Millions Of Ukrainians About To See Salaries & Pensions Paused As Western Aid Dries Up

Just as the Biden administration has announced a new $250 million weapons package for Ukraine, which is to be the last unless Congress approves new spending for next year, Ukraine is warning of salary and pension delays for millions of people in the war-ravaged country. White House National Security Council spokesman John Kirby confirmed last week that after this final aid package, "We will have no more replenishment authority available to us, and we’re going to need Congress to act without delay."

For nearly two years of the war Ukraine has poured its billions received in foreign aid primarily into defense, but also relies on external assistance to pay Ukrainian government workers and even social payments. It needs the constant flow of aid simply to keep the lights on and the country functioning under Russian bombs. All the while it's been no secret that corruption continues to be rampant, which Zelensky time and again has promised to get a handle on.

Not only has Biden's $60 billion package for Ukraine for 2024 been blocked by Republican holdouts in Congress, but a proposed European Union package for some $55 billion has been stymied by Hungary. Ukrainian Deputy Prime Minister Yulia Svyrydenko said Wednesday, "The support of partners is extremely critical, we need it urgently."

Svyrydenko warned that Ukraine's economy is about to be forced into "survival" mode without the critical aid, which would likely see Kiev pausing wages for 500,000 civil servants and 1.4 million teachers. Also put on hold will be benefits for some 10 million pensioners.

FT writes that to avoid this dire scenario, also as a frigid winter sets in, "The Ukrainian government is racing to cobble together money to pay for public services and benefits after promised funding from its closest allies failed to come through. It needs $37bn in external support next year."

An EU scheme to sidestep Hungary and push through $20 billion for Ukraine isn't expected to be available until at least March, assuming everything goes smoothly with the plan, which we detailed previously.

The Zelensky government says it can keep things stable for perhaps a few more months by borrowing domestically which also presents certain risks. FT details further:

Kyiv has been trying to save cash and reprioritize expenditure since September, when western support began to falter. It has increased a windfall tax on banks to 50 per cent and transferred revenues from a 1.5 per cent supplemental income tax from local to central government. But it is already facing a shortfall, the minister said. About $5bn in disbursements from international donors and lenders in December “won’t be sufficient” to cover spending needs.

Svyrydenko said Ukraine would prioritize defense and debt servicing which meant “there’s a huge risk of underfunding of certain social sectors”. 

Other war-time factors have been detrimental to Ukraine's economy as well, especially deteriorated ties with Poland which have lately seen Polish truck drives blockade border crossings over what they say is unfair competition from Ukrainian drivers. There is also the ongoing dispute over Ukrainian grain and the bans on Ukrainian exports by nearby states, also including Hungary and Slovakia.

On Thursday there are reports saying the Ukrainian government is now writing to donors seeking urgent funds for its 2024 budget. But the reality is that after nearly two years, and many tens of billions later, these very donors are likely themselves stretched or tapped out.