Ukraine will be forced into large-scale cuts to its current budget unless lawmakers pass unpopular measures needed to secure billions of dollars in Western aid before winter, Prime Minister Serhiy Koretsky said, according to Bloomberg.
Months of delay in the Verkhovna Rada, Ukraine's parliament, have already held up roughly $4 billion in European Union aid that was due to arrive in the third quarter, Koretsky said. He described the state of Ukraine's public finances as close to critical.
The resistance among lawmakers to reforms demanded by the EU and the International Monetary Fund, Ukraine's two largest donors, comes as Kyiv acknowledges an additional $27 billion shortfall in its defense budget this year, driven by rising costs of the war.
Koretsky said Ukraine now frequently has to use costly missiles to shoot down advanced Russian jet-powered drones, which he named as one reason spending on the war, now in its fifth year, keeps climbing.
Call for longer-term funding commitments
Koretsky urged international partners to reduce uncertainty around financing by making medium- and long-term commitments to Ukraine. He also spoke in defense of a proposed value-added tax on cheap foreign parcels.
Kyiv's foreign donors have been pressing the government to take steps to shrink the shadow economy, raise tax revenue and bring Ukrainian legislation in line with EU standards.
Fight over parcel tax
The most contentious demand involves introducing VAT on low-value foreign parcels, which are currently exempt from such charges. Critics argue the measure would do little to boost tax revenue while adding to the financial burden on Ukrainians who rely on such shipments.
Koretsky has defended the tax, saying the current exemption gives foreign producers an unfair advantage over domestic ones. The government has resubmitted the parcel bill to the Verkhovna Rada and is urging lawmakers to pass it as quickly as possible. Koretsky said the alternative would be cutting spending to a minimum.
Wider deficit questions
The New York Times previously reported that Ukraine needs an additional $27 billion but that EU officials have not been able to establish why the deficit arose. President Volodymyr Zelensky has separately asked the EU to speed up payment of part of the bloc's planned 90 billion euro loan package for next year, a request that has raised questions among Western allies.
Koretsky has already announced a strict austerity drive. The cabinet plans to save 70 billion hryvnias and direct the money toward funding Ukraine's Defense Forces.
