What could hinder Ukraine from receiving all €50bn from EU

Monday, 5 February 2024

On 1 February, EU leaders overcame Hungary's long-standing opposition and reached an agreement to allocate macro-financial assistance to Ukraine totalling 50 billion euros, establishing Ukraine Facility financing programme for four years.

The summit conclusions state that Ukraine will be able to receive funds if it meets a number of conditions. EU leaders are considering incorporating the idea of annual reviews of the planned €50 billion aid package for Ukraine into the EU summit resolution to secure Hungary's support, proposing a review to the European Commission after two years.

Read more about the short- and medium-term financing instrument for Ukraine's needs, Ukraine Facility, in the article by Dmytro Lyvch, Co-founder, Centre for Economic Recovery, CEO, EasyBusiness, – Spending skills: Challenges Ukraine may face in implementing EU €50 billion programme.

There are structural funds in the EU that help reduce economic development disparities among EU member states, as well as financing tools for non-EU member states.

One of them is the Instrument for Pre-accession Assistance (IPA). The EU supports reforms in candidate countries by providing financial and technical assistance with its help.

IPA, among other things, serves as a kind of "preparation" for using structural funds after the candidate country has joined the EU.

Ukraine as EU candidate would also have access to IPA on par with Albania, Bosnia and Herzegovina, Kosovo, and others.

The country, however, will undergo procedures for managing structural funds based on another mechanism, currently under discussion within the European Council – Ukraine Facility.

Ukraine Facility is a short- and medium-term financing tool for Ukraine's recovery and reconstruction needs, operating from 2024 to 2027.

According to the draft Regulation on the establishment of Ukraine Facility, it will be managed by the European Commission and will provide funding up to 50 billion euros.

In terms of support scale and direction spectrum, Ukraine Facility is more similar to structural funds accessible to member states.

This comparison is relevant in the context of the challenges Ukraine may face in implementing the new instrument.

One of these challenges is the so-called "absorption capacity," meaning Ukraine's ability to absorb allocated funding and fully implement relevant projects.

In addition to obtaining funds, it needs to be able to spend them efficiently and in full.

Ukraine should start working on its own managerial capabilities now, without waiting for the EU official decision, to be able to effectively utilise Ukraine Facility budgets in the future.

The most valuable in this context is the experience of EU member states in implementing structural fund budgets, particularly in terms of factors hindering effective absorption, and best practices.

For most recipients with below-average absorption rates, the key problem was building financial, administrative, and institutional capacity, while states with strong institutions demonstrated the best indicators.

So, Ukraine needs to work on strengthening the capacities of state and local government bodies with a focus on improving managerial practices.

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