OPINION: What Would Happen if the US Axed Financial Aid for Ukraine?

According to a Council on Foreign Relations report, by Aug. 1, 2023 the US had given Ukraine $26.4 billion of financial support, representing 34 percent of all assistance given by Washington, in contrast to 61 percent of support given that was military-related and 5 percent that was humanitarian. Data from the Institute for the World Economy indicates that the European Union has provided about 63 percent of all financial assistance to Ukraine ($77.1 billion).

Heritage Foundation, a Washington, DC-based think tank, has argued that “President Biden is creating a welfare state in Ukraine with your tax dollars,” a view that not universally held by economists.

American economists with whom Kyiv Post spoke explained that a large chunk of the financial support for Ukraine assists agriculture, a staple of the Ukrainian economy, which has secondary effects that some calling for cuts to the assistance may not be considering.

Ryan Mattson, an associate professor of economics at West Texas A&M, says that Ukraine needs financial support for things like “loans for Ukrainians attempting to restart their agribusiness or medium to small enterprises.”

He adds: “This important sum of money helps Ukraine to fight the war with logistics and not just direct military aid. I believe there’s a quote about ‘battles are won by logistics, not infantry?’”

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Cutting financial aid will “make the war more difficult for the soldiers on the front line, and more deadly for the civilians who need to survive day-to-day,” and cuts to financial assistance “would weaken the effect of humanitarian and military aid because Ukrainian firms and farms need to be back up and running successfully.”

King Banian, the Interim Dean of St. Cloud State University and the author of a book on Ukraine’s economy, argues that prior to the war, “Ukraine was 15 percent of world corn trade and 10 percent of world wheat trade as well as soybeans and sunflower oil,” so, cutting-off financial aid for Ukraine could further impact the alarming increase of food prices.

Banian also notes that another secondary effect of the US pulling its financial support for Ukraine is that it would put into danger other aid Ukraine receives, namely from the International Monetary Fund (IMF), as the “Fund doesn’t usually lend to countries that cannot afford to repay – they’re not an aid organization. Foreign currency reserves would decline rapidly.”

Mattson agrees that Ukraine can obtain the backing of foreign lenders as it is “credibly believed [that Ukraine will] survive this war. Lenders are willing to provide support for this spending since the war effort has been successful up to this point.”

War bonds and taxes, according to Reuters, are helping Ukraine to manage its unusually large capital outlays, however, foreign assistance from countries, as well as from the IMF, have continued to allow Ukraine to keep the lights on while executing a costly war against Russia, however the deficits for 2024 are projected to be around $38 billion.

Running a 20 percent budget deficit, it is “not very unusual for a country at war,” says Banian, noting that Ukrainian Prime Minister has said “‘Every hryvnia from a taxpayer will go to the [military],” so, if Ukrainian agriculture is allowed to collapse, “Where will the [military] get its ammunition, tanks and planes?”

Aside from hurting infrastructure, such as heating and electricity, which would be detrimental to the “ability of the Ukrainian military to operate normally” and would negatively impact the besieged population’s morale, Volodymyr Lugovskyy, who teaches economics at Indiana University, says that Ukraine being left without financial aid could also cost the West in other ways.

“An increase in Ukrainians fleeing to Europe [sic] and other countries as refugees,” thereby creating “a greater economic burden” as nations struggle with the influx, say Lugovskyy.

The financial aid “is just as important as the need met by the humanitarian aid and the military aid,” says Mattson, as ultimately the “aid will save lives.”

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.