The European Union proposed on Thursday offering an additional 1.8 billion euros ($2.1 billion) to help save Ukraine from bankruptcy as Kiev assured Germany it had credible plans to modernize.
With an International Monetary Fund team resuming talks in Kiev, the European Commission offered the medium-term loans to add to the 1.4 billion euros it handed over last year, subject to approval by EU governments and EU lawmakers, Arab News quoted RTRS as reporting.
“Europe stands united behind Ukraine,” Commission President Jean-Claude Juncker told a news conference in the Latvian capital Riga, where he announced the aid.
The EU’s offer came on the day German Chancellor Angela Merkel met Ukraine Prime Minister Arseny Yatseniuk in Berlin. The German leader said later she had heard a convincing case for reform.
But beyond the show of Europe’s political support for Ukraine, investors see a growing risk of default with the country’s economy pushed close to collapse by a pro-Russian separatist war in the east.
Russia Sanctions
Merkel said that EU sanctions against Russia tied to its intervention in eastern Ukraine could only be lifted if there was full implementation of the Minsk peace agreement signed between Kiev and pro-Russian rebels in September.
Speaking at a news conference in Berlin with Yatseniuk, Merkel said she did not expect separate sanctions tied to Crimea could be lifted as this would require a reversal of Russia’s annexation of the territory.
“The other sanctions were introduced in response to the intervention in eastern Ukraine. Fulfilling the entire Minsk agreement is the way to bring about a reversal (of sanctions) here. The entire Minsk agreement must be implemented before we can say these sanctions can be lifted.”
Funding
The International Monetary Fund’s existing package for Ukraine is worth $17 billion and Ukrainian authorities hope the new round of talks will unlock fresh loans. Some economists say the country is staring at a $15 billion funding gap.
The country faces about $10 billion in debt servicing this year, including corporate and sovereign loans and bonds, according to Hung Tran at the Institute of International Finance, a financial group based in Washington DC.
“If you try to add up the numbers they don’t add up, so something needs to be done,” Tran told Reuters.
Ukraine hustled through an austerity budget in late December, required for the next disbursement of IMF cash under a program that has so far paid out $4.6 billion in two tranches.
At the time, central bank head Valeria Gontareva said Kiev expected the IMF to release two additional slices of credit before year-end, plus a fifth tranche following their January visit.
With a combined value of $2.7 billion for tranches three and four, a further expected disbursement of $1.4-1.5 billion this month would take the overall figure for overdue and pending payments to over $4 billion.
