Financial aid, crucial for services to continue operating in Ukraine after Russian invasion

Humanitarian and security aid is pouring in as the crisis in Ukraine worsens, but financial support is also vital to keep the government going.

“The economy is collapsing”said Adnan Mazarei of the Institute for International Economics, a think tank based in Washington.

As long as Kiev cannot collect taxes, “It is absolutely crucial that the international community provides rapid assistance not only for humanitarian purposes, but also to maintain some basic functions of government”he detailed.

With an influx of refugees leaving the country in the face of the Russian invasion, often taking their savings with them, the banking sector also needs help, he added.

Of the US$13.6 billion in aid that Washington expects to disburse over the weekend, US$1.8 billion are intended to ensure the “government continuity”prevent cyberattacks and support the energy sector, according to the bill presented to Congress.

The address of International Monetary Fund (IMF) meets this Wednesday to possibly approve an emergency economic aid of 1,400 million dollars for Kiev.

Meanwhile the world Bank has already disbursed about $500 million of an expected $3 billion aid package, known as “Financing the recovery of the economic emergency in Ukraine”or “Free Ukraine”.

These are significant sums for the Ukrainian economy, estimated at 155.5 billion dollars at the end of 2020, according to World Bank data. The IMF it already has a $2.2 billion program underway with the government that was due to end in June.

Money without conditions

But IMF head Kristalina Georgieva said Tuesday that since the Russian invasion began, the focus has shifted from “crisis management reforms”.

The IMF’s additional contribution, under its Rapid Financing Instrument, speeds up aid and imposes few strings attached. The same applies to the World Bank.

Axel van Trotsenburg, head of operations at the world Bankstressed in an interview with Sky News on Wednesday that the Ukrainian government desperately needs “Budgetary resources to pay pensions, to pay civil servants’ salaries, to keep the health system running”.

But experts warn that the aid is unlikely to be enough to prevent a further economic crisis in the country that, even before the Russian invasion, was among the poorest in Europe.

“The flow of money can never really replace lost production”said Homi Kharas, an economist at the Brookings Institution in Washingtonnoting in particular the stoppage of trade.

“Money can help reduce the impact a little bit, but it certainly won’t be able to offset it.”.

Mazarei pointed out that the international community also needs to prepare for the post-conflict and the impact of the war on neighboring countries.

“Even if it stops the war, even if the Russians (…) leave, there is a serious problem of rebuilding Ukraine”he added.