EU Commission plans to provide EUR 1.2 bln in new loans to Ukraine

The EU Commission has drafted a proposal for a EUR 3.0
bln total macro financial assistance (MFA) to ten “enlargement and
neighbourhood partners” in the context of the COVID-19 pandemic, according to a
document published on Apr. 22. Ukraine is scheduled to receive the largest
amount, or EUR 1.2 bln. The funds are planned to be disbursed in two loan
tranches, with the first being available in mid-2020, while the second in 4Q20
or early 2021, “provided that the policy measures attached to it have been
implemented in a timely manner,” the EU Commission reported. The deadline for
the second installment will be 12 months since the signing of a memorandum
between the EU and a country’s government.

Recall, Ukraine is also expecting a second tranche for
EUR 0.5 bln from the EU under the MFA-IV program as the country has implemented all the required measures
for the tranche.

Alexander Paraschiy: This is
generous support from the EU side, which potentially increases the amount of
multilateral and bilateral official financing for the country up to USD 8 bln,
vs. USD 4 bln in debt repayments scheduled by Ukraine to international
creditors in 2020. It seems like soon after reaching a deal with the IMF,
Ukraine can count on the last tranche under MFA-IV and the first tranche under
COVID 19-related MFA, in an aggregate amount of EUR 1.1 bln. It has yet to be
seen what conditions the EU will offer Ukraine ahead of the second COVID-19
related tranche, but there is a risk that Ukraine won’t have enough time to
receive it.

In particular, the history of Ukraine’s response to
EU demands under MFA programs is not very encouraging, with Ukraine having failed to secure the third
tranche under the MFA-III program (which expired in 2.5 years after its launch). And Ukraine has yet to
secure the second tranche under the MFA-IV program as 1.5 years have passed
since its inception in September 2018. This time, Ukraine might have more
incentives to qualify for the second tranche of the COVID-19 related program,
but nevertheless we see its likelihood as below 50%.