Ukraine: EU begins to disburse next tranche of financial assistance, Oct 2022
In late September, EU bodies approved an additional €5bn in macro-financial assistance (MFA) to Ukraine, and in early October, Ursula von der Leyen, the president of the European Commission, announced that the first payment, of €2bn, would be made shortly, with the rest to follow by the end of 2022.
This is the second instalment of a €9bn package first announced in May, and follows the delivery of €1bn in early August. It is designed to address the substantial budgetary shortfalls facing the Ukrainian government linked to the ongoing war with Russia, which has closed off access to capital markets, but led also to agreements with creditors for delays in debt repayments. The latest EU funding comes in the form of “highly concessionary” long-term loans—that is, at a low interest rate, but still adding to the stock of public debt. The form of the final €3bn of the facility—whether it will be offered as a loan or a grant—has yet to be decided among the 27 EU member states.
As the EU Commission only proposed this latest assistance to Ukraine in early September, the process looks speedy by EU standards. Nonetheless, Ukrainian officials have raised complaints about delays in promised external funding, which earlier in the conflict led them to print money to cover their bills, undermining confidence in the currency and putting pressure on reserves, and leading in late July to a devaluation of the hryvnya, so boosting import prices in an already highly inflationary environment.
Moreover, according to the “Ukraine Support Tracker” compiled by Germany’s Kiel Institute up to October 3rd, whereas the US had disbursed €8.5bn in budget support out of a total of €14.9bn committed (57% of the total), EU institutions—measured separately from the contributions of individual EU countries—had disbursed only €3.6bn out of €12.3bn committed (29% of the total; although the latest EU instalment of €2bn will take this to €5.6bn, or 45.5%). The delay in EU payments reflects the need to gain the approval of all 27 EU members.
Assuming some economic recovery in Ukraine next year—the realisation of which depends on the course of the war, which is inherently unpredictable—for next year’s budget, the Ukrainian authorities are working on the assumption of a narrowing of the monthly budget financing gap of €3.5bn per month, compared with one of around €5bn for month this year. With this in mind, according to Johannes Hahn, the budget commissioner, the EU is working on developing a more “automated” mechanism to allow it to cover around €1.5bn, the same sum as the US.
For Ukraine, maintaining public finances in reasonable working order is as vital to the war effort as securing military supplies. Looking further ahead, the tardiness of the EU in the delivering financial aid has raised questions in some quarters over its likely effectiveness in raising funds for Ukraine’s post-war reconstruction, which will be significant—of between US$200bn and US$350bn, according to Ukrainian and World Bank estimates respectively, which do not take into account the latest large-scale bombing campaign by the Russian military of Ukraine's energy, water and communications facilities.
This is the second instalment of a €9bn package first announced in May, and follows the delivery of €1bn in early August. It is designed to address the substantial budgetary shortfalls facing the Ukrainian government linked to the ongoing war with Russia, which has closed off access to capital markets, but led also to agreements with creditors for delays in debt repayments. The latest EU funding comes in the form of “highly concessionary” long-term loans—that is, at a low interest rate, but still adding to the stock of public debt. The form of the final €3bn of the facility—whether it will be offered as a loan or a grant—has yet to be decided among the 27 EU member states.
As the EU Commission only proposed this latest assistance to Ukraine in early September, the process looks speedy by EU standards. Nonetheless, Ukrainian officials have raised complaints about delays in promised external funding, which earlier in the conflict led them to print money to cover their bills, undermining confidence in the currency and putting pressure on reserves, and leading in late July to a devaluation of the hryvnya, so boosting import prices in an already highly inflationary environment.
Moreover, according to the “Ukraine Support Tracker” compiled by Germany’s Kiel Institute up to October 3rd, whereas the US had disbursed €8.5bn in budget support out of a total of €14.9bn committed (57% of the total), EU institutions—measured separately from the contributions of individual EU countries—had disbursed only €3.6bn out of €12.3bn committed (29% of the total; although the latest EU instalment of €2bn will take this to €5.6bn, or 45.5%). The delay in EU payments reflects the need to gain the approval of all 27 EU members.
Assuming some economic recovery in Ukraine next year—the realisation of which depends on the course of the war, which is inherently unpredictable—for next year’s budget, the Ukrainian authorities are working on the assumption of a narrowing of the monthly budget financing gap of €3.5bn per month, compared with one of around €5bn for month this year. With this in mind, according to Johannes Hahn, the budget commissioner, the EU is working on developing a more “automated” mechanism to allow it to cover around €1.5bn, the same sum as the US.
For Ukraine, maintaining public finances in reasonable working order is as vital to the war effort as securing military supplies. Looking further ahead, the tardiness of the EU in the delivering financial aid has raised questions in some quarters over its likely effectiveness in raising funds for Ukraine’s post-war reconstruction, which will be significant—of between US$200bn and US$350bn, according to Ukrainian and World Bank estimates respectively, which do not take into account the latest large-scale bombing campaign by the Russian military of Ukraine's energy, water and communications facilities.
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