The EU tranche is under threat again: Ukraine does not fulfill indicators
3 April 12:20
Ukraine has received another tranche of EUR 3.5 billion from the European Commission under the Ukraine Facility program for meeting the indicators for the fourth quarter of 2024. However, the funds were delayed, and this may happen again with the next tranches. This is reported by the Institute for Economic Research and Policy Consulting (IER), "Komersant Ukrainian" informs
Delay of the tranche from the European Commission
“Yesterday, Ukraine still received 3.5 billion euros from the European Commission under the Ukraine Facility for fulfilling the indicators for the fourth quarter of 2024. This happened with a delay,” the statement said.
The next tranche of EU assistance, for the fulfillment of the indicators of the first quarter of 2025, may also be provided later than the schedule.
Why did the EU start delaying tranches?
It is only because Ukraine has begun to fail to meet its quarterly obligations on time, and the EU is postponing the disbursement of funds until the indicators of the Ukraine Facility plan are fully met.
This problem was discussed by the members of the RRR4U consortium during the presentation of the 13th issue of the Monitoring of IMF Program Implementation and EU Assistance under the Ukraine Facility.
“By the end of March, Ukraine had to fulfill 16 indicators. As of March 27, only seven have been fulfilled. Nine more indicators remained unfulfilled,” said Alyona Korogod, project expert at DiXi Group (a member of the consortium).
According to her, Ukraine may repeat the path of last year, when there was a delay in implementation, which led to a delay in reporting and, accordingly, a delay in disbursement of funds, which in this situation may occur as late as June.
The EU is still flexible, but patience is not infinite
TheInstitute for Economic Research and Policy Consulting (IER) notes that the European Union is currently demonstrating flexibility and leniency towards Ukraine, as is the IMF, which continues to provide tranches despite the failure to implement some structural reforms.
However, the situation may change if the EU adopts a mechanism of partial payment for the fulfilled indicators. This means that Ukraine will receive less money if it does not fulfill all the requirements of the Ukraine Facility program.
What are the implications for Ukraine?
TheInstitute for Economic Research and Policy Consulting (IER) emphasizes that the problem of Ukraine’s delay in reforms may have more painful consequences than a simple delay in the disbursement of funds.
As soon as the EU approves the mechanism of partial payment for the fulfilled indicators, Ukraine will start receiving smaller amounts than envisaged in the Ukraine Facility plan if it does not fulfill all the program indicators.
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Ukraine Facility
In February, the EU approved the Ukraine Facility, a €50 billion financing mechanism for Ukraine for the period 2024-2027. The program consists of €17 billion in grants and €33 billion in loans. The mechanism provides not only for financing budgetary areas in Ukraine during the war, but also for programs aimed at implementing the reforms on which Ukraine’s accession to the EU depends.
The resolution emphasizes that the EU’s support should be directed in three areas:
- Financial support for Ukraine to implement reforms and investments, as well as to maintain the country’s macro-financial stability, as envisaged in the Ukraine Plan to be developed by the Ukrainian government.
- Ukraine’s investment framework to mobilize investment and expand access to finance.
- Assistance on the path to European integration to mobilize technical expertise and capacity building.
What does the plan for the Ukraine Facility envisage?
The Ukraine Facility Plan envisages the implementation of structural reforms in the public sector, a number of economic reforms aimed at improving the business climate and entrepreneurship, and steps to develop priority sectors that can ensure rapid economic growth. Implementation of the Plan will contribute to Ukraine’s European integration and further sustainable economic development.
The Ukraine Facility Plan includes more than 150 indicators in 69 reform areas to be implemented by 2027. The plan was developed in full synchronization with Ukraine’s key international partners.
The Ukraine Facility Plan also includes 16 investment indicators that are part of the overall list of changes. In order to fulfill them, it is necessary to continue and strengthen programs for infrastructure development, demining, renewable energy, support for small and medium-sized enterprises, etc.
Funding under the Ukraine Facility program directly depends on the fulfillment of the indicators set out in the Ukraine Facility Plan. In 2024, more than 36 indicators are planned to be implemented in the areas of improving public financial management, fighting corruption, managing state property, developing human capital, improving the business environment, and developing priority sectors.
It is expected that the last payment under the program will be made in 2028 based on the results of the indicators for the fourth quarter of 2027.
A €6 billion transitional financing mechanism is envisaged for the period until the final launch of the Ukraine Facility program.
As part of the transitional financing agreements, Ukraine is implementing 5 indicators in the areas of public financial management, anti-corruption, business environment development, and land market functioning. Three of them have already been implemented, and two more steps required to receive transitional funding are under development.
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