Burkovska A., Candidate of Economic Sciences, Associate Professor of the Department of Finance, Banking and Insurance, Mykolaiv National Agrarian University, Mykolaiv, Ukraine

ORCID: 0000-0003-4158-1721
e-mail: burkovskaya@mnau.edu.ua

Nesterchuk T., Applicant of Higher Education, Accounting and Finance Faculty, Mykolayiv National Agrarian University, Mykolaiv, Ukraine

ORCID: 0009-0001-6140-774Х
e-mail: tanjanesterthuk@gmail.com

Pastushenko V., Applicant of Higher Education, Accounting and Finance Faculty, Mykolayiv National Agrarian University, Mykolaiv, Ukraine

ORCID: 0009-0002-8711-0060
e-mail: pastusenkovitali102@gmail.com

Currency Risk in the Mechanism of Providing International Assistance to Local Community Budgets

Abstract. Introduction. The article examines the nature and characteristics of currency risk in the mechanisms for providing international assistance to local budgets for the implementation of territorial communities’ development projects in Ukraine. It analyses the main models of interaction between donors, non-governmental organisations and local self-government bodies, and highlights the impact of exchange rate fluctuations on the effective use of international grant resources. Particular attention is given to transactional and accounting risks that arise during currency conversion, as well as to practical tools for mitigating these risks. These include currency forecasting, reserve formation, cooperation with financial institutions and the contractual determination of acceptable deviation rates in grant agreements.

Purpose. This article aims to enhance theoretical and practical approaches to managing currency risk in the implementation of international programmes that support local communities. To this end, the impact of exchange rate fluctuations on the efficient use of financial resources during martial law and macroeconomic instability was assessed, and currency risks were analysed.

Results. The research conducted demonstrates that currency risk is an integral part of international development assistance, becoming particularly evident when foreign currency is converted into the national currency. An examination of donor funding mechanisms revealed two dominant cooperation models: the indirect model, which operates through intermediary organisations, and the direct model, which establishes financial relations directly between donors and recipient communities.

Even relatively small fluctuations in exchange rates can result in significant financial losses within international project budgets, which can compromise the achievement of planned objectives. Furthermore, the study revealed vulnerabilities in accounting and reporting relating to the revaluation of foreign currency balances, which hinder financial transparency and complicate the evaluation of project effectiveness.

Conclusions. Effective currency risk management is crucial for ensuring the financial stability and sustainability of local communities receiving international assistance. While the direct financing model offers advantages in terms of autonomy and speed of project implementation, it is more susceptible to exchange rate fluctuations. Therefore, introducing forecasting systems, internal risk management policies and contractual guarantees against currency fluctuations could mitigate this vulnerability.

Implementing the proposed measures will make budget planning more predictable, improve financial reporting transparency, and strengthen donor confidence in Ukrainian municipalities. More broadly, this will contribute to the long-term sustainability and economic independence of local communities during the post-war reconstruction period.

Keywords: currency risk, accounting risk, exchange rate, international aid, grant projects, financial stability, local communities, local budget.

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