EU Council approves EUR 5B in macro-financial assistance to Ukraine

The Executive Vice President of the European Commission, Valdis Dombrovskis, announced this today in Prague during a press conference following the ECOFIN meeting, an Ukrinform correspondent reports.

"As regards financial support for Ukraine, it is excellent news that ministers have endorsed the next part of our exceptional macro-financial assistance programme and agreed to provide national guarantees required to make a further €5 billion available in concessional loans to Ukraine. This is part of the overall EUR 9 billion exceptional macro-financial assistance package for Ukraine. Its first part of EUR 1 billion was already paid out in early August and we are now working on operationalizing the remaining amount in this package," said Dombrovskis.

He noted that financial assistance to Ukraine is becoming more and more important, as the country's economy is suffering heavily from Russian aggression. Dombrovskis recalled the existing outlook, suggesting Ukraine's GDP may fall by 50% this year, therefore it is obvious that the country needs quick financial support so that the state can function and ensure the most important services for the country's population.

"For this year alone, the International Monetary Fund estimates its balance of payments gap at $39 billion. That does not include costs for the country's longer-term reconstruction. Since the invasion began, the EU, its Member States and financial institutions – like the EIB and EBRD - have mobilized €9.5 billion to support Ukraine. But still, more short-term financial assistance will also be needed," Dombrovskis emphasized.

He noted that in addition to the short-term needs for maintaining Ukraine's financial stability, EU countries are analyzing more distant needs for the reconstruction of Ukraine, while the costs of such reconstruction will only increase as the war continues. Today, EU ministers discussed the possibilities for the implementation of the long-term recovery program for Ukraine.

"We discussed the policy implications of the war in Ukraine on the EU and our economy, and the necessary policy response. Clearly, we see a marked economic slowdown in the second half of the year, and we see surging inflation. So we need to find a delicate balance between promoting growth, controlling inflation and protecting the most vulnerable. We also see tighter financing conditions and rising borrowing costs – which all reduces governments' room for policy maneuver. And it's also clear that fiscal support measures should not contradict the ECB's efforts to reduce inflation," the official noted.

He recalled that one of the biggest implications of the Russian war in Ukraine was the rise in energy prices and the political consequences of this phenomenon. This topic and ways of responding to the situation on the energy market were discussed today in Brussels by EU energy ministers.

As reported, at the proposal of the European Commission, the European Council, during a meeting in Brussels on June 23-24, 2022, agreed to allocate to Ukraine an extraordinary MFA package in the amount of up to EUR 9 billion. The European Commission paid out the first EUR 1 billion from the package early August. Another EUR 5 billion will be sent to Ukraine in the form of a loan on attractive terms – this amount will be borrowed on foreign capital markets under the financial guarantees of the European Commission and EU member states. Ukraine should receive another EUR 3 billion by the end of this year.