BRUSSELS — The refusal of Belgium to endorse a multibillion-euro loan to Ukraine could jeopardize crucial financial support from the International Monetary Fund (IMF), leading to a significant decline in confidence regarding the economic stability of the war-affected nation, as warned by EU officials.
Proponents of the contentious €140 billion “reparations loan,” which relies on Russian state assets currently frozen within the EU, emphasize that the IMF’s ongoing financial assistance is vital for Ukraine. They express urgency as time is running short to persuade the IMF to approve new loans for Kyiv.
Ukraine is grappling with a dire budget deficit and urgently requires IMF funding to sustain its defense efforts against Russia’s ongoing full-scale invasion. The IMF is contemplating a loan of $8 billion to Ukraine over the next three years.
However, the potential approval of this loan is closely linked to whether the EU can finalize its own €140 billion financing package for Ukraine, utilizing the frozen Russian assets predominantly located in Belgium.
Timeline pressures and EU dynamics
A European Commission representative, alongside diplomats from three member nations, suggested that reaching such an agreement would reassure the IMF of Ukraine’s financial viability for the upcoming years. This assurance is essential for the Washington-based institution to support any nation financially.
Last month, Belgium raised objections to the loan during a meeting of EU leaders, citing legal and financial concerns. This opposition has dampened hopes of finalizing an agreement in time for an important IMF meeting anticipated in December.
“We are facing a timeline issue,” said an EU official who, like others quoted, requested anonymity for candidness.
With the United States significantly reducing its support for Ukraine, the IMF is looking to the EU to shoulder the majority of the country’s financial demands in the upcoming years.
While the proposed IMF program for Ukraine is relatively modest in scale, its approval would send a positive signal to investors, indicating that Ukraine remains financially sound and committed to its reform agenda.
Significance of the €140 billion loan
During the recent summit, EU leaders removed references to the €140 billion loan from the official conclusions as a compromise to Belgium’s concerns. The revised text merely “invites the Commission to present, as soon as possible, options for financial support based on an assessment of Ukraine’s financing needs,” lacking specifics that would satisfy the IMF’s apprehensions regarding Ukraine’s fiscal health.
This ambiguous language is unlikely to alleviate the IMF’s worries about Ukraine’s financial situation, as noted by an EU official and two diplomats. More robust actions could include formalizing a legal proposal for the €140 billion loan, enacting stronger conclusions during finance ministers’ meetings, or even convening an extraordinary summit of leaders.
In an effort to bolster Ukraine’s economic credibility, the EU is communicating to the IMF that Kyiv would not be obligated to repay the €140 billion loan in the foreseeable future. Brussels asserts that repayment would only occur if Moscow concludes its military actions against Ukraine and compensates Kyiv, a scenario viewed as improbable.
“There is no universe in which Ukraine needs to come up with the money itself,” remarked another EU official. “It either gets the money from Russia or doesn’t give it back. As far as Ukraine is concerned, it’s as good as a grant.”
In an update, it has been noted that the article has been corrected to reflect the accurate amount the IMF is considering lending to Ukraine.