The Ukraine Facility program, which provides for the allocation of 50 billion euros of 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 the statehood of Ukraine, it is necessary to consider in more detail the mechanism and features of financing through this program.
Financial support of the Ukraine Facility consists of three main elements.
Budget support (Pillar I) includes 33 billion euros in the form of loans and 5.27 billion euros in the form of grants for the budget of Ukraine. Loans are granted for 35 years, with the beginning of payments on the principal amount of the debt from 2034. Taking into account the included subsidy, which will cover the interest on the loans, the maintenance of these loans will not require spending from the budget in the coming years. Up to 9 billion euros of loans should be available already in January-June 2024, before the approval of the "Ukraine Plan", after which the funds will be allocated quarterly depending on the fulfillment of obligations under this plan. An additional 20% of grants (approximately one billion euros) are reserved to support local and regional recovery needs of Ukraine.
The investment component (Pillar II) amounts to almost 7 billion euros to support investments in Ukraine, including to ensure possible payments under EU guarantees in the amount of 7.8 billion euros. Another 15% of guarantees, or 1.17 billion euros, is reserved for supporting small and medium-sized enterprises, including guarantees for loans from Ukrainian banks. At the same time, at least 20% of the guarantees, or 1.56 billion euros, are planned to be spent on "green" initiatives (climate change, biodiversity, environment).
Technical assistance and subsidies for the payment of interest on loans granted to Ukraine by the EU (Pillar III) — 4.76 billion euros from the EU budget to cover interest on loans to Ukraine, as well as for other areas of support for the country. Some administrative costs of the EU program will also be covered from this amount. In the next four years, Ukraine will not pay interest on loans, which will significantly ease the fiscal burden.
According to the Ukraine Facility program, the amount of allocated funds decreased by almost 13% compared to the previous year. This is happening in the context of growing military activity and an increase in Russia's budget for aggression against Ukraine, which increased from 80 billion US dollars in 2023 to 120 billion in 2024. The delay of financial and military-technical assistance from another strategic partner - the USA - for six months also deepens this situation.
Another unfavorable factor is the decrease in the share of grant funds and direct budget assistance, which negatively affects Ukraine's debt and budget sustainability. This can significantly limit funding for security and military needs, infrastructure projects and humanitarian programs, especially in the most affected regions.
It is also worth noting that the allocation of only one billion euros to support the recovery of Ukraine in the conditions of a major war, destroyed infrastructure and suppressed business is insufficient. The Government of Ukraine should develop a detailed program of regional needs and submit it to EU partners.
Also, in comparison with other European integration programs, the Ukraine Facility program lacks cross-border cooperation and financing of funds that would promote cooperation between EU countries. Considering the situation with Russian aggression, Ukraine needs European sales markets and technologies.
Finally, it is important to emphasize the need for long-term and large-scale financing of the Ukraine Facility program to support the social sphere and infrastructure projects. To do this, it is necessary to improve the rule of law and carry out a fundamental reform of law enforcement and judicial authorities, as well as bring Ukrainian legislation closer to EU standards.
On the contrary, the system of aid to Ukraine in the form of debts and not grants, even at "ultra-low interest", strategically creates a risk for infrastructural and social expenditures from the budget (including the sphere of demography), which may prevent their successful implementation during the next 10-15 years.
In general, the Ukraine Facility program plays a key role in ensuring the stability of the socio-economic environment of Ukraine in conditions of active war. However, this program has a number of limitations and shortcomings that must be corrected in order to achieve the goal of sustainable long-term development of the state. In our opinion, the government of Ukraine should actively demonstrate its readiness to transform and improve the Ukraine Facility program in front of its European partners, demonstrating its professionalism, honesty and strategic vision of a model of the domestic economy integrated into the European Union.
