Faced with at least another year of fighting – and a budget deficit of more than $40 billion in 2024 – the Ukrainian government is considering selling military bonds to corporations and private individuals abroad to secure funds for escalating defense expenses, U.S. newspaper the Wall Street Journal reported on Sept. 18.
“If the government cannot cover its budgetary gaps, then it will not be able to finance its military effort,” warned Vitaliy Vavryshchuk, the head of the Macroeconomic Research Department of Investment Capital Ukraine Group (ICU).
ICU this week is launching a program in consultation with the government to remotely sell Ukrainian government bonds to individuals abroad, especially in Western Europe. Still, the potential investments would likely be a drop in the bucket that Kyiv needs to fill.
There is also a long-shot option: getting admission into the European Union, which could give Ukraine access to hundreds of billions of euros in subsidies and infrastructure financing.
Ukraine’s economy stabilized somewhat this year, and the government has raised its 2023 growth forecast to 4%, up from 1%, according to research by ICU. That has sparked a sharp rise in prices of its international bonds since June.
Nevertheless, economic activity will likely end the year about 25% below prewar levels, according to research by ICU. International bonds traded around 29 cents on the dollar this past week, according to MarketAxess data.
Meanwhile, Ukraine is turbocharging its domestic bond market. The government borrowed $10 billion through local bond sales this year, exceeding the $8.5 billion it has gotten in U.S. aid.
Another effort is to garnish interest income that financial clearinghouses like Euroclear have collected on about $280 billion of frozen Russian assets.
Euroclear garnered $1.7 billion of interest in the first half of the year on $150 billion of Russian assets caught up in international sanctions. The Belgium-based company is discussing with EU officials transferring some of the money to Ukraine through a windfall tax paid to the European Commission.
Despite significant losses, the Ukrainian economy has displayed a resilient trend of growth since the beginning of 2023, Ukraine’s Economy Ministry has said, according to a report by Ukrainian news agency Ukrinform on Aug. 11.
The ministry initially projected a GDP growth of 3.2%. However, due to the destruction of the Kakhovka dam by Russian forces, the forecast was revised to 2.8%.
According to the ministry’s data, Ukraine is expected to see accelerated GDP growth in 2024. As part of the 2024 budget process, a projection of approximately 5% GDP growth is being considered under specific conditions.