Exclusive-War forces Ukraine to divert $8.3 billion to military spending, tax revenue drops - minister

© Reuters. FILE PHOTO: Ukrainian servicemen sit atop an armoured fighting vehicle, as Russia?s attack on Ukraine continues, at an unknown location in Eastern Ukraine, in this handout picture released April 19, 2022. Press service of the Ukrainian Ground Forces/Hand

By Natalia Zinets

KYIV (Reuters) - Ukraine has been forced to spend 245.1 billion hryvnia ($8.3 billion) on its war with Russia instead of development, the finance minister said on Thursday, providing a glimpse into the huge economic cost of Moscow's Feb. 24 invasion.

The figure, which has not been disclosed by Ukraine's government before, lays bare the economic maelstrom that Ukraine is navigating as its soldiers try to keep Russia's renewed offensive at bay in the country's east.

The spending -- drawn from some funds initially budgeted for development -- went on everything from buying and repairing weapons to emergency support for internally displaced people, Finance Minister Serhiy Marchenko said. There are 2.7 million officially registered IDPs, according to data from the social policy ministry, although the real figure is many times higher.

The government only collected 60% of its planned tax revenue for April, a shortfall that was topped up to the equivalent of 79.5% by grants from foreign partners, Marchenko told Reuters in exclusive written comments.

Marchenko said that Kyiv urgently needed foreign support to be ramped up as it is being forced to funnel billions of additional dollars into emergency spending.

Marchenko said that Ukraine had received almost $2 billion in external funding in April, of which $719 million had come from grants. The figure for the period since February stands at$5.4 billion, including $801 million in grants, he said.

"If we do not take into account foreign aid, we now estimate the receipt of revenues in May-June at the level of 45-50% of (what was) planned, provided that the situation does not worsen," Marchenko said.

DEBT SERVICING COMMITMENT

The $8 billion in war expenses equates to more than a month of total state spending as measured by annual 2021 expenditures of 1.84 trillion hryvnias ($62.28 billion).

Marchenko said Kyiv was discussing various kinds of external financial support.

He listed funds which Ukraine hoped to obtain through a special drawing rights (SDR) account launched by the International Monetary Fund.

Developed countries can direct part of their SDRs to the account.

"Currently, the Finance Ministry team is negotiating with our international partners, in particular, the G7 countries on sending their part of the SDR to support Ukraine," Marchenko said.

He added that Ukraine expected to receive a loan of about 1 billion Canadian dollars (about $767 million) from Canada in May through the account.

"We urge our partners to provide part of the funds as grants to reduce (our) debt burden which is already growing due to martial law as well as the need for financing," Marchenko said.

The minister said Ukraine remained committed to servicing its debt regardless of the war.

"Our stance on this issue remains unchanged. We continue to service our debts and the amount of our expenses for this is not large in comparison with the needs for financing the budget," he said.

"Moreover, we don't even currently have reliable medium-term forecasts that would allow us to model the debt trajectory in the future."

CENTRAL BANK LOANS

The government has also borrowed about $2.4 billion by placing domestic war bonds and does not plan to issue any other new commercial debt instrument, Marchenko said.

In addition, Ukraine's central bank has provided the government with financial aid of 100 billion hryvnia ($3.4 billion) by directly purchasing war bonds to its portfolio.

Marchenko said that the war had made the government ask the central bank for support.

"We are trying to maximise commercial funding through government war bonds and the volume of assistance from our partners, and only lastly count on funding from the central bank," he said.

He said that such an amount should not lead to higher inflation.

($1 = 29.5420 hryvnias)