Factbox-Unblocked EU Loan Provides Relief to Ukraine's Strained Finances

Unblocked EU Loan Offers Critical Relief for Ukraine’s Strained Finances

EU Loan Unblocking and Its Impact on Ukraine's Financial Stability

By Olena Harmash

KYIV, April 22 (Reuters) - European Union ambassadors unblocked on Wednesday a 90-billion-euro ($106 billion) loan to Ukraine that is critical for Kyiv's ability to keep up the fight against Russia.

The loan, which was approved by the European Council in December, had been halted by a Hungarian veto amid a dispute over oil flows via the Druzhba pipeline.

Ukraine's Budget Plans for 2026

With the war in its fifth year, Ukraine faces a gaping deficit, needing at least $52 billion in external financing to cover its budget gap this year.

Funding from the EU, Kyiv's main backer, is critical to Ukraine's ability to maintain its defence and maintain public services.

For this year, Ukraine's state budget foresees total spending of around 4.8 trillion hryvnias ($109.37 billion) against revenues of some 2.9 trillion hryvnias. The deficit of 1.9 trillion hryvnias is equivalent to nearly a fifth of gross domestic product. 

Underestimated Defence Spending in 2026 Budget

However, economists have said the 2026 budget substantially underestimates defence spending.

Defence Spending

Allocation of State Revenues to Defence

With no peace deal with Russia in sight, Ukraine plans to commit the bulk of state revenues - 2.8 trillion hryvnias or around 27.2% of GDP - to defence spending this year. 

Front Line and Armed Forces Size

The front line with Russian forces stretches more than 1,200 km (750 miles) in the east and south. Ukraine has around 1 million people in its armed forces. 

Reliance on International Funding

Ukraine relies on international funding to finance its social and humanitarian spending in addition to defence aid. Since Russia's full-scale invasion in February 2022, Ukraine has received more than $174 billion in foreign financial aid from partners.

It had received $5.5 billion in foreign financial aid since the start of this year, the central bank said in March.

Post-War Financial Pressures

Even if a peace deal were reached, that would not remove financial pressures on Kyiv, analysts say. Ukraine still aims to maintain its armed forces at around 800,000 people, and it would need to invest in state-of-the-art equipment to deter any future aggression by Russia, President Volodymyr Zelenskiy has said.

How Quickly Does Ukraine Need Money?

Urgency of EU Loan Disbursement

Economists have said Ukraine could start to run low on money by June without the EU loan.

Disbursement Timeline and Budget Coverage

European Economic Commissioner Valdis Dombrovskis said on Tuesday the EU was likely to make the first disbursement from the loan at the end of May or in early June. He said Ukraine's general budgetary spending needs for 2026 would be covered.

Loan Allocation Breakdown

Dombrovskis said 45 billion euros of the total EU loan would be disbursed in 2026 and the other 45 billion euros in 2027, of which 28 billion euros was to be for military needs and 17 billion euros for general budget purposes.

Need for Additional International Commitments

The EU still needs to get its international partners to commit to the remaining one-third of the financing that is needed on top of the EU loan for 2027, Dombrovskis said.

($1 = 0.8511 euros)

($1 = 43.8890 hryvnias)

(Reporting by Olena Harmash, Anna PruchnickaEditing by Joe Bavier)