KYIV: Ukrainian officials breathed a sigh of relief after European leaders agreed to keep their country funded with a $105 billion loan, which will cover a large portion of Ukraine’s financial needs over the next two years and help sustain its war effort against Russia. “For us, this is a reinforcement,”President Volodymyr Zelensky wrote in a social media post. “It is a signal to the Russians that there is no point for them to continue the war because we have financial support, and therefore, we will not collapse on the front line.”
A day earlier, as tense negotiations over the loan unfolded in Brussels, he had warned that without the money Ukraine would be forced to sharply scale back domestic drone production, undermining its ability to counter Russian assaults. Some Ukrainian lawmakers lamented Europe’s failure to agree on its first choice of using Russian frozen assets as backing for the loan — an option Ukraine had pushed for months, arguing that Moscow should pay for the destruction it caused. With several European leaders opposing the move, the European Union instead decided to use its budget as collateral.
But for Ukraine, receiving the money matters more than its source. Ukraine faced an imminent budget crunch and deep uncertainty over how long it could sustain its war effort. The interest-free loan, which will cover roughly two-thirds of the country’s financial needs for the next two years, largely resolves both issues. It also bolsters Ukraine’s position in ongoing peace talks, weakening Moscow’s argument that Ukraine is running out of resources and should settle for a deal now. Rustem Umerov, a senior Ukrainian official, said Friday that he was in the United States to “begin another round of consultations with the American side,” adding that European officials would also take part.
Viktor Taran, a Ukrainian political scientist and a major in the Ukrainian armed forces, said the new loan “significantly strengthens our negotiating position, sending a signal to Putin, who was convinced that Ukraine would be left alone and that he would be able to squeeze it to the end.” It was not immediately clear when Ukraine would begin receiving the European money, but the country needs it soon to cover the budget gap, which will open in the spring. Ukraine’s budget for next year projects a $42 billion deficit. About half that deficit is already covered by committed financial aid from the International Monetary Fund, the World Bank, the EU and other Western countries. The remaining half, however, had yet to be secured before Europe approved the new loan.
Ukraine also has extra military needs that are not included in the budget. While the official budget projects $66 billion in military expenses next year, the Kyiv School of Economics Institute, a Ukrainian economic think tank, said Ukraine will likely require $100 billion for its defence. The Ukrainian Defence Ministry said the country would need at least $120 billion. Without the loan, Ukraine would have been forced to delay payments starting in the spring and cut spending in the second half of next year, according to Nataliia Shapoval, head of the Kyiv School of Economics Institute. She estimated Ukraine would have had to slash 25% to 30% of its projected expenditures.
Spending cuts would hit the military, as emphasised by Zelensky, but also non-military expenses such as pensions and salaries of civil servants, which are entirely covered by foreign aid. Ukraine devotes all its state revenues to financing defence.
Ukraine has felt the impact of stalled or delayed financial aid in the past. Last year, as Congress held up a $60 billion financial and military aid package for months, the country was forced to divert funds earmarked for troop salaries to purchase weapons and ammunition. The uncertainty over whether it would receive the money needed to buy weapons also disrupted Ukraine’s war planning, Ukrainian officials said. Ultimately, Ukraine had to sharply raise taxes to support the army, adding financial pressure on a population already impoverished by the war.
With the new European loan, “it seems that a catastrophe has been avoided,” said Danylo Hetmantsev, a lawmaker from Zelensky’s party and the head of parliament’s committee on finance, tax and customs policy. The $105 billion loan will not cover all of Ukraine’s financial needs for the next two years, which the EU estimates at $135.7 billion for both military and non-military spending. But by securing a large portion of Ukraine’s budget needs, the loan is expected to help unlock additional aid from other institutions like the IMF, which is currently considering an extra $8 billion in lending to Ukraine through 2026-29.
Under President Donald Trump, the United States has mostly stopped financing for Ukraine, leaving Europe and other countries such as Canada and Japan to support the country. Trump signed a sweeping US defence bill Thursday that allocates $800 million for Ukraine over the next two years — a drop in the bucket compared with the multibillion aid the country needs.
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