of this amount has not yet been confirmed. Therefore, Ukrainian authorities are trying to solve the issue of financing military expenses if the allies cannot provide the promised assistance. However, such options carry certain risks.
Ukraine’s financial toolkit involves increasing tax revenues, which is an obvious challenge for a devastated economy, or reducing spending on the population. Among the monetary policy options are the devaluation of the Ukrainian currency or a return to NBU restrictions, which will have negative consequences, Bloomberg notes.
Another financial option is money printing. Last year, the NBU issued almost ₴400B ($10.9B) by purchasing domestic government bonds. However, the advantage of this option is overshadowed by pressure on the Ukrainian currency due to the inflow of hryvnia, which last year contributed to the acceleration of inflation.