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European Parliament approves €1.8 billion EU loan to Ukraine

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20150325PHT37776_originalEU plans to lend Ukraine €1.8 billion to help plug its short-term balance of payments gap has been approved by MEPs. The EU will borrow the money externally and lend it on to Ukraine with the same interest rate. The disbursement will be tied to Ukraine pledging structural reforms to tackle problems that contributed to the current crisis.

“The result of today’s vote is a strong political message, not only to Ukraine to show that the EU stands firmly by it, but also to those countries which seek to see us divided in helping Ukraine,” said Rapporteur Gabrielius Landsbergis (EPP, LT). MEPs approved the Commission’s proposal, without amending it, by 492 votes to 107 with 13 abstentions. 
Ukraine’s cash flow difficultiesUkraine’s acute economic crisis is rooted in long-standing structural problems, such as corruption, and aggravated by the armed conflict in the east of the country, trade restrictions imposed by Russia and the escalation of a natural gas dispute with it. Ukraine has lost its access to international debt markets so can no longer borrow money itself.

Where will the money come from?

The European Commission will raise funds on the international bond market and lend them on to Ukraine, at no extra interest beyond what the EU has to pay to its external lenders. Ukraine would have to return the money within fifteen years of borrowing it.

Reforms in exchange for the loan

Terms for the loan still need to be agreed by the EU and Ukraine in a memorandum of understanding which commits Ukraine to a reform programme designed to remedy the accumulated fundamental weaknesses that helped to cause the current deficit.

The draft deal includes public finance management reforms, anti-corruption measures, tax administration changes; reforms in the energy and financial sectors; and measures to improve the business environment.

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Once the EU and Ukraine sign the deal , the money will go straight into Ukraine’s budget. Two thirds of the agreed amount might be disbursed by the end of 2015 and the final tranche in the first quarter of 2016.

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