The International Monetary Fund (IMF) has given a preliminary pledge to Ukraine of $15.6 billion in the next four years.
IMF staff and Ukrainian officials reached the agreement after four days of talks in Warsaw, ending on March 15th. The money is part of a four-year economic program to sustain Ukraine through the war and rebuild it with an eye to EU accession once hostilities end.
The IMF praised Ukraine for its management of the country’s economy during the war, but also acknowledged the inevitable destruction the war has caused, from death and poverty to destabilising amounts of public debt.
“In addition to the horrific humanitarian toll, Russia’s invasion of Ukraine continues to have a devastating impact on the economy: activity contracted by 30 percent in 2022,” the IMF said in a press release.
Ukraine needs an injection of cash to keep the country operating and to be able to service its debt and stabilise the economy. The IMF predicts that Ukraine’s economy will make a slight recovery in the coming months.
The IMF’s executive board still has to give its final approval to the plan but is expected to do so. Euractiv reports that this will be the IMF’s largest loan to a country involved in an active war after just last week changing a rule to allow new loan programs for countries facing “exceptionally high uncertainty.”
The agreement is also expected to help unleash additional, large-scale financial support from international donors and partners such as the World Bank.
Ukrainian Prime Minister Denys Shmyhal posted his thanks to the financial institution on social media.
In conditions of a record budget deficit, this program will help us finance all critical expenditures and ensure macroeconomic stability and strengthen our interaction with other international partners.
The IMF’s pledge coincides with EU promises to provide Ukraine with one million rounds of 155mm bullets in the next year, as well as missiles if requested by Ukraine. According to Josep Borrell, the EU Commission’s foreign relations chief, the agreement of military support to Ukraine is about more than helping Ukraine defend itself from Russia. It represents a significant shift in military spending and a new stage in the development of the European Defence Agency (EDA).
Part of the agreement is the option for EU member states to sign up for joint procurement of ammunition through the European Defence Agency (EDA), established in 2004 as a platform for collaboration among EU countries on security and defence.
Seventeen countries have already signed up and Borrell expects at least twenty to participate. He considered the agreement a milestone in the life of the agency, which he also chairs. It is the EU’s first joint procurement of arms and, according to Euractiv, the agreement excludes procuring the arms from third countries—everything must be produced within the EU.
“This agreement will put the European Defence Agency in orbit. They will have to deliver on concrete results, on some concrete endeavour. Not just about possibilities, but working on something that has a clear deadline, that mobilises a lot of financial resources, that requires a strong [cooperation] with the [defence] industry,” Borrell said during a press conference after the meeting. “This is going to be important for the European Defence Agency to reach a certain degree of maturity on the tasking that the European treaties have given to this institution.”
German Defence Minister Boris Pistorius also described the agreement as “new territory” for the EU, according to Euractiv, while Estonia’s Foreign Minister Urmas Reinsalu told the news outlet that it marked the beginning of a “systematic approach” to assisting Ukraine.
Borrell also said that the EU had left the era of economic peacebuilding, and entered by necessity a military defensive position. The ministers agreed to consider adding another €3.5 billion to the European Peace Facility, an off budget-fund for “enhancing the Union’s ability to prevent conflicts, build peace and strengthen international security.”
Borrell said that the ministers had agreed to consider increasing the EPF’s pot of money “knowing that there will be more needs, not only for Ukraine but for more countries around the world.”
In December 2022, the council agreed on adding another €2 billion to the fund, which will be used for reimbursing member states that supply ammunition to Ukraine. Then on March 14th, it agreed to raise the EPF ceiling to €7.98 billion until 2027.
Money from the fund has been doled out recently to several of the EU’s neighbours besides Ukraine, as well as to African countries further away. In March alone, the council pledged €9 million to North Macedonia, €40 million to Nigeria and Niger, €85 million to the African Union Transition Mission in Somalia, and €25 million to the Somali National Army. In December 2022, the council agreed to offer support from the EPF to Bosnia and Herzegovina, Georgia, Lebanon, Mauritania, and the Rwanda Defence Force in Mozambique.
Tunisia could be the next target of funding. At the March 20th meeting, the council specifically discussed the situation in the country beset by economic and political uncertainty.
Like Ukraine, Tunisia is also being considered for an IMF loan.
