Borderline Budgeting: Analyzing Fiscal Responses to the Russian-Ukrainian Conflict in Neighboring Countries

The study uses a comparative approach to assess the fiscal impact of the Russian-Ukrainian conflict (RUC) on public finance in five countries bordering Ukraine: Hungary, Moldova, Poland, Romania, and Slovakia. To capture changes in various fiscal and budgetary indicators, including government revenues, expenditures, debt, foreign direct investment, trade, energy support measures, and foreign aid allocation, the study uses the countries’ financial data for 2019-2023. The study findings indicate that the RUC's largest impact on neighboring countries appears to be short-term, as the conflict triggered a high influx of refugees and disrupted commodity production, revenues from taxation, foreign direct investments, and trade activity, diminishing government fiscal capacity to mitigate the effects of the conflict. As the conflict transitions into a long-term phase, the case countries report positive changes in the economic development indicators. Furthermore, the risk of conflict diffusion across borders and threats to the neighboring country’s political stability motivate donors to allocate more aid to foster the neighboring states' abilities to mitigate the consequences of the conflict. However, the study reveals variations in donors’ allocation of aid among the case countries, suggesting that the donor’s aid allocation decisions are contingent upon the ability of the neighboring country to manage conflict pressures and its regime stability.