Kyiv says external funding critical, urges EU to unlock Russian assets

By Olena Harmash

KYIV (Reuters) -Ukraine still has a critical need for external financing, officials said on Thursday, issuing a fresh appeal for the EU to approve a loan backed by frozen Russian funds after Kyiv secured preliminary approval for billions from the IMF.

On Wednesday Kyiv secured a staff-level agreement with the International Monetary Fund on a new four-year, $8.2 billion programme to help Ukraine maintain macroeconomic and financial stability during the war with Russia. The lending must still be approved by the fund's board, provided Ukraine meets conditions.

Despite the potential IMF funding, "the need for timely, large-scale external financing on concessional and grant-like terms remains critical," Ukraine's finance ministry said in a statement.

Foreign Minister Andriy Sybiha called on Kyiv's EU partners to approve a decision to use frozen Russian assets to support 140 billion euros of loans to Ukraine.

"It is important for us to receive a positive result regarding the reparation loan, so it is the actual usage of frozen Russian assets," Sybiha told reporters, adding that it was also vital to scale up a programme to buy U.S. weapons for Ukraine with European money.

BALLOONING COSTS OF WAR

As Ukraine fights against a larger and better-equipped enemy, the costs of the war are ballooning. Costs for a day of fighting are estimated at about $172 million this year compared with some $140 million a year ago, Ukrainian officials said.

The IMF estimated Ukraine's financing gap at about $136.6 billion for the next four years. In 2026-2027, Ukraine faced a gap of around $63 billion, the fund said.

"Prompt action by donors is indispensable to assist Ukraine in managing its large fiscal and external financing needs, and to avoid liquidity strains," the IMF's statement said.

The EU is debating a 140 billion euro loan for Ukraine backed by frozen Russian assets, but there are voices in Europe warning of potential consequences.

The arrangement could be viewed as confiscation and increase borrowing costs for EU member states, Euroclear, the Belgium-based main custodian of the assets, was quoted by the Financial Times as saying.

INCREASING DOMESTIC REVENUES

Ukraine agreed with the IMF on a number of measures to raise its domestic budget revenue, including accelerating efforts to crack down on tax evasion and improving the transparency of the economy. But some officials see only limited scope for gains.

"...The requirements set out in the programme, especially in terms of taxation, are quite difficult to implement," said Danylo Hetmantsev, head of parliament's tax and financial committee.

During nearly four years of the war, Ukraine spent the bulk of its domestic budget revenue on the army and heavily relied on foreign financial aid to finance social and humanitarian spending. Kyiv received more than $160 billion in financial aid from Western partners since Russia's invasion in February 2022.

(Reporting by Olena HarmashEditing by Peter Graff)