EU to offer Ukraine new loans to plug immediate needs

The European Commission is set to propose on Wednesday a new package of financial aid to Ukraine including new loans to provide immediate liquidity to Kyiv and commitments for the long-term financing of the country’s reconstruction, officials said.

The size of the short-term financial support is still being defined but two officials familiar with the discussions told Reuters they expected it to roughly cover Ukraine’s financial needs for two months, largely through loans.

A third official said the money would come from the EU budget and from EU governments, dismissing earlier talk that the funds could be raised in the market with the issuance of joint bonds backed by the EU budget.

The International Monetary Fund (IMF) estimated in April that Ukraine needed around $5 billion dollars a month for at least three months to plug the immediate financial shortfall caused by Russia’s invasion.

The Fund’s chief, Kristalina Georgieva, has called for this support to come in the form of grants rather than loans.

The scale of EU support will depend also on how much G7 countries are willing to contribute. A meeting of finance ministers of the Group of Seven major economies is scheduled in the second half of this week, just after the Commission is expected to unveil its proposals.

A spokesperson for the Commission declined to comment on the new package.

EU states will have to sign off on the Commission’s plan, and could try to tweak it.

Governments are divided over how to support Ukraine, with many favouring loans despite the IMF’s views and Ukraine’s likely inability to repay them. Germany is among a number of EU governments that support grants, EU diplomats said.

The package could end up being a mix of grants and loans, officials said. The money would be used to pay salaries, pensions and hospitals’ costs.

The new package would come on top of EU emergency loans to Kyiv worth 1.2 billion euros that the EU agreed in January, of which half has already been disbursed, with the remainder expected to be paid shortly, a Commission spokesperson said.

The Commission will also indicate on Wednesday its commitment to support the long-term reconstruction of Ukraine, officials said, setting out principles for what is estimated to be a colossal financial effort worth trillions of euros.