The Ukraine Facility, which provides for the allocation of EUR 50 billion in macro-financial assistance to Ukraine by the European Union during 2024–2027, is evidence of strategic cooperation between the EU and Ukraine. However, in connection with the existing threats to Ukraine's statehood, it is necessary to consider the mechanism and features of financing through this program in more detail.
The financial support of the Ukraine Facility consists of three main elements.
Budget support (Pillar I) includes €33 billion in loans and €5.27 billion in grants to the Ukrainian budget. The loans are provided for 35 years, with principal repayments starting in 2034. Taking into account the included subsidy, which will cover interest on the loans, servicing these loans will not require budget expenditure in the coming years. Up to €9 billion in loans should be available as early as January-June 2024, before the approval of the “Plan for Ukraine”, after which funds will be allocated quarterly depending on the fulfillment of commitments under this plan. An additional 20% of the grants (approximately €1 billion) are reserved to support local and regional needs for the recovery of Ukraine.
The investment component (Pillar II) amounts to almost €7 billion to support investments in Ukraine, including to cover possible disbursements under EU guarantees of €7.8 billion. Another 15% of the guarantees, or €1.17 billion, are reserved to support small and medium-sized enterprises, including guarantees on loans from Ukrainian banks. In parallel, at least 20% of the guarantees, or €1.56 billion, are planned to be spent on “green” initiatives (climate change, biodiversity, environment).
Technical assistance and interest subsidies on loans granted to Ukraine by the EU (Pillar III) — €4.76 billion from the EU budget to cover interest on loans to Ukraine, as well as other areas of support for the country. This amount will also cover some of the administrative costs of the EU program. Ukraine will not pay interest on the loans for the next four years, which will significantly ease the fiscal burden.
According to the Ukraine Facility, the amount of allocated funds has decreased by almost 13% compared to the previous year. This is happening in the context of increasing military activity and an increase in Russia's budget for aggression against Ukraine, which has increased from 80 billion US dollars in 2023 to 120 billion in 2024. The delay in financial and military-technical assistance from another strategic partner, the United States, for six months also aggravates this situation.
Another adverse factor is the decrease in the share of grant funds and direct budget assistance, which negatively affects Ukraine's debt and fiscal sustainability. This may significantly limit the financing of security and military needs, infrastructure projects, and humanitarian programs, especially in the most affected regions.
It is also worth noting that allocating only one billion euros to support Ukraine's recovery in the face of a major war, destroyed infrastructure, and depressed business is insufficient. The Ukrainian government should develop a detailed program of regional needs and submit it to EU partners.
Also, compared to other European integration programs, the Ukraine Facility lacks cross-border cooperation and funding for funds that would facilitate cooperation between EU countries. Given the situation with Russian aggression, Ukraine needs European markets and technology.
Finally, it is important to emphasize the need for long-term and large-scale financing of the Ukraine Facility to support social and infrastructure projects. This requires improving the rule of law and carrying out a fundamental reform of law enforcement and judicial authorities, as well as bringing Ukrainian legislation closer to EU standards.
On the contrary, the system of assistance to Ukraine in the form of debts, rather than grants, even at “ultra-low interest rates,” strategically creates a risk for infrastructure and social spending from the budget (including in the area of demography), which may prevent their successful implementation over the next 10–15 years.
Overall, the Ukraine Facility program plays a key role in ensuring the stability of the socio-economic environment of Ukraine in the context of active war. However, this program has a number of limitations and shortcomings that need to be corrected in order to achieve the goal of sustainable long-term development of the state. In our opinion, the Ukrainian government should actively demonstrate its readiness to transform and improve the Ukraine Facility program to its European partners, demonstrating its professionalism, honesty and strategic vision of the model of the domestic economy integrated into the European Union.
