The National Bank of Ukraine (NBU) has not printed money for budgetary needs in the last six months, according to NBU Governor Andriy Pishnyi.

Pishnyi says that since the beginning of 2023, the government had successfully avoided funding the budget through printing money by securing 50% more funds from the domestic debt market compared to the entirety of 2022 as well as macroeconomic aid from its international partners.

In the first year of the war the government was desperate for cash and running a circa $4bn deficit a month, a gap it was closing by turning on the printing presses and the state’s finances came close to collapse. The budget deficit was estimated to be of the order of $28bn and for this year it is expected to grow to some $38bn. Ukraine’s Western allies stepped in last September by sending tens of billions of macroeconomic support. This year the US has promised $8bn, the EU €18bn, with the rest being made up from a new International Monetary Fund (IMF) Extended Fund Facility (EFF) and other multilateral banking loans and grants.

At the same time, with the IMF programme in place, the attractiveness of Ukraine’s domestic treasury bonds has also increased, allowing the state to raise more money on the domestic debt market. A new IMF deal has unlocked substantial new borrowing from other international financial institutions (IFIs), most of which won’t lend to sovereigns unless there is an IMF programme in place. The appeal of Ukraine’s domestic debt has been further improved after the Western aid transfers lifted the country’s gross international reserves (GIR) to an 11-year high of $37.3bn, making defaults even more unlikely.

In the first quarter of 2023, a significant portion of the state budget expenditures, amounting to UAH389bn ($10.5bn), or 61%, was allocated towards bolstering Ukraine's defensive capabilities, as reported by the Accounting Chamber.

Notably, these expenditures were financed through internal sources, including revenues excluding grants, funds from internal borrowing, loan repayments and the privatisation of state property.

Remarkably, the general fund of the state budget surpassed its planned amount for the first quarter by UAH141bn, equivalent to a 57% increase. This impressive outcome was primarily achieved through unplanned grants from the World Bank, amounting to UAH134bn, which accounted for 25% of all state budget revenues. Even without these grants, the plan was still exceeded by UAH7bn, or 3%.

Nevertheless, the budget remains in deficit with the general fund of the state budget for the period of January to May, running a UAH401.9bn shortfall, of which the May shortfall was UAH91.3bn alone, according to Pidlasa, who assured that the situation is manageable.

During the first five months of 2023, the expenses from the general fund of the state budget amounted to UAH1.143 trillion, with May alone accounting for UAH277.4bn. Notably, defence remains the primary area of expenditure.

Regarding revenue, the general fund of the state budget received UAH1.481 trillion during the same period, with approximately half coming from external sources (UAH723.8bn) and the remaining from internal sources (UAH757.4bn), as reported by Pidlasa.

Breaking down the revenue for May, this amounted to UAH328.3bn, with UAH209.2bn generated from internal sources and UAH119.1bn from external sources. Notably, tax revenues surpassed foreign borrowings for the first time in recent history, with tax authorities collecting UAH101.2bn.

External borrowings amounted to UAH73.4bn, while domestic borrowings through government bonds reached UAH68.6bn. A grant from the United States contributed UAH45.7bn, and revenues administered by customs authorities accounted for UAH29.6bn.

During the first five months of 2023, the expenses from the general fund of the state budget amounted to UAH1.143 trillion, with May alone accounting for UAH277.4bn. Notably, defence remains the primary area of expenditure.

The government has already started work in co-operation with the IMF on returning Ukraine’s tax collection to normal and has begun unwinding some of the emergency measures introduced at the start of the war to ease the shock caused by Russia’s invasion. For example, heating and power tariffs will be hiked this winter to improve income and cover the costs of power and heating generation – a long-standing IMF demand. The budget surplus reflects the improving effectiveness of the management of budgetary resources and highlights the government's ability to generate revenue beyond initial projections in a time of war.

Other macroeconomic indicators are also beginning to stabilise, most notably inflation has begun to fall.