'Made in Ukraine' subsidy program to boost war economy

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The Ukrainian government will introduce a $1.2bn „Made in Ukraine” subsidy program this year to boost domestic production in a bid to boost tax revenues and make the economy less dependent on foreign aid.

The war-torn country depends on budgetary support from Western allies to cover half of its expenditure needs. Although Russia has adopted a policy of import substitution under pressure from Western economic sanctions, economic growth and tax revenues, a large part of Ukraine's public spending leaves the country for imported goods.

„Our task is for Ukrainian money to stay in Ukraine and work in Ukraine,” President Volodymyr Zelensky said in Kyiv on Monday at a conference to draft the bailout plan, the most important long-term economic vision he has laid out from the full scale of Russia. Invasion two years ago.

Zelenskyy said cheap credit lines and subsidies for Ukrainian manufacturers, including arms makers, would include incentives to use Ukrainian-made goods for reconstruction and cashback for citizens buying local goods.

Ukraine's budget for this year is running at a $43bn deficit, most of which is being filled by the EU and the IMF. But the US failure to pass a $60bn financial package for Ukraine and a two-month delay in the EU approving its own four-year €50bn lifeline have added to the sense of urgency for officials in the country to look to domestic solutions.

Economy Minister Yulia Sviridenko said: „We understand very well that macro-financial assistance may decrease from year to year, and if the war lasts, it means that we will have to become more self-sufficient.”

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„Made in Ukraine” would give priority to domestic production of war-related components, weapons and demining equipment and reconstruction materials. State procurement in these areas will require a product that includes 20 percent Ukrainian-made components.

As for the cash-back initiative, which Svyrydenko said will be implemented by June, the benefits will be added to a special card that can only be used in the country.

The initiative also includes compensation worth 1 billion hryvnias ($26 million) to domestic agricultural machinery manufacturers.

„Our goal is really to change the structure of the economy . . . to increase the share [our] manufacturing industry,” said Sviridenko.

Some businessmen said the project has the potential to attract foreign capital. Kostiandin Yefimenko, chief executive of Biopharma, said that if foreign investors „don't understand that we are doing well here . . . nobody will come here.”

Business in Ukraine has been plagued by bribery and corruption since independence, with the courts and tax authorities often playing a key role or directing schemes. As a result, Ukrainian businesses routinely avoid their tax obligations.

Zelenskyy on Monday promised to reward only businesses that paid taxes and did not work with Russia, and announced a direct hotline that would allow CEOs to be flagged straight to the president's office.

„Anyone who adheres to such rules should receive full and complete assistance from the state, all institutions,” Zelenskyy said.

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