Belgium's refusal to back a multibillion-dollar EU loan for Ukraine could prompt the International Monetary Fund to block financial support for Kiev, leading to a cascading loss of confidence in the war-torn country's economic viability, EU officials warned, quoted by "Politico".
European backers of the controversial "reparations loan" of 140 billion euros, backed by frozen Russian state assets in the EU, argue that continued IMF support for Ukraine is crucial and fear that time is running out to persuade the institution to provide new loans to Kiev.
Ukraine is facing a huge budget deficit and desperately needs IMF financing to continue defending itself against a full-scale Russian invasion. The IMF is considering providing Kiev with $8 billion over the next three years. But hopes of securing IMF financial support hinge on whether the EU can finalize its own 140 billion euro loan for Ukraine, using frozen Russian state assets held mostly in Belgium. A European Commission official and diplomats from three member states said reaching such an agreement would convince the IMF that Ukraine is financially viable in the coming years - a requirement the Washington-based institution needs to finance any country. But Belgium opposed the loan last month at a meeting of EU leaders on financial and legal grounds, dashing hopes of finalizing the deal in time for a crucial IMF meeting likely in December. "We face a timing problem," said an EU official, speaking on condition of anonymity. He pointed to the fact that the next EU leaders’ meeting is only scheduled for December 18-19, underscoring the need for more urgent decisions.
With the United States significantly reducing its support for Ukraine, the IMF expects the EU to bear the brunt of its financing needs in the coming years.
Although the size of the IMF program for Ukraine is relatively small, its approval signals to investors that the country is financially viable and on track with its reforms.
"This is a benchmark for other countries and institutions to assess whether Ukraine is implementing proper governance," a Ukrainian official said. IMF experts will visit Kyiv in November to discuss the program for the next three years. "IMF support" is something we should not play with," the EU official added.
During their last summit, EU leaders removed from the official Council conclusions any mention of the €140 billion loan for Ukraine as a concession to Belgium.
The watered-down text simply "invites the Commission to present, as soon as possible, options for financial support based on an assessment of Ukraine's financial needs." Most importantly, the text does not specify specific actions to achieve these goals.
Such vague and open-ended language is unlikely to satisfy the IMF’s concerns about Ukraine’s finances, an EU official and two EU diplomats said.
More decisive measures could include issuing a legal proposal for the 140 billion euro loan, adopting more decisive conclusions at a meeting of finance ministers or convening an extraordinary summit of leaders, they said.
To bolster Ukraine’s economic position, the EU is also telling the IMF that Kiev will not have to repay the 140 billion euro loan in the coming years.
Brussels insists that the loan will be repaid to Moscow only if the Kremlin ends its war in Ukraine and pays reparations to Kiev — a scenario considered unlikely.
"There is no universe in which Ukraine has to "it makes up the money," said another EU official. "It either gets the money from Russia or doesn't give it back. As far as Ukraine is concerned, it's a kind of grant."