Ukraine reaches solid financial ground; finally, a better outlook amid endless war
Ukraine’s near-term outlook has improved materially on financing, but not on peace. Presidential Chief of Staff Kyrylo Budanov’s optimistic comments to Bloomberg about “good progress” in negotiations briefly lifted Ukrainian Eurobonds, yet this looked more like market overreaction than a signal of an approaching settlement. Russia has shown no meaningful readiness to halt the war, despite growing recruitment problems, drone-strike damage and economic strain. The Donald Trump-led peace track remains structurally weak: Washington has not demonstrated willingness to apply the kind of coercive leverage Moscow understands, while the Kremlin continues to treat negotiation as tactical theatre rather than a path to compromise.
The major positive development is financial. The approval of the €90 billion EU loan gives Ukraine its first credible medium-term funding bridge since the start of the full-scale invasion. The package, backed by the EU budget and member-state guarantees and effectively tied to future Russian reparations, covers both defense and budget needs over 2026–2027. It closes a large part of Ukraine’s 2026-2027 fiscal and external financing gap, and creates a pathway toward longer-term support under the 2028–2034 EU budget framework. This substantially strengthens Ukraine’s macro-financial security, even under continued Russian hostility.
The Svyrydenko Cabinet has avoided an immediate clash with donors over a tax squeeze, but only by deferring the hardest decisions. Parliament extended the war tax and moved forward on digital-platform taxation, while VAT for simplified taxpayers was pushed back, and parcel taxation remains unresolved. This keeps donor talks constructive, and preserves funding flows for now. However, IMF and EU pressure has not disappeared. Further tax battles are likely, and they could become politically costly for the Cabinet, once the current financing relief gives way to renewed conditionality.
In economics, the picture is mixed. Depreciation pressure eased somewhat in April, with the hryvnia holding below 44 per dollar and NBU interventions falling to $3.6 billion, from $4.8 billion in March. However, the external gap continued to widen rapidly, with the Q1 2026 CAD reaching $9.5 billion, up from $7.5 billion a year earlier. Gross reserves dropped to $48.2 billion in April from $57.3 billion at the start of the year, though the NBU remains relatively optimistic, supported by secured external funding and projecting reserves to recover to $64.8 billion by year-end. The real sector is under strain, with industrial output contracting under the weight of energy infrastructure destruction, while retail trade remained surprisingly resilient, supported by continued budget spending and foreign inflows. Inflation has become the main macro concern, accelerating to 8.6% y/y in April on food, fuel and transport costs, prompting the NBU to keep the policy rate at 15% and stay in wait-and-see mode. Fiscal accounts remained relatively solid, thanks to strong tax collections and cautious spending.
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