EU decides to disburse EUR 600 mln loan to Ukraine

The European Commission decided on July  8 to initiate the disbursement of a EUR 600 mln loan to Ukraine, according to its press release. It’s the first wire under the third macro-finance assistance loan agreement, which amounts to EUR 1.8 bln in mid-term loans. The decision builds upon a memorandum of understanding and loan facility agreement, which Ukraine and the EU agreed upon on May 22 in Riga. The memorandum took effect July 3.

With this latest loan, the EU is helping to cover the urgent financing needs faced by Ukraine, while supporting the country’s economic stabilization at the same time. In addition, the EU’s MFA package will assist Ukrainian authorities in implementing important reforms in the areas of public finance management, governance and transparency, the energy sector, social safety nets, the business environment and the financial sector.

The EU has already provided EUR 1.61 bln in total financing in its two previous macro-finance loans. Together with the new program, the EU’s financing will equal EUR 3.41 bln, which is the largest volume of EU financial support for a non-EU country. Ukraine should receive EUR 1.2 bln by the end of 2015 under the third macro-finance loan.

Alexander Paraschiy: The decision is the immediate result of a staff-level agreement with the IMF.  As EU officials stated previously, the third macro-financial loan was conditional on the IMF’s approval of a second tranche of the Extended Fund Facility. The IMF Executive Board has yet to reach its final decision, yet the European Commission’s decision leads us to expect no surprises from the Fund.

Recall, the IMF program assumes USD 1.8 bln arriving from the EU in 2015. In April, EUR 250 mln was disbursed as a closing payment on the second macro-finance loan. On the top of that, USD 2.0 bln should come from a Eurobond placement (USD 1 bln in Eurobonds were placed in May under U.S. guarantees). The rest of the funding is expected from the World Bank and other partners. All the financial inflows should guarantee gross international reserves rising to USD 11.5 bln by the year end, regardless of the fate of the debt operation.