Brussels, 20 September 2024
The European Commission today took a decisive step in reinforcing support for Ukraine by proposing a comprehensive financial assistance package, consisting of a Ukraine Loan Cooperation Mechanism of up to €45 billion, and an exceptional Macro-Financial Assistance (MFA) loan of up to €35 billion.
This package leverages extraordinary profits from immobilised Russian assets, sending a clear signal that the burden of rebuilding Ukraine will be shouldered by those responsible for its destruction. This approach will be applied for the first time in a structured way and at such a scale across EU and G7 lenders, ensuring long-term, stable financial support for Ukraine’s recovery and resilience.
Ukraine Loan Cooperation Mechanism
The Commission first proposes to establish a Ukraine Loan Cooperation Mechanism which will support the EU and G7 partners in issuing loans of up to €45 billion to Ukraine. As Ukraine continues to face unprecedented challenges due to Russia’s intensified aggression, this proposal underscores the EU’s unwavering commitment to Ukraine’s sovereignty and economic resilience.
The Ukraine Loan Cooperation Mechanism will offer to Ukraine support financed by leveraging the financial contribution raised on extraordinary windfall profits stemming from immobilised Russian Central Bank assets.
Ukraine can use this support to repay eligible loans from the EU and other lenders participating in the G7’s ‘Extraordinary Revenue Acceleration Loans for Ukraine’ (ERA) initiative.
Exceptional Macro-Financial Assistance
As the EU’s contribution to these loans under the ERA initiative, the Commission is proposing an exceptional MFA loan of up to €35 billion. This financial support is crucial for addressing Ukraine’s urgent budgetary needs, which have considerably risen in the face of the intensified and prolonged Russian aggression, including under the IMF’s Extended Fund Facility arrangement. The remaining loan amount covered is to be provided by other G7 partners.
This comprehensive financial package fulfils the commitments made during the G7 Leaders’ Summit in Apulia on 15 June and during the European Council of 27 June.
Through this package, the European Commission reaffirms its commitment to standing by Ukraine in times of need, ensuring that the EU’s support remains steadfast and effective.
Next steps
The proposal requires approval by the European Parliament and a qualified majority of EU Member States in the Council before entering into force.
In view of the urgency of the proposal, the Commission will be working hand in hand with co-legislators to ensure a swift adoption.
Background
Since the beginning of Russia’s war of aggression against Ukraine, the EU, together with its Member States, has unequivocally condemned Russia’s actions and has offered unprecedented support to Ukraine and its people. The EU, its Member States and European Financial Institutions have together provided €118.3 billion in grants and loans, supporting the Ukrainian war effort and its economy, helping to maintain basic services and offer early reconstruction, humanitarian assistance and help to those fleeing the war in the EU.
As part of the sanctions imposed by the EU on Russia, assets of the Central Bank of Russia held by financial institutions in the Member States and worth approximately €210 billion have been immobilised since February 2022. They represent the majority of such immobilised assets worldwide.
The prohibition of transactions on these assets generates an extraordinary cash accumulation on the balance sheets of central securities depositories (CSDs) bringing a return. On a yearly basis and depending on the level of interest rates, the extraordinary revenues are currently estimated at up to €2.5-3 billion a year. These unexpected and extraordinary revenues do not constitute sovereign assets, and do not have to be made available to the Central Bank of Russia, even after the immobilisation ends.
On 12 February 2024, the EU clarified the rules on how the immobilised assets and reserves should be managed and decided that CSDs holding reserves and assets from the Central Bank of Russia worth more than €1 million should set these revenues apart. Since 15 February 2024, the CSDs are not allowed to dispose of the related net profits or distribute them to shareholders.
In May 2024, the Council decided to use these extraordinary revenues for the benefit of Ukraine. At the end of July, €1.5 billion were already made available in support of Ukraine.
For more information
Quote(s)
Relentless Russian attacks mean Ukraine needs continued EU support. The Commission will provide a loan of up to €35 billion to Ukraine as part of the G7 pledge. This is another major EU contribution to the Ukraine’s recovery.
EU Commission President Ursula von der Leyen
This unique loan package, developed alongside our G7 partners and with a strong role for the EU, will allow Ukraine to cover its immediate needs, ensure macroeconomic stability, and provide the country with the financial resources needed to withstand Russia’s intensified aggression. By using extraordinary revenues stemming from immobilised Russian assets, the Kremlin will pay directly for the damage caused by its brutal war. Today’s package further demonstrates the EU’s unwavering commitment to supporting Ukraine’s sovereignty and economic resilience.
Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People
Today’s proposal marks a pivotal moment in our continued support for Ukraine. We are delivering on the agreement by G7 Leaders on a USD 50 billion loan to Ukraine to be paid back using the extraordinary windfall profits from immobilised Russian sovereign assets. It will ensure that Ukraine has the financial resources it needs to face the ongoing challenges posed by Russia’s unrelenting aggression. This package not only strengthens Ukraine’s economic resilience but also reaffirms the EU’s firm commitment to stand by Ukraine in its struggle for freedom and democracy.
Paolo Gentiloni, Commissioner for Economy
A press release and questions and answers on today’s package are available online.
Questions and Answers on the Commission’s proposal of an up to €35 billion MFA loan for Ukraine as the EU’s contribution to the EU-G7 support of up to €45 billion
Brussels, 20 September 2024
What has the Commission proposed today?
Following the European Council meeting of 27 June 2024, the European Commission has proposed to establish a Ukraine Loan Cooperation Mechanism which will support G7 partners and the Union in issuing loans of up to €45 billion to Ukraine. As part of the EU contribution to these loans, the European Commission is also proposing an exceptional macro-financial assistance (MFA) loan worth up to €35 billion.
The Ukraine Loan Cooperation Mechanism will be funded by the extraordinary revenues accumulated from the immobilisation of the sanctioned Russian Central Bank assets, as well as contributions from Member States and third countries. This Mechanism will offer Ukraine financial support, which it can use to repay the exceptional MFA loan from the Union, and eligible bilateral loans from lenders under the G7 ‘Extraordinary Revenue Acceleration Loans for Ukraine’ (ERA) initiative, worth up to €45 billion.
The MFA loan proposed by the Commission will be worth up to €35 billion. It represents the EU’s contribution to the overall loan package to be provided under the ERA initiative. Once approved by the European Parliament and the Council, the MFA loan will help Ukraine meet its urgent budgetary needs, which have considerably risen in the face of the continued Russian aggression. Through the MFA loan, Ukraine will be able to benefit from predictable, continuous, orderly and timely support that will contribute to covering a sizeable share of its expected financing gap.
How does the Ukraine Loan Cooperation Mechanism work?
The Ukraine Loan Cooperation Mechanism will be financed from future flows of extraordinary revenues stemming from the immobilisation of Russian sovereign assets, as well as from amounts received as voluntary contributions from Member States and third countries or other sources.
The mechanism will then disburse these funds in the form of financial support to Ukraine, to assist it in repaying the exceptional MFA loan, as well as loans from G7 partners and other countries considered as eligible. Except for the MFA loan, all bilateral loans will first need to be assessed as eligible for support under the Mechanism by the Commission. Once a loan is considered eligible, a share of the extraordinary revenues accruing to the Mechanism will be allocated to the eligible loan. That share will be computed in proportion of the overall loan volume of up to €45 billion.
In parallel, an agreement will be concluded between the Commission and Ukraine for the disbursement of the financial support by the Mechanism, setting out the conditions that Ukraine will have to respect in the use of the support from the Mechanism. Once these two steps are completed, Ukraine will be able to request from the Commission financial support under the Ukraine Loan Cooperation Mechanism to assist it in repaying the principal, interest and other costs of eligible loans.
This package is thus an unequivocal expression of Europe’s ongoing solidarity and support to Ukraine, as demonstrated since the start of Russia’s unprovoked and unjustified war of aggression against the country.
How does the MFA work?
The Macro-Financial Assistance instrument has been chosen to deliver the EU loan because it offers high flexibility and favourable terms for Ukraine, catering to the country’s current situation and ensuring swift action to support the Ukrainian people.
The funds will be provided through a highly concessional loan, to be made available possibly still in 2024 with disbursement in regular tranches going up to the end of 2025, to be repaid over a maximum period of 40 years.
A key novelty is that the repayment of the exceptional MFA loan will be ensured by the new stream of funds coming from the extraordinary revenues stemming from the immobilised Russian assets. This will be facilitated by the newly established Ukraine Loan Cooperation Mechanism, avoiding a financial burden on Ukraine.
This builds on an extensive track record of successful MFA and MFA+ operations in Ukraine which have demonstrated the capacity of the instrument to deliver under crisis conditions, as well as the capacity of the Ukrainian authorities to rapidly absorb the financing and comply faithfully with all of the EU’s requirements for such financing, including progress on relevant and feasible policy conditionality consistent with the reform programme underpinning the Ukraine Facility, in particular the Ukraine Plan.
Why is the Commission providing this support to Ukraine?
Due to Russia’s ongoing war of aggression, the financing needs of Ukraine are expected to be higher than initially foreseen. According to recent estimates by the Ukrainian authorities, in cooperation with the International Monetary Fund, Ukraine’s financing needs for 2025 are expected to rise to USD 38 billion – an increase of USD 12 billion – compared to the Fund’s projections at the last programme review in June 2024.
The Ukraine Facility is set to provide much-needed support for the period 2024-2027, and the Ukrainian authorities have been active in increasing revenues and reducing non-essential expenditure. However, Russia’s hostilities continue to inflict damage to Ukraine’s key infrastructure, while adding to defence expenditure. Therefore, Ukraine is expected to continue to experience high and increased financing needs in the short-term, on account of the need to maintain essential state functions and ensure macroeconomic stability. That is why it is critical that new support for Ukraine is mobilised as quickly as possible.
This proposal also follows up on the commitments made during the G7 Summit in Apulia on 15 June, where G7 Leaders reaffirmed their unwavering support for Ukraine. They agreed to provide financial assistance to Ukraine in the form of Extraordinary Revenue Acceleration loans, to be serviced and repaid by future flows of the extraordinary revenues stemming from the immobilisation of Russian sovereign assets held in the European Union and other in relevant jurisdictions.
This proposal to provide Ukraine with concessional short- and long-term relief through loans and financial support, in a predictable, continuous, orderly and timely manner, and covering a sizeable share of the expected funding gap for 2025, reflects the Union’s solidarity with the people of Ukraine.
Why is the EU also channelling money from the Ukraine Loan Cooperation Mechanism to Ukraine to repay G7 Extraordinary Revenue Acceleration loans?
Extraordinary revenues are arising from the immobilisation of Russian sovereign assets held in the European Union and other relevant jurisdictions. The EU has agreed with G7 partners during the G7 Leaders’ Summit in Apulia on 15 June 2024, to provide financial assistance to Ukraine in the form of Extraordinary Revenue Acceleration (ERA) loans, to be serviced and repaid by future flows of the extraordinary revenues generated from immobilised Russian assets in relevant jurisdictions. Since most of the immobilised assets are within the EU, the Union is contributing to support all ERA loans.
What can the Ukraine Loan Cooperation Mechanism funds be used for?
The funds available through the Ukraine Loan Cooperation Mechanism can only be used toward the repayment of the eligible loans made to Ukraine by lenders acting under the auspices of the G7 ERA Loan initiative, including the repayment of the exceptional MFA loan
What can the MFA funds be used for?
Just like in previous MFA operations, this MFA loan constitutes undesignated and untied financial support.
The EU provides this financing with the overall purpose of addressing a balance of payments crisis and helping stabilise the macro economy and rebuild critical infrastructure.
As a result, the MFA support will directly or indirectly contribute to key areas of spending for Ukraine, such as maintaining essential state functions and supporting reconstruction efforts. The stabilisation of public finances that results from the provision of MFA financing can also free up resources for all priority budgetary spending, including for military defence against the Russian aggression.
What are the next steps in terms of adoption and making the funds available to Ukraine?
The European Parliament and the Council, the co-legislators, will now need to consider and adopt the proposal.
Regarding the exceptional MFA loan, following the adoption and entry into force of the Regulation, the Commission will then finalise the Memorandum of Understanding (MoU) and a Loan Agreement with Ukraine without further delay. Once these instruments are in place, a release decision of the funds will need to be adopted, following a positive assessment from the Commission related to Ukraine’s compliance with the policy reforms outlined in the MoU. This will happen before the end of 2024. The first disbursement is expected shortly after that.
Regarding the Ukraine Loan Cooperation Mechanism, the Commission will need first to assess the eligibility of loans for support under the Ukraine Loan Cooperation Mechanism. This step is not needed for the Union’s MFA loan. In parallel, the Commission will conclude with Ukraine an agreement for the implementation of the Ukraine Loan Cooperation Mechanism (ULCM Agreement). Once these two steps are completed, Ukraine will be able to request to the Commission financial support under the Ukraine Loan Cooperation Mechanism to assist it in repaying the principal, interest and other costs of eligible loans under the initiative.
When will you start disbursing the MFA funds to Ukraine?
The Commission is working towards securing adoption of today’s package with co-legislators still this autumn, building on the excellent cooperation that ensured the swift adoption of the several MFA packages since early 2022 and the 2023 MFA+ instrument.
As far as the MFA loan is concerned, once the legislative process has been completed, the Commission aims to take the decision to release funds under the loan before the end of 2024.
To make this possible, the Commission and Ukraine will finalise the Memorandum of Understanding establishing the conditions for granting the loan and a Loan Agreement laying down the financial terms and conditions of the loan.
Once these instruments are in place, the Commission will be able to proceed with the first borrowing operation, and the disbursement, following the decision to release funds under the loan.
Under what conditions will funds be provided to Ukraine?
The exceptional Macro-Financial Assistance loan is contingent upon Ukraine’s continued commitment to upholding effective democratic mechanisms, respecting human rights, and fulfilling the conditions agreed upon with the European Union, as outlined in the Memorandum of Understanding between them.
In view of the fact that Ukraine and the European Union have recently agreed to provide €50 billion of financing under the Ukraine Facility, on the basis of an agreed framework of reforms and investments for the period 2024-2027, the new MFA operation will be linked to a targeted set of relevant and feasible policy conditions that are consistent with and support the conditionality under the Ukraine Facility, in particular the Ukraine Plan.
Why do you propose another MFA loan when the EU’s Ukraine Facility is already in place?
The exceptional Macro-Financial Assistance operation is designed to be wholly complementary to and consistent with the financing provided under the Ukraine Facility, as well as with the programme of reforms and investments as set out in the Ukraine Plan.
The financing is complementary in the sense that it corresponds to urgent, additional financing requirements that were not there at the time that the Ukraine Facility was being designed.
The support has been designed in a way that ensures strong incentives for further progress under the Ukraine Facility and the Ukraine Plan in particular, which remains a key tool to support Ukraine financially and in implementing key reforms including with a view to advancing on its European path.
How will the borrowing be guaranteed?
To ensure a sound financial underpinning, EU borrowing to fund the MFA loan to Ukraine should (in the same way as the MFA+ instrument and the loan part of the Ukraine Facility which have both provided budgetary support to Ukraine since 2023) be backed by a guarantee from the EU budget headroom, i.e., the budgetary space above the ceiling for payments of the multiannual financial framework (MFF) up to the limit of the own resources ceiling. This is expected to provide a high degree of protection and reassurance to investors and avoid the provisioning of loans or establishment of national guarantees, without requiring changes to the size or ceilings of the MFF.
Will Ukraine have to pay for this loan if there will not be enough revenues from the Russian Central Bank assets to fully cover it?
The novelty and significant benefit to Ukraine of this MFA operation is that the Ukraine Loan Cooperation Mechanism (ULCM) will provide the funds to repay the MFA loan (as well as other eligible loans from G7 and other partners), using the extraordinary revenues stemming from immobilised Russian assets.
The exceptional MFA loan agreement which is due to be concluded under the proposed regulation will define the modalities of repayment based on a waterfall structure. Firstly, the Ukraine Loan Cooperation Mechanism (ULCM) will provide the funds to repay the MFA loan. Secondly, if no or only partial support is provided for reasons of insufficient amounts, the Commission will use the accumulated excess amounts of extraordinary revenues for the repayment of the MFA loan, should they be available. Thirdly, if these amounts are insufficient, then in the event of an agreement being reached to provide Ukraine with war reparations, Ukraine will use such resources for the servicing and repayment of the MFA loan. Finally, if the above amounts are insufficient, the proposal sets out that Ukraine will cover any remaining financial obligations.
The budgetary headroom will provide the ultimate guarantee for the Union to be able to repay the funds borrowed on capital markets that have been used for funding the MFA loan. As regards loans of other lenders, the Union is not liable for their repayment.
How much funding has the Commission provided to Ukraine so far?
Since the start of the war, the EU and its Member States have mobilised €118.3 billion in humanitarian, financial, and military assistance to Ukraine. This includes:
- €45.6 billion enabled by the EU budget in budget support, crisis response, economic, recovery and humanitarian assistance as well as loans and budgetary guarantees.
- €12.2 billion in bilateral assistance from the 27 EU Member States.
- €43.5 billion in military assistance, including funding from the European Peace Facility.
In addition, the EU and its Member States have mobilised at least €17 billion to support people fleeing Ukraine. This brings the total support to Ukraine and its people to €118.3 billion.
Furthermore, to support Ukraine, the Commission has also put forward measures to facilitate trade, notably the suspension of import duties on Ukrainian exports, and to establish solidarity lanes to help Ukraine export agricultural goods.
Source – EU Commission