Hard Times Ahead: Russian Attacks put Ukraine’s Finances Under Pressure

Ukraine’s finances face a “very difficult winter” as Russia hammers economic targets and the costs of war soar, the Ukrainian economy minister and other senior finance officials have warned. Taking advantage of Ukraine’s shortage of interceptors, Moscow is now launching daily strikes on the country’s logistics and business infrastructure. JOIN US ON TELEGRAMFollow our coverage of the war on the @Kyivpost_official. The port of Odesa, which plays a vital role in exporting grain, has come under constant attack, reducing its ability to operate. At the same time warehouses, factories, logistics facilities and even filling stations have been targeted. The strikes not only disrupt business activity and deprive the state of sorely needed tax revenue but also force the government to provide financial support for businesses, putting more pressure on the beleaguered budget. There are also fears that come winter, an expected Russian blitz on Ukraine’s energy infrastructure will exacerbate the already tense financial situation. “We anticipate a very difficult winter in terms of both critical infrastructure, which is being destroyed every day by Russian attacks, but also in terms of the overall economic conditions in the country,” Oleksandr Kravchenko, Ukraine’s economy and environment minister, told the Yalta European Strategy (YES) conference in Kyiv on Saturday. “So what we estimate in the Ministry of Economy is that basically the total destruction of infrastructure and fixed assets is close to around $10 billion per year.” Other Topics of Interest Russian Strikes Hit Gas Station, Kyiv-Warsaw Train, Near Polish Border Russian strikes damaged a gas station near the Polish border and hit a Kyiv-Warsaw train locomotive, prompting FM Sybiha to demand full sanctions. He added that the financial instruments the government now has at its disposal will fail to cover the needs of businesses suffering from the attacks. Cost of war Roksana Pidlasa, a Ukrainian member of parliament and chair of the parliament’s budget committee, told the same conference that the war is now costing Ukraine around $190 million a day, compared to $140 million a day just two years ago, in a sober assessment of the state of Ukraine’s finances. She added that preliminary reports on the “budget implementation” for the first eight months of the year show that national security and defense cost the government almost $42 billion in that period. “We have raised only $39 billion from our own resources, which includes budget revenues and domestic borrowing. So unfortunately, this year the war has gotten so expensive that we can’t even cover our share of the costs... in the previous year our own resources were covering the basic military needs such as soldier salaries. We’re now using international money to pay soldiers’ salaries.” As an example of how revenue has declined, Pidlasa cited VAT, which, she said, had “underperformed by $1.35 billion over eight months”. A quarter of this sum, she added, was lost in August alone—a month of intensive Russian attacks. Hunting for cash To mitigate the problem the government has said that it is preparing resilience strategies for the energy and logistics systems that will help them absorb Russian attacks. Also speaking at the YES conference, Prime Minister Serhii Koretskyi said on Saturday that the government can also draw upon the Special Program for Ukraine Recovery (Spur 2), a specialized financing initiative organized by the World Bank in which it matches funding for Kyiv provided by other international donors. This money will be channeled into providing some support and relief for businesses affected by Russian strikes. “We are in the process of negotiating with our European partners [on additional funding] and using the frozen assets of the Russian Federation, trying to identify sources outside the European Union and rationalizing all the spendings inside Ukraine,” he added. Ukraine also intends to utilize military force, or the threat of it, to relieve the pressure on the budget. “Russia knows that if they strike – and they are preparing to strike our energy system in the winter – Russia will receive the exact same,” President Volodymyr Zelenskyy said on Friday in a threat made, possibly, in the hope of deterring Moscow from attacking and thus saving Ukraine from associated financial costs. “If they cause us blackouts, we will try to respond to them in kind,” he added. TVP World is Poland's first English-language channel where you can find our guest interviews, world news from the Polish perspective and the latest news from the CEE region.