The financial support provided by international partners helped Ukraine withstand the beginning of Russia’s full-scale invasion and became a significant source of funds throughout 2022. This year, our country will also need continuous financial support. However, it will be difficult for the government to reduce budget expenditures because direct injections of the National Bank of Ukraine (NBU) into the budget must be stopped to meet International Monetary Fund requirements and, at the same time, NBU’ independence.
On Feb. 24, 2022, Ukraine was left with no choice. With delays in the receipt of funds from international partners, the government could not finance the national army and make critical social expenditures without the support of the NBU. The NBU made the difficult decision to buy domestic government bonds, setting a limit of 400 billion hryvnia, Ukraine’s national currency. This became the foundation for a continued valiant struggle against the Russian aggressors.
However, like every remedy, taking this step has had adverse side effects, which appeared when monthly issuance volumes were at their peak in the second quarter of last year. This resulted in a significant increase of pressure on the foreign exchange market and international reserves. The key suppliers of dollars and euros to these reserves were Ukraine’s Western partners who supported us with grants and loans.
