With New E.U. Loan, Ukraine Avoids Budget Crisis and Can Strategize War Efforts
Ukrainian officials expressed relief on Friday after European leaders consented to provide their nation with a $105 billion loan, which will address a significant part of Kyiv’s financial requirements for the upcoming two years and support its military operations against Russia. “For us, this is a reinforcement,” President Volodymyr Zelensky conveyed in a social media message on Friday. This sends a message to the Russians indicating that there’s no advantage in continuing the conflict, as we have financial backing and thus will not falter on the front line.” Just a day before, amidst tense discussions regarding the loan in Brussels, he cautioned that without the funds, Ukraine would have to drastically reduce domestic drone manufacturing, impairing its capacity to respond to Russian offensives. Some Ukrainian legislators voiced their disappointment over Europe’s inability to agree on its preferred option of using Russian frozen assets to underpin the loan—an approach Kyiv has promoted for months, arguing that Moscow should compensate for the havoc it has wrought. Given resistance from several European leaders, the European Union opted instead to utilize its budget as collateral. However, for Ukraine, obtaining the funds is more crucial than the origin. Kyiv was on the brink of a budget shortfall and faced immense uncertainty regarding the sustainability of its military efforts. The interest-free loan, which will cover about two-thirds of the country’s financial needs over the next two years, largely addresses both concerns.
This financial support also strengthens Ukraine’s stance in ongoing peace negotiations, undermining Moscow’s claim that Kyiv is depleting its resources and should agree to a settlement immediately. Rustem Umerov, a high-ranking Ukrainian official, mentioned on Friday that he was in the United States to “initiate another round of discussions with the American side,” noting that European representatives would also participate. Viktor Taran, a Ukrainian political scientist and a major in the Ukrainian armed forces, remarked that the new loan “substantially enhances our negotiation leverage, signaling to Putin, who believed that Ukraine would be isolated and that he could press it until the end.” It remains uncertain when Ukraine will start receiving the European funds, but the country requires them soon to bridge the budget gap expected in the spring.
Ukraine’s budget for the following year anticipates a $42 billion shortfall. Approximately half of that deficit is already supplemented by pledged financial assistance from the International Monetary Fund, the World Bank, the European Union, and other Western nations. However, the remaining half still needed to be secured prior to Europe approving the new loan. Moreover, Ukraine has additional military requirements not encompassed in the budget. While the official budget estimates $66 billion for military expenditures next year, the Kyiv School of Economics Institute, a Ukrainian economic think tank, stated that Ukraine may need $100 billion for its defense. The Ukrainian defense ministry has indicated a need for at least $120 billion. Without the financial support from the loan, Ukraine would have been compelled to postpone payments starting from the spring and enact budget cuts in the latter half of next year, according to Nataliia Shapoval, head of the Kyiv School of Economics Institute. She estimated that Kyiv would have needed to reduce projected expenditures by 25 to 30 percent.
Such spending restrictions would impact military funding, as underlined by Mr. Zelensky, but would also affect non-military expenditures like pensions and salaries for civil servants, which are fully financed by foreign assistance. Ukraine allocates all its state revenues to support its defense initiatives. The nation has previously experienced the repercussions of delayed or stalled financial aid. Last year, as Congress delayed a $60 billion military and financial assistance package for several months, the country was compelled to redirect funds set aside for troop salaries toward acquiring weapons and munitions. The uncertainty surrounding the expected financial support for weapon procurement also hindered Ukraine’s military planning, according to officials. Ultimately, Ukraine resorted to significantly increasing taxes to fund its military, adding financial strain on a populace already struggling due to the conflict. With the introduction of the European loan, “it appears that disaster has been averted,” stated Danylo Hetmantsev, a lawmaker from Mr. Zelensky’s party and the chairman of parliament’s finance, tax, and customs policy committee. The $105 billion loan won’t entirely cover Ukraine’s financial needs for the next two years, which the European Union estimates at $135.7 billion for military and non-military expenditures. However, by securing a substantial part of Ukraine’s budgetary requirements, the loan is anticipated to facilitate unlocking additional support from other institutions like the I.M.F., which is currently evaluating an additional $8 billion in lending to Ukraine through 2026-2029. Under President Trump, the United States has largely ceased its financial contributions to Ukraine, leaving Europe and countries such as Canada and Japan to provide support. Mr. Trump signed a comprehensive U.S. defense bill on Thursday that allocates $800 million for Ukraine over the next two years—a mere fraction compared to the multibillion support the nation requires. Nataliia Novosolova contributed reporting.
Published: 2025-12-19 17:43:00
source: www.nytimes.com
