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EU Commission proposes financing instrument for Ukraine’s recovery

The European Commission has proposed a dedicated financing instrument (known as “Facility”) for “coherent, predictable as well as flexible support” for Ukraine’s recovery and reconstruction between 2024-2027.

The proposed Ukraine Facility, announced on Tuesday (20 June), would support Ukraine’s efforts to sustain macro-financial stability, promote recovery as well as modernise the country whilst implementing key reforms in its EU accession process, the EU Commission said.

The Facility would also support the transition towards a “green, digital and inclusive economy” that is progressively aligned with EU rules and standards.

“Ukraine is bravely fighting Russia’s invasion and needs our stable financial support to face the tremendous costs this entails. The EU has promised to stand by its side as long as it takes and we are true to our word. Today we are proposing to foresee up to 50 billion euros from 2024 to 2027 to help Ukraine resist the aggression and rebuild a modern, prosperous country. Ukrainians are resolutely striving towards Europe. And our Union is supporting this brave nation in its effort,” said Ursula von der Leyen, President of the European Commission.

3 pillars of support

The proposed Facility consists of three pillars. Pillar I would provide financial support in the form of grants and loans to the state, for which the Ukrainian would need to prepare a Plan for the recovery and detail the reforms and investments it intends to undertake as part of its EU accession process. Funds would be provided based on the implementation of the Plan, underpinned by a set of conditions and a timeline for disbursements agreed upon with the EU, with significant emphasis on public administration reform, good governance, the rule of law, anti-corruption and sound financial management.

Pillar II would establish a Ukraine Investment Framework to attract and mobilise public and private investments for Ukraine’s recovery and reconstruction, in support of the Plan’s implementation. It would complement all existing instruments supporting Ukraine, such as blending and guarantees, with the possibility of scaling up when conditions allow for it. 

Pillar III would provide technical assistance and other supporting measures, including mobilisation of expertise on reforms, support to municipalities, civil society, and other forms of bilateral assistance normally available for pre-accession countries under the Instrument for Pre-Accession (IPA). It would also be possible to support other initiatives, including enforcing international law concerning Russian war crimes committed in Ukraine. Interest rate subsidies for the cost of loans would also be covered under this pillar.

The Facility’s foreseen budget is up to 50 billion euros for the 2024-2027 period, for both grants and loans. Grants would be obtained through a new instrument proposed in the Multi-annual Financial Framework mid-term review, while loans would be guaranteed through the headroom, similar to Macro-Financial Assistance ‘Plus’ (MFA+), the EU’s executive body said.

The headroom is the difference between the maximum amount of resources that the European Commission can ask EU countries to contribute in a given year and the funds that the Commission actually needs to cover the expenses foreseen by the budget.

The Facility would also include the option to use contributions from other donors as well as revenue generated by frozen and immobilised Russian assets as a contribution to Ukraine’s recovery and reconstruction. Work is ongoing on the possible use of Russian assets for Ukraine’s recovery and reconstruction, the EU’s executive body said.

The Facility would also include a strong framework for transparency, audit, and control to safeguard EU financial interests, the Commission said. As part of this, Ukraine’s audit and control systems would be significantly improved as part of the reforms, with the option for Commission to conduct checks on the plan-related projects throughout their cycle. An independent audit board would also provide regular reports on fund implementation and offer recommendations to Ukraine, the Commission said.

The European Parliament and the European Council will now examine the proposal. If adopted, Ukraine would be invited to submit its Plan, laying out the reforms and investments it intends to undertake. Following its assessment of the Plan, the Commission will make a proposal to the Council to adopt the Plan and set the conditions to be fulfilled by Ukraine to access the Facility’s funds.

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