In light of the devastating consequences of Russia’s war of aggression for Ukraine’s people, economy, and infrastructure, and given the enormous scale and complexity of the recovery and reconstruction challenge, the European Commission is proposing to establish a dedicated financing instrument that will provide coherent, predictable as well as flexible support for the period 2024-2027 to Ukraine, adapted to the unprecedented challenges of supporting a country at war. The Facility underscores the EU’s steadfast commitment to supporting Ukraine in the face of Russia’s ongoing war of aggression and on its path towards EU membership.
Ursula von der Leyen, President of the European Commission, said:
“Ukraine is bravely fighting Russia’s invasion and needs our stable financial support to face the tremendous costs this entails. The EU has promised to stand by its side as long as it takes and we are true to our word. Today we are proposing to foresee up to €50 billion from 2024 to 2027 to help Ukraine resist the aggression and rebuild a modern, prosperous country. Ukrainians are resolutely striving towards Europe. And our Union is supporting this brave nation in its effort.”
The new Ukraine Facility will support Ukraine’s efforts to sustain macro-financial stability, promote recovery as well as modernise the country whilst implementing key reforms on its EU accession track. It will support the transition towards a green, digital and inclusive economy that is progressively aligned with EU rules and standards.
The Facility is organised around three pillars:
- Pillar I – financial support to the State in the form of grants and loans.This will ensure stable and predictable funding, supporting the sustainability of Ukraine’s finances, while providing a solid framework for the protection of the EU budget. To access this support, the Government of Ukraine will need to prepare a Plan for the recovery, reconstruction and modernisation of the country and detail the reforms and investments it intends to undertake as part of its EU accession process. Funds under this Pillar of the Facility will be provided based on the implementation of the Plan, which will be underpinned by a set of conditions and a timeline for disbursements agreed with the EU. Significant emphasis will be placed on public administration reform, good governance, the rule of law, anti-corruption and sound financial management.
- Pillar II – a specific Ukraine Investment Frameworkdesigned to attract and mobilise public and private investments for Ukraine’s recovery and reconstruction, in support of the Plan’s implementation. It will complement all existing instruments supporting Ukraine, such as blending and guarantees, with the possibility of scaling up when conditions allow for it.
- Pillar III – technical assistance and other supporting measures, including mobilisation of expertise on reforms, support to municipalities, civil society, and other forms of bilateral assistance normally available for pre-accession countries under the Instrument for Pre-Accession (IPA), also supporting the objectives of the Ukraine Plan. Under this pillar, it will also be possible to support other initiatives aimed at responding to the Russian aggression against Ukraine, including to enforce international law in relation with crimes committed by Russia on the territory of Ukraine. Interest rate subsidies for the cost of loans will also be covered under this pillar.
The foreseen overall amount of the Facility is up to€50 billion for the period 2024 to 2027 for both grants and loans. Grants will be mobilised through a new special instrument, proposed in the context of the Multiannual Financial Framework (MFF) mid-term review. The loans will be guaranteed through the headroom, similar to the current financing under the Macro Financial Assistance ‘Plus’ (MFA+). 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 the Commission actually needs to cover the expenses foreseen by the budget. The Facility also opens the possibility to use contributions from other donors as well as revenue generated by frozen and immobilised Russian assets as a contribution to Ukraine’s recovery and reconstruction. Work is ongoing on the possible use of Russian assets for Ukraine’s recovery and reconstruction.
The Facility and its implementation will be equipped with a robust framework for transparency, audit and control, to ensure the protection of EU financial interests. First, the audit and control systems of the Ukrainian State are to be substantially enhanced as part of the reforms under the Plan. Second, the Commission will be able to carry out checks on projects in relation with the implementation of the Plan at any moment of the project cycle. Third a dedicated independent Audit Board will assist the Commission by regularly reporting on the implementation of the funds spent to achieve the objectives of the Facility, and by issuing recommendations to Ukraine.
Next steps
It is now for the European Parliament and the Council to examine the proposal, in the framework of the MFF mid-term review package. Once adopted, Ukraine will be invited to submit its Plan, laying out the reforms and investments it intends to undertake. Following its assessment of the Plan, the Commission will make a proposal to the Council to adopt the Plan and set the conditions to be fulfilled by Ukraine to access support under the Facility.
Background
The European Union has demonstrated unprecedented unity in condemning Russia’s actions and in providing support to Ukraine. So far, the EU, its Member States and European Financial Institutions have together provided wide-ranging support to Ukraine and its people, amounting to over €70 billion as of May 2023. This includes support to EU Member States that have provided temporary protection for around 4 million Ukrainian refugees since the start of the war. Together, this reflects the steadfast resolve of the Union to help Ukraine for as long as it takes.
For More Information
Proposal for a Regulation establishing the Ukraine Facility
Factsheet:EU solidarity with Ukraine
Quotes
Ukraine is bravely fighting Russia’s invasion and needs our stable financial support to face the tremendous costs this entails. The EU has promised to stand by its side as long as it takes and we are true to our word. Today we are proposing to foresee up to €50 billion from 2024 to 2027 to help Ukraine resist the aggression and rebuild a modern, prosperous country. Ukrainians are resolutely striving towards Europe. And our Union is supporting this brave nation in its effort.
This new instrument to finance Ukraine’s recovery and reconstruction sends a strong political signal that the EU will support Ukraine until its victory in this war – and beyond, as it prepares for EU accession. By providing stable and predictable financing in a structured and coordinated way, it will maintain Ukraine’s macro-financial stability, cover its short-term recovery needs, start the reconstruction process and help to attract much-needed private investment into the country. It also opens the door to using Russian assets to finance the rebuilding of Ukraine and make Russia pay for the massive damage that it has caused
Today the Commission is proposing to take EU solidarity with the Ukrainian people to a new level. We want to offer steady and predictable financing to Ukraine for the next four years, to support its economic stability, its recovery and reconstruction, and to facilitate the investments and reforms that will smooth its path towards EU accession. Together we will ensure that Ukraine can look beyond these dark times of Russian war towards a brighter, European future.
The EU stands with Ukraine in its resolve to rebuild the country and on its EU path. Given the huge destruction of the war and the complexity of the challenges ahead, we want to support the country’s short-term recovery needs and medium-term reconstruction and modernization through the Ukraine Facility. All these processes will be closely linked to the reforms needed to align with EU rules and standards. Our assistance will help Ukraine to strengthen its public administration, good governance, the rule of law, and sound financial management. It is important to establish efficient and effective management and control systems as well as develop rigorous anti-corruption and anti-fraud measures.
Q&A: A new Ukraine Facility
Brussels, 20 June 2023
Why is the Commission proposing to set up a new Ukraine Facility?
Russia’s war of aggression has devastating consequences for Ukraine – for its people, its economy, and its infrastructure. While fighting an existential war, Ukraine has also engaged in its EU accession path. Given the scale and complexity of the challenges both for the reconstruction and the reforms underpinning the enlargement process, Ukraine needs the EU’s sustained support in addressing these challenges.
To this end, the Commission proposes to create a new instrument, the Ukraine Facility (the ‘Facility’), to provide predictable financial support for Ukraine over the 2024-2027 period. The Facility should cater both for short-term State and recovery needs and medium-term reconstruction and modernisation of Ukraine. The Facility is designed as a flexible instrument adapted to the unprecedented challenges of supporting a country at war and ensuring predictability, transparency, and accountability of the funds.
What are the key elements of the Ukraine Facility?
The Facility will be organised around three pillars:
- Pillar I – financial support in the form of grants and loans to the State: this will ensure stable and predictable funding, supporting the sustainability of Ukraine’s finances while providing a solid framework for the protection of the EU budget. For the support to be disbursed, the Government of Ukraine will need to prepare a ‘Ukraine Plan’, in close consultation with the Commission, detailing its vision for the recovery, reconstruction and modernisation of the country and the reforms it intends to undertake as part of its EU accession process. The Plan, which will be endorsed by the EU, will include structural reforms and investments aimed at lifting the growth potential of the Ukrainian economy. It will place significant emphasis on public administration reform, good governance, the rule of law, and sound financial management, including a strong focus on anti-corruption and anti-fraud, but also other reforms as well as investments that would underpin the accession process and the modernisation of the economy. Funds under the first Pillar of the Facility will be provided based on the implementation of the Ukraine Plan, which will be underpinned by a set of conditions and a timeline for disbursements. Payments will occur according to a fixed quarterly schedule, following verification by the Commission of the satisfactory fulfilment of the relevant conditions.
- Pillar II – a specific Ukraine Investment Framework designed to attract and mobilise public and private investments in Ukraine’s recovery and reconstruction by providing guarantees and blended finance (a mix of loans and EU grants) in support of the implementation of the Ukraine Plan, with the possibility of scaling up this support when conditions allow for it.
- Pillar III – technical assistance and other supporting measures, including mobilisation of expertise on reforms, support to municipalities, civil society, and other forms of bilateral support normally available for pre-accession countries under the Instrument for Pre-Accession (IPA), also supporting the objectives of the Ukraine Plan. Interest rate subsidies for the loans support will also be covered.
What is the total budget of the Facility? Does it consist of grants or loans? How is it mobilised?
The overall amount of the Facility is proposed to be up to €50 billion for the period from 2024 to 2027 for all types of support.
This amount will be provided through a combination of both grants and loans as well as provisioning for budgetary guarantees, to be decided by the Member States and the European Parliament in the context of the adoption of the annual EU budget.
A new special instrument, the Ukraine Reserve, proposed in the context of the Multiannual Financial Framework (MFF) mid-term review, aiming to provide at least €2.5 billion as an annual indicative amount will cater for the grant part as well as provisioning for guarantees. The loans will be guaranteed by the ‘headroom’, similar to the financing under the MFA+. The headroom is the difference between the own resources ceiling (i.e. the maximum amount of resources that Member States can be asked to contribute in a given year) and the funds that the Commission actually needs to cover the expenses foreseen by the budget.
This amount matches the EU’s commitment to provide a significant share of the macro-financial and recovery support and will allow the EU to play a leading role in the reconstruction efforts. Other donors, such as third countries, International Financial institutions and international organizations, are encouraged to contribute and to support the implementation of Ukraine Plan, which could serve as an anchor for further support to Ukraine’s recovery, reconstruction and modernisation. This coordination should build on the work of the G7 Multi-agency Donor Coordination Platform.
What is the scope of today’s proposal?
The Facility will replace existing bilateral support provided to Ukraine (MFA+, NDICI bilateral allocation). It is nevertheless important to ensure that Ukraine can continue to benefit from regional, thematic, and other forms of support under the NDICI, including cross-border cooperation programmes. Programmes already adopted under NDICI will also continue to run as planned, but after the entry into force of the Facility, no new bilateral assistance would be provided under NDICI.
The scope of the Facility will not cover humanitarian aid, defence or support to EU Member States providing protection for Ukrainian refugees fleeing the war, which will continue to be funded via other existing instruments.
Why a single instrument?
The proposed Facility is aimed at equipping the EU with a legal instrument that would allow to ensure a consistent and transparent approach through a unified instrument. This would allow to provide a coherent and integrated policy response to the situation of Ukraine, considering the need for a flexible instrument, at the same time able to tie the recovery, reconstruction and modernisation efforts to Ukraine’s EU accession path.
The Facility will also allow the EU to match its political ambition with its financial leverage, by providing a clear mid-term perspective, based on a flexible, yet predictable, funding spanning the 2024-2027 period. Such predictability is important for Ukraine, as well as for our partners and other donors.
The Ukraine Plan to be proposed by Ukraine and approved by the EU will provide a reference policy document to address the prioritisation of accession-related reforms and include investments compliant with EU policies. Reconstruction cannot be limited to rebuilding what was destroyed as it was before the war. The reconstruction offers an opportunity to support Ukraine in investing in its transition towards a green, digital and inclusive economy.
How does the Facility differ from existing instruments such as MFA+?
The Facility will replace existing support provided to Ukraine from the Macro-Financial Assistance Plus (MFA+) programme. The Ukraine Plan to be developed under the first Pillar of the Facility will include conditions linked to essential requirements that were also part of the MFA+ framework, such as macro-financial stability, budget oversight, and public financial management. However, the novelty lies in the Ukraine Plan, which will link the disbursement of funds to the delivery of sectoral and structural reforms and investments, thereby providing a coherent, mid-term vision of the expected recovery, reconstruction and modernisation measures, closely tied to the perspective of the EU accession path. Similar to the MFA+, the loan component of the support will be guaranteed by the EU budget headroom.
What makes the Facility a “flexible” instrument?
Given the uncertainties linked to Russia’s war of aggression, the Facility is designed to enable the Union to support Ukraine’s evolving needs through a diversified toolbox that balances flexibility and programmability. This includes financing of the Ukrainian State, support to short-term recovery and reconstruction, support to public and private investments through blending and guarantees, as well as technical assistance and capacity building. The financial architecture of the Facility, including the new Ukraine Reserve, is designed to cater for the needed flexibility.
Given the uncertainties, the Regulation will allow Ukraine to make a reasoned request to the Commission to amend or replace the Ukraine Plan. This would happen in particular where pre-established conditions appear to be no longer achievable, either partially or totally, by Ukraine because of objective circumstances.
In addition, the proposal caters for the possibility of exceptional financing under duly justified exceptional circumstances, in case of a significant deterioration of the war that makes it impossible for Ukraine to fulfil the conditions under the Facility.
Can reconstruction really start in Ukraine when the fighting is still ongoing?
Investment in Ukraine’s recovery and reconstruction cannot wait until the end of the war. Active combat has remained largely contained to the south and east of the country, where the greatest extent of damages has also been sustained. However, the broader economic and social impact of the war is extensive, affecting all of Ukraine. Supporting the recovery of the Ukrainian economy requires concerted efforts to help ensure that economic activity is sustained, and basic infrastructure is repaired and maintained. This in turn will ensure that conditions are in place for the economy to recover, generating revenues for the State budget, and thereby progressively lowering the volume of the international assistance needed. Supporting Ukraine’s reconstruction now also means maintaining or creating employment opportunities for Ukrainians, including the internally displaced and creating conditions for refugees to return to Ukraine.
The EU has already provided significant financial support to help Ukraine meet its short-term budgetary needs, and for Ukraine’s fast recovery, through highly concessional loans channelled respectively through the Emergency Macro-Financial Assistance (€1.2 billion in 2022), the Exceptional Macro-Financial Assistance (€6 billion in 2022), and the Macro-Financial Assistance Plus (MFA+) programme (€18 billion in 2023) and a €1billion package for fast recovery that combines funds under the Neighbourhood, Development and International Cooperation Instrument – Global Europe (NDICI) and loans from the European Investment Bank and the European Bank for Reconstruction and Development backed by the EU budget.
How will the funds be provided?
Funds under Pillar I will be provided via grants and loans, based on the implementation of the Ukraine Plan, which will be underpinned by a set of conditions and a timeline for disbursement. Funds will be disbursed based on the fulfilment of these conditions. The Plan will include conditions linked to 1) essential requirements (macro-financial stability, budget oversight, public financial management, etc.); and 2) sectoral and structural reforms and investments. The conditions will be broken down into intermediate steps with a timeline for completion.
Payments will occur according to a fixed quarterly schedule, based on payment requests submitted by Ukraine and following verification by the Commission of the satisfactory fulfilment of the relevant conditions.
Under Pillar II and III, grants that will be available will be provided on a project basis.
How will the EU monitor the use of the funds and what obligations will Ukraine have to respect on its side?
The proposal is equipped with a strong system of audit and controls set out in a multilayer mechanism. First, the reform of the audit and control systems of the Ukrainian State will be needed as part of the reforms under the Plan; second, the Commission will be able to carry out checks of the implementation of projects carried out in relation with the Plan at any moment of the project cycle; third, an independent Audit Board will report to the Commission on possible mismanagement of funds under the whole Facility.
The Commission will conclude a framework agreement with Ukraine for the implementation of the Facility, with legally binding arrangements for the management, control, supervision, monitoring, evaluation, reporting and audit of funds under the Facility, as well as measures to prevent, investigate and correct irregularities, fraud, corruption and conflicts of interest. The framework agreement will be complemented by financing agreements and loan agreements, under which Ukraine will be required to ensure the collection of, and access to, adequate data on persons and entities receiving funding for the implementation of measures of the Ukraine Plan.
The Commission will continuously monitor the implementation of the Facility. Specifically, Ukraine should establish a monitoring system and Ukraine will be expected to report to the Commission annually on its implementation of the part of the Ukraine Plan covered by the Facility. This will include reporting on Ukraine’s internal control system and on any amounts unduly paid or misused, and eventually recovered by the EU. Proportionate reporting requirements will be required of recipients of Union funding implemented under the second and third pillars of the Facility.
Ukraine will be obliged to publish the data on persons and entities receiving amounts of funding exceeding the equivalent of €500,000 for the implementation of reforms and investments specified in the Ukraine Plan.
Control mechanisms related to the Ukraine Investment Framework and to technical assistance will be based on the systems, rules and procedures of the International Finance Institutions and implementing partners involved in the implementation.
The Commission will provide the European Parliament and the Council an annual assessment of the implementation of funds provided under the Facility. The Commission will also carry out an ex-post evaluation of the Regulation.
Is the Facility open to other donors or third parties?
Given the scale of the destruction from the Russian war of aggression, it is clear that supporting Ukraine’s recovery, reconstruction and modernisation will require an international collective effort.
The Facility is open to other donors (e.g. Member States, partner countries, international organisations) and should facilitate cooperation and synergies with like-minded partners.
Work is also ongoing on the possible use of Russian assets for Ukraine’s recovery and reconstruction.
Ukraine should present a comprehensive plan setting out its vision for a coherent and comprehensive response to the reconstruction needs identified so far. The medium-term perspective provided by this Ukraine Plan through a single instrument, and the emphasis on channelling investments and reforms toward the transition to a low-carbon, digital and inclusive economy, can help mobilise like-minded donors for multiannual contributions to support Ukraine.
What is the relation between the Facility and the G7 Multi-agency Donor Platform?
Donor coordination will be essential to ensure that available resources are spent in the most effective and targeted way to match the needs of Ukraine and its people. The G7 Multi-agency Donor Coordination Platform for Ukraine, launched in January 2023, is particularly relevant in that context, to foster exchanges and coordination across donors. The Plan to be developed by the Government of Ukraine could also serve to guide other donors’ assistance programming to Ukraine, should they choose to do so.
When do you expect the Facility to be operational?
The European Parliament and the Council are invited to consider the proposal as a matter of urgency, to render it operational as of beginning of 2024
Preparations by Ukraine of the Ukraine Plan, and discussions between the Commission and Ukraine, will begin in parallel to ensure that the Plan can meet the requirements of the Regulation and be swiftly approved after its entry into force.
What is the estimate of Ukraine’s needs?
In March 2023, the World Bank together with the Ukrainian Government, the European Commission and the United Nations presented the updated assessment of damages covering a full year of the unprovoked Russian aggression against Ukraine. According to this assessment, the estimated overall reconstruction needs of Ukraine over the next 10 years amounts to €384 billion (USD 411 billion), and to €142 billion (USD 152 billion) for the period 2023-2027. For 2023 alone, the immediate fast recovery needs stood at €13 billion (USD 14 billion) for priorities identified by the Government of Ukraine. These priorities include restoration and repair of energy and other critical and social infrastructure, housing, humanitarian demining, and support to the private sector.
In addition, on 30 March 2023, the International Monetary Fund estimated the State financing gap up to 2027 reached €75.1 billion, and agreed with Ukraine a 14.4 billion four-year programme to support economic stability and recovery, while enhancing governance and strengthening institutions to promote long-term growth in the context of post-war reconstruction and Ukraine’s path of accession to the European Union.
How has the European Union been supporting Ukraine so far?
The European Union, together with its Member States, has demonstrated unprecedented unity in condemning Russia’s actions and in providing support to Ukraine. Wide-ranging support to Ukraine and its people has been made available, amounting to over €70 billion as of May 2023. This includes €38 billion in economic assistance, €1.7 billion in humanitarian aid, and €15 billion in military support, including through the European Peace Facility. The EU Solidarity Lanes established in May 2022 have also provided €31 billion in export revenue to Ukraine until March 2023. EU Member States have also provided temporary protection for around 4 million people fleeing the country since the start of the war. This reflects the steadfast resolve of the Union to help Ukraine for as long as it takes.
How Russian assets will be used for Ukraine’s reconstruction?
Work is ongoing on the possible use of frozen assets to support Ukraine’s recovery and reconstruction.
For More Information
Proposal for a Regulation establishing the Ukraine Facility
Factsheet:EU solidarity with Ukraine
Recovery and reconstruction of Ukraine
Multi-agency Donor Coordination Platform
Source – EU Commission