Macrofinancial assistance to Ukraine

KEY POINTS

EU–Ukraine relations

The EU develops its relations with Ukraine through the European neighbourhood policy and the Eastern Partnership. An association agreement between the two parties, including a deep and comprehensive free trade area, came into force in 2017.

Macrofinancial assistance

• MFA operations are available to EU neighbourhood countries experiencing severe balance-of-payments problems. They aim to address the beneficiary’s immediate external financing needs and underpin the implementation of economic policy reforms.
• The EU’s MFA is expected to work alongside the implementation of budget support operations under the Neighbourhood, Development and International Cooperation Instrument – Global Europe set out in Regulation (EU) 2021/947 (see summary).

Decision (EU) 2022/313 – emergency macrofinancial assistance to Ukraine

• The EU will make up to €1.2 billion available to Ukraine to support economic stabilisation and its reform agenda.
• It will provide the full amount in loans.
• The decision grants the European Commission the power to borrow the necessary funds on the capital markets or from financial institutions on behalf of the EU and to then lend these funds to Ukraine. The loans will have a maximum average maturity of 15 years.
• The Commission will manage the release of the MFA.
• The funds will be released to Ukraine over a period of 12 months.
• As a precondition, Ukraine must respect democratic mechanisms, the rule of law and human rights.
• The MFA will be made available in two equal instalments of €600 million.
  • The first instalment is to be paid immediately on agreement of the economic and financial policy measures set out in a memorandum of understanding (MoU). It was disbursed in two tranches on 11 and 18 March 2022.
  • The second instalment is, in principle, subject to the satisfactory implementation of the limited set of policy measures agreed in the MoU. However, the outbreak of the war impeded the capacity of the Ukrainian state to implement these measures. The Commission decided, nevertheless, to disburse the second instalment on 20 May 2022 given that the fulfilment of the conditionality had been impeded by force majeure, which the Member States endorsed.

Decision (EU) 2022/1201 – exceptional macrofinancial assistance to Ukraine

• The EU agrees to provide up to €1 billion of additional MFA to Ukraine to cover urgent funding needs and to ensure the operation of the state’s critical functions, on the same conditions as the previous loan.
• This amount is the first part of an MFA package of up to €9 billion announced in the Commission’s communication on Ukraine relief and reconstruction and endorsed in the conclusions of the 30 and 31 May 2022 meeting of the European Council.
• The MFA is in the form of a highly concessional long-term loan. It will be available for 1 year and will be released as a single instalment, which may be split into one or more tranches.
• The release of the instalment took place once an MoU was agreed with Ukraine (signed on 19 July 2022). The assistance was paid out in two equal tranches of €500 million, on 1 and 2 August 2022 respectively.
• Exceptionally, the EU budget will cover the interest rate costs and the administrative fees arising from the MFA, thereby limiting the impact on Ukraine’s fiscal sustainability.
• The EU will arrange the loan with a longer maturity and on more concessional terms, thereby allowing Ukraine to return to economic growth, supporting its economy in line with its European aspirations and maximising the chances of full repayment of the assistance.
• The MFA complements other EU support granted to date:
  • humanitarian, development and defence assistance;
  • suspension of all import duties on Ukrainian exports for 1 year; and
  • other solidarity initiatives, such as addressing transport bottlenecks to allow exports, in particular of grain, to take place.

Decision (EU) 2022/1628 – exceptional macrofinancial assistance to Ukraine

• The decision makes available €5 billion of MFA in the form of loans on highly concessional terms. It will contribute to supporting Ukraine’s macrofinancial stabilisation, strengthening the country’s immediate resilience and sustaining its capacity towards recovery, thereby contributing to its public debt sustainability and its ability to ultimately be able to repay the loans.
• It also gives the EU budget the means to absorb the risk of losses on these additional loans and on the €1 billion loan paid out in two tranches, mentioned above under Decision (EU) 2022/1201.
• A first instalment of €2 billion was paid to Ukraine on 18 October 2022. A second amount of €2.5 billion was paid on 22 November 2022, followed by a third and last payment of €500 million on 14 December 2022.

Regulation (EU) 2022/2463 – macrofinancial assistance+ instrument for 2023

• The instrument involves providing €18 billion in loans to Ukraine in 2023. The loans will have a 10-year grace period. Member States will cover most of the interest costs via external assigned revenues. The guarantees for that borrowing will be provided either by the EU budget or by Member States. The loans aim to offer short-term financial relief to finance Ukraine’s immediate needs, including the rehabilitation of critical infrastructure and initial support towards sustainable post-war reconstruction, with a view to supporting the country on its path towards European integration.
• An MoU and the loan facility agreement were signed on 16 January 2023, and entered into force on the same day. The first instalment of €3 billion in loans was transferred on 17 January 2023.