Ukraine has demanded the EU provide a stable and predictable flow of financial support to keep its government functioning, warning that Kyiv was being “squeezed by uncertainty” over cash flows.
The plea comes as the European Commission struggles to agree a strategy to provide more clarity over its economic assistance to Ukraine in the coming year despite urgent calls from both Kyiv and Washington to clarify its approach.
“We of course want a more structured and more predictable process [from the EU],” said Olha Stefanishyna, deputy prime minister for European integration. “We are waiting for the commission.”
“It depends on whether teachers will get their salary, whether medical or social staff and pensioners will get paid, whether we can perform our government functions,” she said between meetings in Brussels used to press EU officials on their slow pace of support. “We hope that lessons will be learned and we will not be squeezed by uncertainty.”
Kyiv is counting on $38bn in budgetary assistance from its international partners in 2023, or about $3.5bn a month.
Stefanishyna praised a decision by the US to provide monthly budget support to Kyiv, and called on the EU to take a similar step. But so far there is little clarity on how a more predictable funding plan will work, the bloc’s diplomats and officials say.
“There are a lot of questions on how the EU will handle financing for Ukraine and few of them are resolved,” said an EU diplomat. “How much is needed? Should the financing be all loans or a combination of loans and grants? Where will the money come from when national budgets are constrained? And how do we move away from the recent discussions over the MFA [macro financial assistance] and establish a more stable and predictable source of funding?”
EU assistance for Ukraine since Russia launched its full-scale invasion in February has been subject to repeated delays as member states haggle over the terms of the loans. The EU extended an emergency MFA loan of €1.2bn in the spring, before announcing plans to advance another €9bn.
But the bloc has only transferred €1bn of the new funding round. It has agreed to pay €5bn in three tranches between now and the end of the year, with no timetable set for the remaining €3bn. Washington has already provided $8.5bn in economic assistance to Kyiv.
Kyiv has been exasperated by the EU’s slow pace of disbursement, forcing it to ask its central bank to print money for the budget at the risk of igniting hyperinflation.
“Whenever we do not have that predictability, whatever we receive we treat like a surprise, or a gift,” Stefanishyna added.
Finance minister Sergii Marchenko said Ukraine’s short-term budget needs were covered for 2022 as long as the EU paid the €9bn in full. But plans for next year were “vague”, he added.
The US privately pushed senior EU officials to step up their financing efforts during UN meetings last month. “Predictability is very important for us. That is why we welcome the US push to EU colleagues to make commitments for next year,” said Marchenko.
President Volodymyr Zelenskyy has appealed for an IMF support package of at least $20bn and talks between Kyiv and the fund have intensified in recent weeks. A sticking point is setting objectives for structural adjustments given the huge uncertainties over the war.
Kyiv says it will need a further $17bn next year to finance urgent reconstruction of houses and schools.
The finance minister said his priority was obtaining budgetary assistance for the first three months of next year and he could not start talks on reconstruction funding until he had done so. Germany is planning a conference on reconstruction on October 25.
Some diplomats worry that non-EU donors will be deterred if the commission takes centre stage in the general funding effort. Ukrainian officials say they want the EU to appoint a single person or office to act as its interlocutor for reconstruction aid.
“We don’t understand who to talk to there, who is financially responsible,” said Dmytro Natalukha, chair of the Ukrainian parliament’s economic affairs committee.
Without reconstruction aid Ukraine’s economy would never recover, Natalukha said: “If we don’t get it, we are screwed. There is no war without an economy . . . You are not trying to heal the patient. You are keeping him on life support.”
A commission spokesman said: “We are aware that the short-term financing needs for Ukraine will continue beyond 2022. We continue to stand by Ukraine and will work with the member states to discuss a strategic approach.”