Debate: Amending Council Regulation  / of  December  laying down the multiannual financial framework for the years  to  - Amending Regulation  / as regards the establishment of a diversified funding strategy as a general borrowing method - 'Macro-Financial Assistance+' instrument for providing support to Ukraine for
Date: WEDNESDAY, 23 NOVEMBER 2022
Speaker: Virginijus Sinkevičius
Language: EN

The destruction of physical capital and infrastructure is immense. By the end of May, it is estimated to have cost reconstruction and recovery costs of USD 349 billion; almost 14 million people have been forced to leave their homes. It is an extremely challenging context. Ukraine’s funding needs will continue to be acute in 2023. The EU, its Member States and the European financial institutions under the Team Europe approach are fulfilling their promise to provide sizeable support to Ukraine. In total, almost EUR 20 billion have been mobilised in 2022, in addition to military assistance. And I would like to thank the European Parliament for its unwavering support for Ukraine and its continuous cooperation. This includes the Parliament’s support under the urgency procedure for the legislative proposal made by the Commission. Yesterday we disbursed another EUR 2.5 billion of exceptional macro-financial assistance to Ukraine. This brings the Union’s macro-financial assistance to Ukraine since the beginning of the war to EUR 6.7 billion: emergency MFA of EUR 1.2 billion disbursed in March, exceptional MFA of EUR 1 billion disbursed in August and an exceptional MFA of EUR 4.5 billion disbursed in October and November. We expect to disburse another EUR 500 million of exceptional MFA to Ukraine in December, once the authorities have shown that they have met the conditionality agreed in the related memorandum of understanding. So far there has been satisfactory progress with implementation and we are confident that the Ukrainian authorities will meet their commitments. Based on the enhanced reporting requirements linked to the exceptional MFA designed to ensure the transparency and efficiency of the use of funds, Ukraine has reported that the funds have been used to repay maturing domestic liabilities. In that sense, the Union’s support has effectively contributed to limit Ukraine’s recourse monetary financing of its government. That way, the Union’s MFA has achieved its goal of maintaining macro-financial stability and preserving the stock of official international reserves of Ukraine, which stabilised at above USD 25 billion since September. Estimates of Ukraine’s funding gap in 2023 are exceptionally uncertain, ranging from EUR 3 to 4 billion per month, notably depending on the length of the war and the inflicted damage. To help Ukraine cover its sizable funding gap in 2023, on 9 November the Commission presented a proposal for a new instrument: Macro-Financial Assistance Plus. It aims to channel up to EUR 18 billion in highly concessional loans to Ukraine in 2023 in a predictable, continuous, orderly and timely manner. Such an unprecedented amount will allow Ukraine to ensure macroeconomic stability and restore critical infrastructure destroyed by Russia. To ensure maximum concessionality, the loans provided under the MFA+ instrument should have long maturities and there will be no repayment of principal before 2033. To secure the funds for the loans, the Commission proposes to borrow on capital markets using the diversified funding strategy via a targeted amendment of the Financial Regulation and this would enable the Commission to use the full portfolio of funding instruments to secure market funding on the most advantageous terms. To guarantee this borrowing for Ukraine, the Commission proposes to use the headroom of the 2021-2027 EU budget in a targeted manner for Ukraine, limited in time, and this will be done via a targeted amendment of the MFF Regulation. The headroom is the difference between the own reserve ceilings – so the maximum amount of resources that the Commission can ask Member States to contribute in a given year – and the funds that it actually needs to cover the expenses envisioned in the budget. The EU will also cover the interest—rate costs of Ukraine to be financed by voluntary contributions from Member States in the form of external assigned revenue, and the scale of the required interest payments under the proposed MFA+ funding will depend on the rate at which the Commission raises the funds on the capital markets within its diversified funding strategy. Current market extrapolations point to estimated interest—rate costs of less than EUR 600 million per year. These costs will only come into effect from 2024 onwards because there will be no interest payments related to these funds in 2023. Allocation of the costs across Member States will be done on the basis of the GNI key. Financial support for Ukraine in 2023 will entail conditionality to be negotiated with Ukraine in a memorandum of understanding. Obviously, implementing a structural reform agenda in a country at war is not an easy task and it puts a premium on relevance and feasibility. This conditionality will feature reforms to further enhance the rule of law, good governance, anti-fraud and anti-corruption measures. And this is essential for the country’s future reconstruction and for supporting Ukraine on its path to EU accession, as well as ensuring the financial interests of the Union. The Commission intends to negotiate the memorandum of understanding without delay once the MFA+ instrument is legally in place, and we are confident that this will allow us a swift disbursement to be made in January 2023. It is important that the emergency financial assistance for Ukraine from all other international partners, both bilateral and multilateral, should continue in 2023 as it was in 2022. The Commission is in regular contact with the international financial institutions and also in the G7 framework to ensure cooperation and coordination. But honourable Members, macro—financial assistance is only one element of the Union’s support for Ukraine. Since the beginning of the Russian invasion, the overall Team Europe assistance pledged to Ukraine amounts close to EUR 20 billion. This combines the support enabled by the European Union budget. In addition to the financial assistance, the Union has also made military equipment available through the European Peace Facility, plus over EUR 100 million of CSDP support for training missions, as well as in-kind assistance under the Union’s civil protection mechanism. On humanitarian assistance, the EU, together with its Member States, have mobilised more than EUR 1.5 billion, of which about EUR 500 million comes from the EU budget. The EU’s comprehensive humanitarian and civil—protection assistance is far from being a short term deal. The EU is with Ukraine for the long haul. Honourable Members, once again, I would like to thank the European Parliament for the urgency and priority that it has given to this file. It is vital for our Ukrainian friends that this entire package goes through quickly. It is also vital for Europe’s credibility as a whole.