On December 17, 2020, the European Union (EU) announced the approval of a $19 billion package of financial assistance to Ukraine. This financial aid is set to be dispersed over seven years and is intended to help the country overcome the economic crisis caused by the COVID-19 pandemic and its military conflict with Russia. This latest aid from the EU—which is in addition to loans already provided by the International Monetary Fund (IMF)—will further support Ukraine’s reform agenda, helping to bolster its economy and help pave the way for further economic growth.
Background on the EU’s Financial Assistance to Ukraine
Since Ukraine’s independence in 1991, the EU has been providing financial support to the country to help modernize its economy and bolster its governance. Over the past decade, the EU has delivered more than €14 billion (roughly $17 billion) to fund reform and development programs in Ukraine. In the past five years, since the outbreak of the Donbas conflict in 2014, the EU has provided more than €3.7 billion (roughly $4.7 billion) in financial assistance to Ukraine.
The EU has also sought to provide technical and policy advice to Kyiv, helping to support economic and security sector reform. These include economic and social reform efforts, as well as institutional capacity-building projects—both through direct national budget support and through the EU’s external relationship instruments. The EU has also provided additional support for the Ukrainian economy by providing macro-financial assistance and developing a comprehensive aid package for the country.
The $19 Billion Financial Assistance
On December 17, 2020, the EU announced the approval of a new aid package for Ukraine worth $19 billion, to be dispersed over seven years. This financial support is coming from the EU’s Multi-Annual Financial Framework (MFF) and will support Ukraine’s reform agenda and help strengthen the country’s economy, as well as assist in addressing the impact of the COVID-19 pandemic and the Donbas conflict.
The funds will be provided directly to the Ukrainian government and will be divided into three streams based on the amounts and their conditions:
• A €3.6 billion ($4.3 billion) loan to be disbursed in 2020-2022;
• A €2.55 billion ($3 billion) loan to be disbursed in 2021-2025;
• A €225 million ($270 million) grant to be disbursed in 2021-2027.
Fundamental Projects Funded by the Financial Assistance
The EU funding package will primarily be used to support economic and social reform efforts, as well as institutional reform measures in Ukraine. It is expected that the funds will be used to fund projects in areas such as energy and transport infrastructure; healthcare, education and digital economy; public finance and accountability; and rule of law and fundamental rights.
The package also includes specific programs for decentralization, support for judicial independence, border management and migration, public finance management, public procurement and good governance, support to independent media, local economic development, and urban development. Additionally, there is a specific package for the socio-economic development of the conflict-affected areas in eastern Ukraine.
IMF Support
In addition to the EU assistance package, Ukraine is also set to receive financial support from the IMF, amounting to nearly $5 billion. This financial aid is part of the IMF’s Extended Fund Facility program and is aimed at helping to support reform in Ukraine, and stabilizing the country’s finances.
This loan package is expected to bring with it additional economic reforms designed to help reduce poverty and income inequality, strengthen public finance management and governance, and transition from a largely non-cash economy to an economy based on market principles. It also aims to help Ukraine transition to a more investment-oriented economy.
Projected Impact and Benefits
The EU’s financial assistance to Ukraine is expected to have a significant positive impact on the country’s economy and its long-term development prospects. It is expected to boost growth and attract more foreign direct investment, enabling Ukraine to further strengthen its strategic position in Eastern Europe and attract greater international engagement from other countries and organizations.
The additional EU funding is also expected to contribute to a more stable macroeconomic and fiscal framework, supporting a successful transition to a middle-income society and helping to reduce poverty and foster greater economic equality in the country.
The $19 billion in financial assistance to Ukraine, announced on December 17, 2020, is a welcome sign of the EU’s continued support for the country. This package brings with it additional funds and reform measures, which will help to address the economic crisis caused by the COVID-19 pandemic and the Donbas conflict, as well as to support Ukraine’s reform agenda and long-term economic growth.
The package of EU grants and loans is set to be further supported by a $5 billion package of loans from the IMF, assisting Ukraine in modernizing its economy and strengthening its strategic position in the region. All in all, this new package of funds and reform measures can provide a much-needed boost to Ukraine’s economy, allowing it to address the challenges of the pandemic and move closer to achieving its development goals.
