Six Questions to the Ukraine Facility Program

The long-term allocation of funds under the Ukraine Facility program, which provides for Ukraine to receive €50 billion of macro-financial assistance from the European Union in 2024–2027, is evidence of strategic cooperation between the EU and Ukraine. But the current existential threats to Ukraine's statehood necessitate a more detailed consideration of the mechanism and features of financing through the mechanism of the Ukraine Facility program.

The financial support within the framework of this program for Ukraine consists of three elements (pillars).

Budgetary support (Pillar I) — €33 billion in the form of loans and €5.27 billion in the form of grants to the budget of Ukraine. Loans are granted for 35 years, and payments for the principal amount of the debt are set to begin in 2034. Taking into account the subsidy embedded in the third element, which will fully cover the interest on loans, the servicing of these loans will not require budgetary spending in the next few years. From this amount, up to €9 billion in loans should be available already in January–June 2024, before the approval of the Ukraine Plan. The funds will then be provided quarterly depending on the fulfillment of obligations under this plan. An additional 20% of grants (i.e., about one billion euros) are reserved to support local and regional recovery needs of Ukraine.

Investment component (Pillar II) — almost €7 billion to support investments in Ukraine, including to ensure possible payments with EU guarantees in the amount of €7.8 billion. Another 15% of guarantees, or €1.17 billion, are 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, must go to "green" goals (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 from the EU budget to cover interest on loans to Ukraine for technical assistance and other areas of support for our country. This amount will also cover some administrative costs for the EU program itself. Also, in the next four years, Ukraine will not have to pay interest on the loans it received earlier and is going to receive now, which will ease the fiscal burden.

It should be noted that according to the Ukraine Facility program, the funding amount compared to the previous year is reduced by almost 13% in conditions when, on the contrary, hostilities are intensifying, Russia's budget for aggression against Ukraine is growing significantly (from $80 billion in 2023 to $120 billion 2024), and the financial and military-technical assistance of another strategic partner, the United States, was delayed for half a year.

Another unfavorable factor, in our opinion, is that the share of grant funds and direct budget assistance is decreasing, which also has a negative impact on Ukraine's debt and budget stability, especially in the medium and long term. All this in general will not only suppress business activity and the execution of the general budget of Ukraine, but will also significantly affect the financing of security and military capabilities, extremely urgent infrastructural needs, effective assistance to regional development funds in Ukraine and humanitarian programs. A decrease in the level of financing of the regions most afflicted by the war may become particularly noticeable.

In addition, the allocation of only one billion euros to support the local and regional needs of the reconstruction of Ukraine in the conditions of the large-scale war, destroyed infrastructure, depressed local business, taking into account millions of refugees, is an extremely low amount when distributed to 20 unoccupied regions plus partly or fully occupied. if you add partially occupied or fully occupied. In this context, the government of Ukraine should develop a detailed program of regional needs and provide it to EU partners.

In addition, all programs of European integration with other countries of Eastern Europe and the Balkans always included cross-border cooperation, funds which would strengthen cooperation between EU countries were given strong financial backing. Unfortunately, such steps are nowhere to be seen in the Ukraine Facility program, and Ukraine significantly needs both European sales markets and European technologies. In connection with Russia's aggression against Ukraine, our high-ranking officials could offer the EU countries to transfer their enterprises in many domains from Russia, Belarus, unfriendly countries of Central and South-East Asia to our country, especially to its safer western regions.

The transfer of technologies, innovations and patents to the production and processing sectors of Ukraine, its inclusion in the chains of added value of transnational companies of the EU members will bring the domestic economy significantly closer to these countries, rebuild local business and provide a systemic investment and economic impulse for quality development in the face of extremely complex geopolitical and geoeconomic challenges. It is obvious that the program of macro-financing of such measures would benefit Ukraine, whilst also contributing to the unity and stability of the EU countries. But for this, a significant improvement of the rule of law in Ukraine and a fundamental reform of law enforcement and judicial authorities are needed, as is the approximation of Ukrainian legislation to EU standards and norms, not in form, but in essence. Assistance under the Ukraine Facility program may be under serious threat with a formal approach (pseudo-reformation) to principled anti-crisis and inclusive and transparent measures, especially in anti-corruption policy, policy of transparent state, anti-monopoly and anti-oligarchic administration.

Let me note a significant decrease in Ukraine’s demographic potential after the start of the aggression in 2022, which leads to the introduction of a renewed repatriation policy, support of youth and families with children and stimuli to a higher birth rate in Ukraine, particularly in war-ravaged regions. In this context, the Ukraine Facility program needs more long-term and large-scale financing for supporting the social sphere and infrastructural reconstruction. However, both at the state level and at the level of the Ukraine Facility program, these priorities have not been enshrined (the conditions of write-off in case of certain achievements or critical challenges which the Ukrainian society is now facing).

Instead, it is the debt and not grant system of aid to Ukraine, even with "ultra-low interest rates," that strategically puts a noose around infrastructural and budgetary social expenses (including for childbirth), which will render their successful implementation impossible in the next 10–15 years.

Summing up, we note that the Ukraine Facility program plays a key role in the stability of the socio-economic environment in Ukraine during the ongoing war. But at the same time, the launched aid program has a number of limitations and shortcomings that must be corrected if the goal is the sustainable long-term development of our state. In our opinion, the government of Ukraine should demonstrate a well-founded decisive engagement in the transformation and improvement of the Ukraine Facility program in front of European partners by demonstrating its professionalism, probity and strategic vision of the model of the domestic economy integrated into the EU.

Read this article in Ukrainian and russian.