Relations between the European Union (the ‘Union’) and Ukraine continue to develop within the framework of the European Neighbourhood Policy (ENP) and the Eastern Partnership. An association agreement between the Union and Ukraine (2) (the ‘Association Agreement’), including a Deep and Comprehensive Free Trade Area (DCFTA), entered into force on 1 September 2017.
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In spring 2014, Ukraine embarked on an ambitious reform programme with the aim of stabilising its economy and improving the livelihoods of its citizens. The fight against corruption as well as constitutional, electoral and judicial reforms are among the top priorities on the agenda. The implementation of those reforms was supported by five consecutive macro-financial assistance programmes, under which Ukraine has received assistance in the form of loans for a total of EUR 5 billion. The latest macro-financial assistance, which was made available in the context of the COVID-19 pandemic pursuant to Decision (EU) 2020/701 of the European Parliament and of the Council (3), provided EUR 1,2 billion in loans to Ukraine and was completed in September 2021.
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The economy of Ukraine has been affected by the recession in 2020, which was caused by the COVID-19 pandemic and by prolonged security threats at its border with Russia. The continuous build-up of uncertainty has resulted in a recent loss of confidence, negatively affecting the economic outlook, and, since mid-January 2022, in the loss of access to international capital markets. The deteriorating financing conditions have contributed to a sizable and increasing residual external financing gap and weigh heavily on investment, thereby weakening Ukraine’s resilience to future economic and political shocks.
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The Ukrainian government has demonstrated a strong commitment to implement further reforms focusing, at the current critical juncture, in the short term on key policy areas such as economic resilience and stability, governance and rule of law, and energy.
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A renewed commitment to carry out such reforms and a strong political will has led the Ukranian authorities to accelerate the implementation of reforms since the summer of 2021. This has also enabled Ukraine to successfully complete the macro-financial assistance operation in the context of the COVID-19 pandemic, as all reform actions agreed with the Union in the Memorandum of Understanding were fulfilled.
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To allow for more policy flexibility in the context of the crisis related to the COVID-19 pandemic, the International Monetary Fund (IMF) approved an 18-month Stand-by Arrangement for Ukraine with access equivalent to USD 5 billion in June 2020. That arrangement focuses on four priorities: (i) mitigating the economic impact of the crisis, including by supporting households and businesses; (ii) ensuring continued central bank independence and a flexible exchange rate; (iii) safeguarding financial stability while recovering the costs from bank resolutions; and (iv) moving forward with key governance and anti-corruption measures to preserve and deepen recent gains. Due to an uneven implementation record, the first programme review, which also agreed on an extension of the programme until the end of June 2022, was not concluded until November 2021. This brought total disbursements under the current IMF programme to the equivalent of USD 2,8 billion thus far. Two more reviews are planned to take place by the end of the second quarter of 2022.
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In view of high budget financing risks and in the context of a slow recovery from the crisis related to the COVID-19 pandemic and quickly accelerating inflation, Ukraine requested a new long-term macro-financial assistance programme for up to EUR 2,5 billion from the Union on 16 November 2021. Such emergency macro-financial assistance responds, in particular, to the sharp and unexpected increase in the external financing needs of Ukraine, triggered by the de facto loss of access to financial markets, and to the underlying immediate challenges.
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Given that Ukraine is a country covered by the ENP, it should be considered to be eligible to receive macro-financial assistance from the Union.
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The Union’s macro-financial assistance should be an exceptional financial instrument of untied and undesignated balance-of-payments support, which aims to address the beneficiary’s immediate external financing needs and should underpin the implementation of a policy programme containing strong immediate adjustment and structural reform measures designed to improve the beneficiary’s balance-of-payments position in the short term and economic resilience in the medium term.
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Given that the loss of market access and the capital outflow have created a significant residual external financing gap in Ukraine’s balance of payments over and above the resources provided by the IMF and other multilateral institutions, the swift provision by the Union of emergency macro-financial assistance to Ukraine is, under the current exceptional circumstances, considered to be an appropriate short-term response to the sizeable risks to the country. The Union’s macro-financial assistance would support Ukraine’s economic stabilisation and aim to strengthen the immediate resilience of the country, as well as and where feasible at present, strengthen the structural reform agenda of Ukraine, supplementing resources made available under the IMF’s financial arrangement.
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The Union’s macro-financial assistance should aim to support the restoration of a sustainable external financing situation for Ukraine, thereby supporting its economic and social development.
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The Union’s macro-financial assistance is expected to go hand-in-hand with the implementation of budget support operations under the Neighbourhood, Development and International Cooperation Instrument – Global Europe, established by Regulation (EU) 2021/947 of the European Parliament and of the Council (4).
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The determination of the amount of the Union’s macro-financial assistance is based on a quantitative assessment of Ukraine’s residual external financing needs, and takes into account its capacity to finance itself with its own resources, in particular the international reserves at its disposal. The Union’s macro-financial assistance should complement the programmes and resources provided by the IMF and the World Bank. The determination of the amount of the assistance also takes into account expected financial contributions from multilateral donors and the need to ensure fair burden sharing between the Union and other donors, as well as the pre-existing deployment of the Union’s other external financing instruments in Ukraine and the added value of the overall Union involvement.
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The Commission should ensure that the Union’s macro-financial assistance is legally and substantially in accordance with the key principles and objectives of, and the measures taken within the different areas of external action and other relevant Union policies.
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The Union’s macro-financial assistance should support the Union’s external policy towards Ukraine. The Commission and the European External Action Service should work closely together throughout the macro-financial assistance operation in order to coordinate, and ensure the consistency of, Union external policy.
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The Union’s macro-financial assistance should support Ukraine’s commitment to values shared with the Union, including democracy, the rule of law, good governance, respect for human rights, sustainable development and poverty reduction, as well as its commitment to the principles of open, rule-based and fair trade.
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A precondition for granting the Union’s macro-financial assistance should be that Ukraine respects effective democratic mechanisms, including a multi-party parliamentary system, and the rule of law, and guarantees respect for human rights. In addition, the specific objectives of the Union’s macro-financial assistance should strengthen the efficiency, transparency and accountability of the public finance management systems and should promote structural reforms aimed at supporting sustainable and inclusive growth, decent employment creation and fiscal consolidation. The Commission and the European External Action Service should regularly monitor both the fulfilment of the precondition and the achievement of those objectives.
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In order to ensure that the Union’s financial interests linked to the Union’s macro-financial assistance are protected efficiently, Ukraine should take appropriate measures relating to the prevention of, and fight against, fraud, corruption and any other irregularities linked to that assistance. In addition, provision should be made for the Commission to carry out checks, for the Court of Auditors to carry out audits and for the European Public Prosecutor’s Office to exercise its competences.
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Release of the Union’s macro-financial assistance is without prejudice to the powers of the European Parliament and the Council as budgetary authority.
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The amounts of provisioning required for the Union’s macro-financial assistance should be consistent with the budgetary appropriations provided for in the multiannual financial framework.
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The Union’s macro-financial assistance should be managed by the Commission. In order to ensure that the European Parliament and the Council are able to follow the implementation of this Decision, the Commission should regularly inform them of developments relating to that assistance and provide them with the relevant documents.
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In order to ensure uniform conditions for the implementation of this Decision, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (5).
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The Union’s macro-financial assistance should be subject to economic policy conditions, to be set out in a memorandum of understanding (MOU). In order to ensure uniform conditions of implementation and for reasons of efficiency, the Commission should be empowered to negotiate such conditions with the Ukrainian authorities under the supervision of the committee of representatives of the Member States in accordance with Regulation (EU) No 182/2011. Under that Regulation, the advisory procedure should, as a general rule, apply in all cases other than as provided for in that Regulation. Considering the potentially significant impact of assistance of more than EUR 90 million, it is appropriate that the examination procedure as specified in Regulation (EU) No 182/2011 be used for operations above that threshold. Considering the amount of the Union’s macro-financial assistance to Ukraine, the examination procedure should apply to the adoption of the MOU, and to any reduction, suspension or cancellation of the assistance.
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Since the objective of this Decision, namely to provide emergency macro-financial assistance to Ukraine with a view to supporting, in particular, its economic resilience and stability, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union (TEU). In accordance with the principle of proportionality, as set out in that Article, this Decision does not go beyond what is necessary to achieve that objective.
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In view of the urgency entailed by the exceptional circumstances caused by the COVID-19 pandemic and the associated economic consequences, it is considered to be appropriate to provide for an exception to the eight-week period referred to in Article 4 of Protocol No 1 on the role of national Parliaments in the European Union, annexed to the TEU, to the Treaty on the Functioning of the European Union and to the Treaty establishing the European Atomic Energy Community.
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In order to allow for the prompt application of measures laid down in this Decision, this Decision should enter into force as a matter of urgency on the day following that of its publication in the Official Journal of the European Union,
