Ukraine's first "Euro budget": What changes to expect after the approval of Ukraine Facility Plan
Over four years, Ukraine will receive €50 billion through the Ukraine Facility, which includes €38.27 billion in budget support, €6.97 billion in investment funds, and an additional €4.76 billion in technical and administrative support.
The Ukraine Facility mechanism goes beyond mere financing. For the first time, Ukraine has an integrated economic development plan with a medium-term horizon, clear structure, and defined financing. Unlike similar documents (such as IMF programs), it covers a significantly broader range of sectors.
Such comprehensive programs have not existed in Ukraine before. Essentially, we have obtained a tool to shape our economic policy, making it more stable and consistent. Stability, in turn, contributes to attracting investments. After all, investors consider stability as one of the main arguments when deciding whether to enter the Ukrainian market, open production facilities, or establish offices here.
The document also has strategic significance in terms of Eurointegration. The Ukraine Facility Plan was developed according to EU standards and requirements in constant consultation with the European Commission. This can be seen as a warm-up before the big Eurointegration marathon that awaits Ukraine. Moreover, some reforms outlined in the plan will help speed up the adaptation of Ukrainian legislation to European norms.
Furthermore, the Ukraine Facility program was created based on the model the EU uses to finance its members. In essence, this €50 billion will serve as Ukraine's first "budget." So, the EU is already working with us as it does with full-fledged union members.
What is the logic behind the reforms outlined in the plan?
The plan is a kind of pyramid of needs for the recovery and sustainability of our economy. The first level consists of basic reforms that promote development and capacity building. The second level focuses on creating a favorable business environment. The third level involves practical tools for sector development. However, it's worth noting that this is not a comprehensive economic recovery plan, but rather its foundation, upon which other reforms will be layered outside the plan.
Basic reforms
For economic growth and investment attraction, clear conditions for macroeconomic stability and the rule of law are necessary. Therefore, the first level emphasizes public financial management, judicial reform, and anti-corruption measures.
Economic reforms
Financial market reform is needed for companies to attract financing. This includes restoring the assessment of stability and asset quality checks of the largest banks, gradually reducing state ownership in the banking sector, addressing the problem of non-performing bank loans, and developing capital markets.
A separate major focus, in which we are already working and will intensify our efforts, is the effective management of state assets and privatization. We already have an adopted law on corporate governance, which was one of the plan's indicators. In this direction, the work continues more than actively. Our task for these four years is to get rid of non-strategic assets and introduce international standards of corporate governance in objects that remain in state ownership.
And, of course, one of the key areas is improving the business environment and developing small and medium-sized businesses. For this, we will continue to implement deregulation and reduce administrative pressure on business, including through the reloading of the Economic Security Bureau. The share of small and medium-sized businesses should increase.
This is closely intertwined with another direction – the development of human capital. Our specialists can ensure Ukraine's economic success, so conditions must be created so that people want and can return home. To this end, we are focusing on improving living conditions in key areas such as education, medicine, social protection, housing policy, culture, and more.
At the same time, we must allow our defenders to develop and create conditions for the transition from military service to civilian life for war veterans.
But to make this whole big mechanism work like a Swiss watch, we need civil service reform.
Key sectors for growth
Investments in priority sectors will also contribute to rapid economic growth. These include energy, agriculture and food production, transport and logistics for export, critical raw materials, and industry. After all, they have both national and global significance. Their growth will ensure comprehensive economic development and activate related industries.
What unites all these directions? The plan's overarching trend is integration into the EU and the green transition. All reforms and changes will take these components into account to not just contribute to rebuilding, but to building a new European, modern state that shares the values of the global community.
The EU will comprehensively monitor the use of funds under the program, and create a special Audit Council to prevent ineffective use of funds, fraud, corruption, conflicts of interest, and other violations.
How many reforms is Ukraine committed to implementing?
The Ukraine Facility Plan details 69 reforms corresponding to 151 quarterly indicators. Ukraine is expected to complete 36 indicators this year, with the majority (55) falling due in 2025.
Their implementation is mandatory for Ukraine to receive tranches from the EU. No reforms, no money.
In addition to reform implementation indicators, the plan includes 16 investment indicators totaling €5.25 billion. For example, by the end of 2027, €1.75 billion will be allocated for grants and loans to micro-, small, and medium-sized businesses, €650 million for the development of schools and kindergartens, and €150 million for compensation to agricultural producers for expenses related to humanitarian demining.
Ukraine will receive tranches from the EU quarterly for the implementation of a certain number of indicators. Each quarter will have its number depending on the size of the tranche. In case of non-fulfillment or negative assessment by the European Commission or the EU Council, the payment will be postponed. Ukraine will have a year to correct mistakes. If we succeed, the money will arrive during the next quarterly payments; if not, Ukraine will not receive the corresponding amount at all.
The plan must be regularly reviewed with the involvement of all relevant parties. And once a year, a public report on the plan's implementation is expected in the Verkhovna Rada (Ukrainian government – ed.).
Ukraine Facility – investments for business
Perhaps most interesting for businesses is the investment component of the Ukraine Facility, which has been earmarked for €6.97 billion. According to estimates, this could potentially help attract over €30 billion in additional investments.
Both private and state-owned and public companies investing in priority sectors will have access to financing. Funding will be provided by international financial organizations (such as the EBRD, EIB, etc.) either directly or through Ukrainian banks.
In addition to the general distribution of funds, the regulations identify additional priorities for stimulating investment:
- 15% of guarantees will support micro-, small, and medium-sized enterprises and startups;
- 20% of guarantees will support green projects that propose ways to mitigate the consequences of climate change and adapt to them, engage in environmental protection, biodiversity conservation, and the green transition.
So, we encourage entrepreneurs to develop projects for which they would like to attract financing from the EU, as well as to contact international financial organizations and banks. This is a good opportunity to expand, modernize, or start a business. There are enough funds, so high-quality projects are eagerly awaited.
When will Ukraine receive the first tranche from the EU?
The next step is for the European Commission to assess the plan. Afterward, the document and the quarterly financing schedule can be approved by the committee of EU member countries. At the same time, it is necessary to sign framework, credit, and financial agreements. Then the Ukraine Facility Plan will come into force and Ukraine will start receiving financing – €50 billion over the period 2024-2027.
If there are no delays, Ukraine plans to receive the first payment of €1.89 billion for launching the program as early as May. The first report on the implementation of indicators will take place in July, and if the reforms are assessed positively, the money will arrive in August-September.
Also, for the period before the launch of the Ukraine Facility, a transitional financing mechanism of €6 billion is provided. We have already received the first funds. This is a good start for Ukraine on this long but necessary journey, which, together with other programs from the IMF, the World Bank, and other financial institutions, will help make Ukraine a more resilient and economically self-sufficient state.
More information and news about the Ukraine Facility Plan can be found on the website.