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VoxEU Column Politics and economics

Financing Ukraine’s victory: Why and how

There is a risk that Ukraine’s war effort may be undermined by inadequate external support, leading to excessive reliance on monetary financing, which would drive high inflation, risk a currency crisis, and could undermine the war effort just as the military tide is turning in Ukraine’s favour. This column argues that donors should fund Ukraine next year and describes how best to do it.

Ukraine has enough external financing to fund the war this year. But next year, as noted recently by the Gillian Tett in the Financial Times 1 and Niall Ferguson on Bloomberg, 2 Ukraine needs more donor support, since it cannot finance the war from its own resources and it cannot raise financing on the external market. We see a live risk that Ukraine’s war effort may be undermined by inadequate external support, leading to excessive reliance on monetary financing, which would drive high inflation, risk a currency crisis, and could undermine the war effort just as the military tide is turning in Ukraine’s favour. In a new CEPR Policy Insight (Nell et al. 2022), we argue that donors should fund Ukraine next year and describe how best to do it.

Why fund Ukraine?

We see four main reasons why Western governments should fund Ukraine’s war:

  • Credibility. Western leaders have promised to support Ukraine, and failure to provide enough support in a timely way to avoid a loss of confidence would constitute a failure to deliver on this commitment and damage the credibility of other Western commitments.
  • Consequences. Ukrainian failure would demonstrate that a war of aggression like Russia’s invasion of Ukraine can be successful, and leave the original crime of aggression and subsequent war crimes unpunished. This would undermine the rule of law, and encourage Russia to launch further acts of aggression.
  • Efficiency. Russia is the main military threat to European stability, and Ukraine’s armed forces have been effective in destroying a large volume of Russian military equipment and capability at a low cost. For instance, official aid to Ukraine of all sorts – financial, military and humanitarian – so far is estimated at $85 billion,8 which is just 7% of the 2022 defence budgets of NATO members.
  • Tipping point. So far, Russia’s economy has been more resilient, shielded by high oil and gas revenues. The tables are now set to turn, however, with Russian oil and gas revenues falling to a critical level. The European oil embargo and G7 price cap, and the collapse in Russian gas sales to Europe, will reduce Russian oil and gas revenues next year to below the level – around $150 billion per annum – where Russia has struggled in the past to finance its budget and external account. As oil and gas revenues fall to critical levels, we expect Russia’s financial fragilities in its currency and banks to resurface, constraining its ability to finance its war.

How to fund Ukraine


Traditionally, the IMF takes the lead on behalf of the international community on agreeing a financial programme with a country in a crisis situation – providing some support itself and paving the way for wider donor support, which it helps to coordinate. However, for much of the conflict the IMF has been missing in action, reportedly because it cannot finance a programme in a country without a sustainable debt position and, while the war continues, it cannot say that Ukraine has a sustainable debt position. It likely also reflects differences among the membership.

In the best-case scenario, Ukraine’s allies on the IMF Board will overcome this opposition, perhaps helped by a G7 commitment to underpin Ukraine’s debt sustainability. This would pave the way for a large IMF programme of perhaps $15 billion as the centrepiece of the 2023 financing effort. If this cannot be agreed, then the IMF should at least agree on and monitor a programme, monitored by the Board, which can help support contributions from other donors, and at least provide enough financing to cover the $2.7 billion payment due next year.


Western governments and international financial institutions (IFIs) have pledged $35 billion in budget financing for Ukraine this year, of which $17 billion had been disburse by September 2022. This implies that Ukraine should receive another $18 billion of financing by end-2022, or $4.5 billion per month – broadly enough to cover the official $5.0 billion monthly funding gap,

But there is no visibility over financing for 2023. And as long as military hostilities continue, we see limited scope to reduce the funding need. The government has already cut all non-critical spending and will struggle to increase tax revenues materially, given the deep contraction in the economy due to Russia’s invasion (e.g. Blinov and Djankov 2022). Still, lower domestic debt redemptions next year and the recent restructuring of $22 billion in sovereign bonds provide some relief. Overall, we see it as reasonable to assume that the monthly fiscal funding gap will around $4.0-4.5 billion per month, and propose a fund size of $50 billion to provide certainly over budget financing through 2023.

We note that the 2023 draft Ukraine budget assumes funding needs next year of $41 billion, including a $31 billion budget deficit. However, we see two problems with this projection. First, risks are tilted to the downside in a war situation, and so the government needs to build in a larger-than-normal contingency margin. For example, the draft budget assumption of nearly 5% real growth in GDP in 2023 may prove optimistic. Second, the budget assumes higher inflation and a further significant weakening of the currency. Arithmetically, this helps the public finances, allowing FX funding to finance more hryvnia spending and squeezing budget spending, as government wages, pensions and spending lag inflation. But this risky path flirts with a currency crisis and risks entrenching high inflation, which could undermine the war effort.

While $50 billion sounds large, it represents only one tenth of one percent of the GDP of Ukraine’s allies, 4% of NATO’s annual budget, and 9% of the spending announced so far by European countries on helping consumers with energy costs.

In addition, we note that the financing need not entail a call on government’s budgets. In particular, Ukraine’s allies can make contributions in the form of Special Drawing Rights (SDRs), the IMF’s special currency; G7 countries’ combined SDR holdings stood at $410 billion as of end-August, enough to finance Ukraine’s 2023 needs multiple times.


In normal times, programmes require conditionality to ensure that unpopular decisions which restore fiscal and external balance are implemented. However, in this case, where Ukraine is in a war – an existential struggle for survival – we think normal conditionality is largely redundant. In particular, the scope to raise additional domestic resources is limited by the war and the scope for cutting spending is also limited, since the imperative of survival gives Ukraine the incentive to prioritise expenditure aggressively and cut everything that does not directly contribute to the war effort. Moreover, the key anchor for Ukraine’s reform and modernisation is EU integration, which should, over time, improve governance and create a framework for competitive markets, as it has across Central and Eastern Europe – and here the government is moving fast to implement conditions, since EU membership is one of the objectives of victory.

Of course, once victory is achieved, incentives change and some ‘normal’ conditionality may be needed as part of a package where Ukraine takes difficult decisions to restore fiscal and external balance, and receives exceptional support from donors and reparations from Russia to rebuild.

Fair contribution

The US is providing significantly more support than Europe, even though the security risk for Europe from Russian aggression is higher, and Europeans are the main underspenders on defence in NATO. However, within this overall picture, many eastern European countries, notably Poland and the Baltics, are providing proportionately even more support than the US.


We argue that donors should fully cover Ukraine’s 2023 financing gap with external financing, providing a contingency against downside risks and ensuring financial stability, to keep their word, support the rule of law, weaken the Russian military threat at low cost, and sustain Ukraine as sanctions and the decline in oil and gas revenues undermine the Russian economy.

We estimate this implies providing $50 billion in financing. In the best case, a large-scale IMF programme of perhaps $15 billion would be the centrepiece of this effort. But at any rate, the IMF should agree a programme, monitored by the Board, which will pave the way for other donors to participate, and provide enough financing to cover the $2.7 billion payments due to the IMF itself next year.


Blinov, O and S Djankov (2022), “Assessment of damages to Ukraine’s productive capacity”,, 21 September.

Nell, J, O Bilan, T Becker, Y Gorodnichenko, T Mylovanov and N Shapoval (2022), “Financing Ukraine’s victory”, CEPR Policy Insight No. 118.