EC proposes 18B euro support package for Ukraine for 2023

The European Commission (EC) said on November 9 that it had today proposed an unprecedented support package for Ukraine of up to 18 billion euro for 2023.

This will come in the form of highly concessional loans, disbursed in regular instalments as of 2023, the EC said.

This stable, regular and predictable financial assistance – averaging 1.5 billion euro per month – will help cover a significant part of Ukraine’s short-term funding needs for 2023, which the Ukrainian authorities and the International Monetary Fund estimate at three to four billion euro a month.

The support put forward by the EU would need to be matched by similar efforts by other major donors in order to cover all of Ukraine’s funding needs for 2023, the EC said.

“Thanks to this package, Ukraine will be able to keep on paying wages and pensions and maintain essential public services running, such as hospitals, schools, and housing for relocated people,” the Commission said.

“It will also allow Ukraine to ensure macroeconomic stability, and restore critical infrastructure destroyed by Russia in its war of aggression, such as energy infrastructure, water systems, transport networks, roads and bridges.”

Support under the instrument will be accompanied by reforms, to further enhance the rule of law, good governance, anti-fraud and anti-corruption measures in Ukraine, the EC said.

“Therefore, while taking into account the evolution on the ground, financial support will be framed by policy conditions, geared towards strengthening Ukraine’s institutions and preparing the ground for a successful reconstruction effort, as well as supporting Ukraine on its European path.”

Building on previous Macro-Financial Assistance packages, this Macro-Financial Assistance+ (MFA+) instrument offers high flexibility and very favourable terms for Ukraine, catering to the country’s current situation and ensuring swift action to support the Ukrainian people, the Commission said.

The funds will be provided through highly concessional loans, to be repaid in the course of maximum 35 years, starting in 2033.

“In a further expression of solidarity, the EU also proposes to cover Ukraine’s interest rate costs, through additional targeted payments by Member States into the EU budget.”

EU Member States and non-EU countries will also be able to add more funds to the instrument, to be used as grants, should they wish to do so. The funds will then be channelled through the EU budget, allowing Ukraine to receive the support in a coordinated manner.

The MFA+ instrument will be accompanied by reforms to help Ukraine advance on its path to becoming a member of the EU.

This means that the Ukrainian government will have to complement the financial support with sectoral and institutional reforms, including anti-corruption and judicial reforms, respect of the rule of law, good governance, and modernisation of the national and local institutions, the Commission said.

“We will check that these reforms have been effectively put in place when paying out the instalments.”

To secure the funds for the loans, the Commission proposes to borrow on capital markets using the diversified funding strategy.

This would enable the Commission to use the full portfolio of funding instruments to secure market funding on the most advantageous terms, when these are needed.

To guarantee this borrowing for Ukraine, the Commission proposes to use the headroom of the 2021-2027 EU budget in a targeted manner for Ukraine, limited in time.

The headroom is the difference between the own resources ceiling (i.e. the maximum amount of resources that the Commission can ask Member States to contribute in a given year) and the funds that it actually needs to cover the expenses foreseen by the budget.

The headroom, which is already used to guarantee the borrowing for financial assistance programmes to Member States, will guarantee bond investors that the amounts lent to the EU to finance Ukrainian loans borrowing will be repaid under all circumstances.

To ensure a smooth delivery of the package, the Commission is putting forward three legislative proposals. These will need approval by the European Parliament and EU Member States in the Council before entering into force, the EC said.

(Photo: EC Audiovisual Service)

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