EU approves €50 billion fund for Ukraine for recovery and reform

Details emerged on the European Council's website overnight on February 6.

"Today, the Council and Parliament reached a provisional agreement on setting up a new single dedicated instrument to support Ukraine's recovery, reconstruction, and modernisation, while supporting its efforts to carry out reforms as part of its accession path to the EU. The Ukraine Facility will have a total budget of €50 billion," the announcement states.

The Ukraine Facility will consolidate EU budget support into a unified instrument, enabling the provision of comprehensive, predictable, and adaptable assistance to Ukraine from 2024 to 2027. This is crucial given the extraordinary challenges posed by the ongoing conflict.

"The EU is prepared to support Ukraine as long as needed. The Ukraine Facility will allow us to channel consistent and predictable support to Ukraine to help its people rebuild their country in the midst of the unprecedented challenges brought by Russia’s war of aggression. At the same time the support will help Ukraine take forward the reforms and modernisation efforts needed for it to advance on its path towards future EU membership," remarked Vincent van Peteghem, Belgian Minister of Finance, currently holding the EU presidency.

The Ukraine Facility's key components

The Ukraine Facility is structured around three primary components.

The first involves the Cabinet of Ministers creating a "Ukrainian plan." This plan outlines the country's recovery, reconstruction, and modernization goals, along with reform plans for EU integration. Financial support, in the form of grants and loans, will be provided to Ukraine based on plan implementation, following necessary conditions and a payment schedule.

The second component operates under the Ukrainian framework investment instrument. The EU will extend support through budget guarantees, combining grants and loans from both public and private entities. Ukraine's guarantee system will manage credit and guarantee-related risks, incorporating capital market instruments and other financing methods to achieve the Ukraine Facility's objectives.

The third component involves EU assistance within Ukraine's path to EU membership. This includes measures supporting the alignment of Ukrainian legislation with EU standards and facilitating structural reforms for future EU integration.

Distribution plan for the Ukraine Facility

In the recent communication, the initial agreement between the European Parliament and the Council of the EU outlines the financial framework for establishing the Ukraine Facility.

The fund, totaling 50 billion euros, will be distributed as 33 billion in loans and 17 billion in grants.

The grants will be assigned through a newly proposed specialized instrument as part of the mid-term review of the EU's multi-annual budget. Loans will be sourced from the EU's reserves, similar to the financing model used in the implementation of macro-financial assistance for Ukraine in 2023.

Under the Ukrainian plan, Ukraine can request an advance payment of up to 7 percent of the Facility’s capacity.

A significant portion of the Ukrainian plan's investment component and the Ukrainian Investment Framework instrument will be earmarked for "green" investments. Some resources from the Ukrainian Investment Framework instrument will be set aside to support small and medium-sized enterprises. The Ukrainian plan also includes measures to enhance the effectiveness of the national government.

The agreed-upon agreement text includes interim financing provisions to expedite budgetary resources to Ukraine. Additionally, the Fund will maintain flexibility in budget execution, considering Ukraine's current state of war.

Funding in exchange for reforms

Supporting Ukraine through the Ukraine Facility’s resources requires ongoing reforms and adherence to democratic processes, including a multi-party parliamentary system, the rule of law, and the protection of human rights, including minority rights.

New regulations will ensure that the Verkhovna Rada and civil society organizations in Ukraine are adequately informed and consulted during the development and execution of the Ukrainian Plan.

Initiating a dialogue under the Ukrainian Fund framework enables the European Parliament to periodically discuss the plan's implementation with the European Commission, at least every four months.

To gauge the plan's effectiveness, specific indicators will be incorporated into the regulatory rules. These indicators will streamline the monitoring process for various qualitative and quantitative actions, covering the review of the social, economic, and environmental aspects of the Ukrainian plan.

Approval of agreement

As indicated in the message, the negotiating teams of the European Parliament and the EU Council will continue working on the broader review of changes to the EU long-term budget or multiannual financial framework (MFF) for 2021-2027. This includes establishing the Ukraine Facility and the Strategic Technologies for Europe Platform (STEP) program. Their goal is to finalize the agreement swiftly.

The tentative agreement reached today in negotiations must undergo approval from the EU Council and the European Parliament before its text is formally approved. Following this process, the agreement will be published in the Official Journal of the EU and take effect the day after publication. The relevant regulatory rules will apply immediately upon the agreement entering into force.

• As a reminder, on February 1, all 27 EU member states agreed to provide Ukraine with EUR 50 billion in aid. Kyiv anticipates receiving the initial tranche of this package in March.