Caution prevailing over Ukraine’s urgent needs, officials say
Financial reliability the issue as Ukraine faces rising costs
The executive arm of the European Union is blocking a 1.5 billion-euro ($1.5 billion) loan for Ukraine as caution prevails over the country’s urgent needs, according to officials.
The impasse amounts to a Catch-22 for Ukraine. The country is pushing for help to keep its economy afloat as it counters the Russian invasion, but has seen the proposed loan blocked by the European Commission’s budget unit because of concerns over its financial reliability, said the officials who declined to be named on a confidential issue.
The European Investment Bank, the EU’s lending arm, offered the loan to Kyiv to support the war-torn nation as its faces mounting war costs and revenues collapse. The commission guarantees EIB loans for operations outside the EU, with provisions usually amounting to 9% of total funding.
But in this case, the commission wants provisions at 70% of the total, as it did with a previous proposal of 1 billion euros for Ukraine, the officials said. The commission is making the demand in case the country cannot repay the funds to the markets, they said.
A commission official said the EU needs to make sure that it can absorb losses in the event of a Ukrainian default. The commission is seeking alternative solutions, which rely on EU member states or on the EIB to share part of the additional risks associated with these loans, the official added.
The EU itself has been struggling to agree on short-term financing to Ukraine to pay salaries and other current expenditure. The EU has already had to temporarily downgrade the amount of emergency funding it’s sending Kyiv, with last week’s proposal of 1 billion euros stalled as Germany blocks a larger package of nearly 9 billion euros.
A number of the bloc’s allies privately criticized the EU at a donors conference in Lugano earlier this week for not delivering on its larger commitments of nearly 9 billion euros and called on it to do so urgently, the people said.
The Finance Ministry in Kyiv is running out of financing options as the war drags on, leaving the country increasingly reliant on outside help. Ukrainian officials are exploring the possibility of debt restructuring as a way to lighten its burden while remaining on good terms with international investors.
The commission has been pushing for weeks to get backing for the larger package to Ukraine, whose government is struggling to keep afloat financially as the Russian invasion destroys infrastructure and chokes the nation’s economy.