Budget floats $2.4B loan for Ukraine

Canada will extend a $2.4 billion loan to Ukraine this year to help prop up the embattled country's finances.

The measure is contained in the latest federal budget, tabled in Parliament on Tuesday by Finance Minister Chrystia Freeland. It builds on Canada's previous fiscal supports for Ukraine, intended to offset the economic devastation wrought by Russia's full invasion of the eastern European country last year.

The budget earmarks $200 million for military equipment and donations. Federal officials acknowledge that most of that money has been spent already; the sum includes the recent donation of heavy tanks. The measure is being backdated on the government's books to the current fiscal year, which ends on March 31.

The Liberal government also has set aside $605.8 million over five years to replenish the Canadian military's stocks of ammunition and explosives — stocks that were drawn down heavily to supply Ukraine. The new budget offers the first clear indication of how deeply in dollar terms the federal government has dug into its existing store of shells and munitions to support Ukraine's defence.

An additional $1.4 billion has been set aside to cover critical gaps in the army's inventory — shortfalls that existed before the war in Europe. That money is intended to bolster the army's anti-tank, anti-aircraft and counter-drone capabilities. Federal finance officials said Tuesday that, as Defence Minister Anita Anand announced previously, the equipment will be purchased on an urgent basis but the cost will be amortized over 14 years.

Finance officials who spoke on background Tuesday were unable to say how the money will be spent — or whether it's intended for an overall re-capitalization program in the army. Given the modest size of that investment, it's probably meant to cover equipment for Canadian troops deployed in Latvia as part of the NATO mission to protect the Baltic states from further Russian aggression.

Most of the defence-related items in the budget have been announced already, or were accounted for in previous budgets. For example, the budget notes a $38.6 billion investment in NORAD and continental defence modernization and the planned $19 billion purchase of F-35 stealth fighters — both of which were announced weeks ago.

The budget's defence focus is, however, squarely on Ukraine. The Liberal government sought to deflect criticism of its efforts to support Ukraine by including a chart in the budget documents that shows Canada as the top contributor in terms of financial support — on a per capita basis.

Ukraine has received $5.4 billion in Canadian aid so far, including more than $1 billion in military aid — both direct donations and equipment purchased for the Ukrainian military.

The new loan for Ukraine will be channeled through the International Monetary Fund and is intended to help the government of President Volodymyr Zelenskyy cover its budget shortfall and pay for social services — including health services for the roughly 5.3 million internally displaced people who have been driven from their homes by the war.

According to recent figures from the country's central bank, the Ukrainian economy shrank by 30 per cent after Russia launched its full invasion in February 2022. Economists at the Kyiv School of Economics had been forecasting modest growth for Ukraine up until last fall, when Russian forces began bombarding the energy grid, leading to blackouts and business closures.

Defence experts have said Moscow is pursuing a deliberate strategy of running Ukraine's economy into the ground in order to the force the government in Kyiv to sue for peace.

Economists in Ukraine say the fiscal lifelines being offered by western countries like Canada are just as valuable as war materiel.

"Definitely if we had no such help to our budget expenditures, it will be definitely much worse condition for Ukraine,"  Yuilia Pavytska, an analyst at the Kyiv School of Economics, told CBC News prior to the budget's release.

"It's very hard to imagine, especially ... in the West, how business keep working in these conditions."

She said the country still faces "huge pressure on our labour market" because of the millions of people who have fled the country and the roughly 5.3 million who are displaced from their homes but still inside Ukraine.

"Those people [the displaced] have had some problems with their occupation and their employment," Pavytska said.

The invasion forced a 30 per cent contraction in Ukraine's gross domestic product. Without foreign lifelines, Pavytska said, the result could have been much worse.

Separately, the Canadian federal budget also announced $84 million in additional direct humanitarian aid for Ukraine in the coming fiscal year — money which will be used for mental health services, the removal of mines and other measures. The money will come out of the existing budget at Global Affairs Canada.

The Liberal government also announced the immigration pathway intended to bring Ukrainians to Canada will be extended until March 31 of next year.