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European Neighbourhood Policy and Enlargement Negotiations
News article9 November 2022Directorate-General for Neighbourhood and Enlargement Negotiations

Commission proposes a support package of up to €18 billion for Ukraine for 2023: Questions and Answers

EU-Ukraine

What has the Commission proposed today?

Following the European Council meeting of 20-21 October 2022, the Commission has today proposed a support package for Ukraine of up to €18 billion. This will come in the form of loans that would be disbursed as of 2023 through a Macro-Financial Assistance+ (MFA+) instrument.

When approved by the European Parliament and the Council, the funds will ensure predictable, continuous, orderly and timely financing, to help Ukraine:

  •  cover its immediate funding needs, with a view to maintaining the macro-financial stability of the country;
  •  ensure its rehabilitation, for instance in restoring critical infrastructure, such as energy infrastructure, water systems, transport networks, internal roads or bridges, or in strategic economic sectors and social infrastructure, such as healthcare facilities, schools, and housing for relocated persons, including temporary and social housing;
  •  carry out sectoral and institutional reforms, including anti-corruption and judicial reforms, respect of the rule of law, good governance, and modernisation of the national and local institutions;
  •  prepare for reconstruction, with a view to supporting the country on its path towards European integration.

The loans will be highly concessional, to be repaid in the course of maximum 35 years, starting in 2033. The EU also proposes to provide Ukraine a subsidy of the loan-related interest rate costs of Ukraine, which would be financed by the EU Member States in the form of external assigned revenue to the EU budget until the end of 2027. These contributions should be renewed after 2027, unless interest rate payments are covered through other means in future long-term EU budgets.

EU Member States as well as third parties will be able to add more funds to the instrument, to be used as grants, should they wish to do so. The funds would then be channelled through the EU budget, allowing Ukraine to receive support in a coordinated manner.

The exceptional size of the instrument and the high degree of concessionality have been made possible thanks to the proposal to use the guarantees provided by the EU budget, as well as of the use of a diversified funding strategy that would bring stability to the funding on optimal financial terms.

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.

Why is the Commission providing this support to Ukraine?

Due to Russia's ongoing war of aggression, the short-term funding needs of Ukraine for 2023 are expected to be significant. According to recent estimates by the Ukrainian authorities, in cooperation with the International Monetary Fund, there will be a continuous funding gap of between €3 and €4 billion per month in 2023.

Ukraine will continue to experience high funding needs in the short-term, on account of the need to maintain essential state functions, ensure macroeconomic stability and rehabilitate critical infrastructure destroyed by Russia's war. That is why it is critical that new support for Ukraine is mobilised as quickly as possible.

This proposal for predictable, continuous, orderly and timely support to Ukraine and covering a sizeable share of the expected funding gap for 2023 is an expression of the Union's solidarity with the people of Ukraine. This support would need to be matched by other international partners to ensure that the entirety of Ukraine's funding gap will be covered.

How is this MFA+ instrument different from the previous MFA operations?

The MFA+ instrument proposed today ensures a more predictable, continuous, orderly and timely financing to help Ukraine meet its sizeable short-term funding needs. It offers high flexibility and very favourable terms for Ukraine, catering to the country's current situation and ensuring swift action to support the Ukrainian people.

This Macro-Financial Assistance+ (MFA+) instrument is of unprecedented size and duration. It foresees up to €18 billion in loans with very long maturities of up to 35 years, and repayment of the ‘principal' (i.e. the original amount of money lent, without the interest costs) no earlier than 10 years from now. The concessional nature of the support is strengthened by the fact that the interest rate costs will be subsidised.

The mobilisation and disbursements under the MFA+ will be possible in a cost-effective and flexible manner, thanks to the diversified funding strategy that the proposals aim to establish as the baseline method for borrowing.

The loans to Ukraine will be guaranteed through the headroom of the 2021-2027 EU budget, instead of provisions and bilateral guarantees from Member States. 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. Through this mechanism, the MFA+ will avoid further pressure on a strained EU budget due to provisioning requirements and complex arrangements, involving a multitude of ad-hoc national guarantees as was the case for the MFA support provided to Ukraine earlier in 2022.

Support under the instrument will require Ukraine to further enhance the rule of law, good governance, anti-fraud and anti-corruption measures.

Under what conditions will the funds be provided to Ukraine?

Financial support will be framed by policy conditions, increasingly geared towards strengthening Ukraine's institutions and preparing the ground for a successful reconstruction effort, as well as supporting Ukraine's efforts on its European path.

This means that the Ukrainian government will have to complement the financial support received with sectoral and institutional reforms, including anti-corruption and judicial reforms, respect of the rule of law, good governance, and modernisation of the national and local institutions. We will check that these reforms have been put in place when paying out the instalments.

In addition, as with previous MFA operations, there will be clear requirements to ensure transparency and efficiency when Ukraine will report on the progress made.

What does the legislative proposal consist of?

Today's package consists of three pieces of legislation:

  • A proposal for a new instrument, Macro-Financial Assistance+ (MSA+), to ensure the Commission can channel support to Ukraine for 2023 in a predictable, continuous, orderly and timely manner;
  • A proposal to modify the Financial Regulation which sets out general rules on EU spending, to allow loans to be financed on the most advantageous terms and loans to be structured with higher concessionality thanks to borrowing using the diversified funding strategy as put in place for other borrowing operations for EU funds;
  • A proposal for a technical amendment to the regulation on the multiannual financial framework 2021-2027, to guarantee the borrowing for Ukraine using the budgetary “headroom”, i.e. the difference between the own resources ceiling (i.e. the maximum resources that the Commission can call from Member States in a given year) and the lower amount of funds provided for the EU budget actual spending in the same year.

What are the next steps in terms of adoption?

All three legislative proposals require the approval by the European Parliament and EU Member States in the Council before being finalised. For the modification of the Financial Regulation, an opinion of the European Court of Auditors is required as well.

As always, the Commission will be working hand in hand towards a swift adoption with all EU institutions concerned.

When will you start disbursing the funds to Ukraine?

The Commission hopes to secure swift adoption of today's package with co-legislators.

Once the legislative process has been completed, the Commission and Ukraine can proceed to finalise the Memorandum of Understanding establishing the conditions for granting the loans and a Loan Agreement laying down the financial terms and conditions of the loans.

Once these instruments are in place, the Commission will be able to proceed with the first borrowing operation, and the first disbursement, early in 2023.

How many instalments do you foresee?

The use of the diversified funding strategy gives the Commission more flexibility in raising the necessary funds when market conditions are favourable and disbursing them when it is most useful to the Ukrainian authorities. This flexibility in adapting the borrowing and the disbursement schedules to best suit the needs of the Ukrainian authorities is one of the main reasons why moving to a diversified funding strategy is so important.

The Commission stands ready to organise the disbursements in a swift and flexible manner as of 2023, in response to the needs of the Ukrainian authorities. For example, disbursements can be carried out on a quarterly basis so as to minimise the administrative burden on the Ukrainian authorities.

How will the borrowing be guaranteed?

The European Commission has so far used provisions from the EU budget – held in a Common Provisioning Fund – to guarantee borrowing to third countries under its Macro-Financial Assistance programmes.

With Ukraine still being a country at war and facing a huge reconstruction challenge, much higher levels of provisioning are needed. For the most recent emergency MFA proposed earlier this year, the Commission has used a combination of 9% (of the loan value) provisioning from the EU budget and a further 61% in the form of guarantees from EU Member States. Although this approach has enabled the Commission to mobilise €6 billion in financial support – which are to be fully disbursed by the end of the year – this system of reliance on national guarantees to complement the depleted resources available from the EU budget - has reached its limits.

This is why the Commission is proposing to guarantee the loans to Ukraine for 2023 in the same way as done for borrowing for financial assistance to its own Member States, i.e. through the use of the budgetary headroom. It will be used in a targeted manner for Ukraine.

What is the diversified funding strategy and how will it help the Commission in the case of borrowing for Ukraine?

A diversified funding strategy combines the use of different funding instruments and funding techniques with open and transparent communication to market participants. It makes it possible to raise funds in a cost-efficient, flexible and financially sound manner, as the timing, the volume and the maturity of the financing can be adapted to market conditions and investor preferences.

 

The European Commission is currently using a diversified funding strategy to raise funds for other EU programmes already. With this proposal, the EU will move towards a single, unified issuance programme capable of serving different policy programmes.

The benefits in terms of organising financial assistance for Ukraine are as follows:

  • Being able to use the full range of funding instruments (including EU-Bill issuance) at the Commission's disposal to borrow for Ukraine, thus obtaining the best possible funding costs, to the benefit of the beneficiaries and the EU budget (for any shared costs);
  • Capacity to arrange highly concessional loans with additional attractive features for Ukraine;
  • Flexibility in the timing of the loans to reflect the needs of Ukrainian authorities.

A liquidity pool set up by the Commission would ensure smooth payments to both the creditors and debtors of the Union.

What happens if Ukraine does not pay back? Who will cover the losses?

The loans that the Commission proposes for 2023 are highly concessional and with very long maturities of up to 35 years and repayment of the principal no earlier than 10 years from now. This will give Ukraine sufficient time to get back on its feet to be able to repay its obligations.

At the same time, in case the EU did not receive payments in time, the Commission would use in the first instance its liquidity pool as a first resource to ensure payments to EU bond investors. If necessary, as a last instance, the guarantee available through the headroom would enable the EU to call on its Member States.

How much funding has the Commission provided to Ukraine so far?

Since the start of the war, Team Europe has mobilised €19.7 billion to support Ukraine, a large part of which comes in the form of macro-financial assistance (MFA). We have already disbursed €4.2 billion in MFA. We are going to disburse another €2.5 billion by the end of the month. Another €620 million in grants as budget support has also been disbursed to help Ukraine cover urgent needs on the ground.

In addition, EU countries provided €3.1 billion in military assistance under the European Peace Facility, and a military assistance mission in support of Ukraine with EUR 100 million for the common costs aiming at training 15.000 soldiers as a first start. The EU and its Member States have also delivered unprecedented in-kind emergency response via the EU Civil Protection Mechanism, constituting the largest emergency operation since the creation of the Mechanism, and channels 70.000 tonnes of emergency items to Ukraine and the region. 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.

All this support comes on top of unprecedented solidarity shown by EU Member States with persons fleeing the war in Ukraine, of which over 4 million received Temporary Protection in the EU. This allows persons fleeing the war to have access to jobs, housing, education and healthcare across the EU.

What about long-term reconstruction needs?

The Russian war of aggression damaged profoundly the Ukrainian society and the economic potential of the country. A collective international effort will be required to support Ukraine in facing these needs.

Looking at the long-term reconstruction of Ukraine, on 25 October the Commission and the G7 Presidency jointly organised an International Expert Conference on the Recovery, Reconstruction and Modernisation of Ukraine in Berlin. Building on the discussions held in Lugano on 4-5 July at the Ukraine Recovery Conference, it added expert input and advice to the deliberations on the recovery process of Ukraine.

The Conference will feed into the creation of an international coordination platform as proposed by the Commission on 18 May. The EU is ready to assume its full responsibility, including by hosting the platform's secretariat. The EU will stand with Ukraine for as long as it takes.

For More Information

Press release: Commission proposes stable and predictable support package for Ukraine for 2023 of up to €18 billion

Communication of 18 May 2022 on Ukraine relief and reconstruction

Macro-Financial Assistance to Ukraine

EU Delegation to Ukraine

Ukraine: International Expert Conference hosted by the Commission and G7 Presidency reaffirms unwavering commitment to support Ukraine's recovery

European Council conclusions, 20-21 October 2022

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