Second Front: How much aid Ukraine receives from abroad and why it is time to show where the money is being spent
Major international donors thoroughly check all projects before they begin, but the number of questions is increasing
With the onset of full-scale war, Ukraine has received over $50 billion from international partners. And that's just the money deposited into the state budget. However, the European Union is raising questions about the targeted use of aid provided to Ukraine. Mind has investigated who the biggest donors to Ukraine have been since 24.02.2022, and analysed how they can (or cannot) be sure that the funds provided are being used as intended.
How much money has Ukraine received from donors? According to the Ministry of Finance, from February 2022 to the beginning of April 2023, Ukraine received a total of $45.8 billion in support to the state budget from international partners. Of this amount, $17.9 billion (39% of the received aid) constitutes grants. Specifically, in 2022, $32.1 billion in financial assistance was provided, with grants amounting to $14.3 billion (45% of the received aid). In 2023 (as of April), $13.6 billion in financial assistance was provided, with grants amounting to $3.7 billion (27%).
Who provides this money and why? According to the Ministry of Finance's response, as of April 6, 2023, from February 2022, international financial organisations provided approximately $8.6 billion in financial support to Ukraine in the form of concessional long-term credits. Specifically, Ukraine received $5.4 billion from the IMF, $1.7 billion from the European Investment Bank, and $1.5 billion from the World Bank.
Since February 2022, Ukraine has received $5.4 billion in financial support from the IMF. In particular, on March 9, 2022, the Executive Board of the IMF approved a decision to provide Ukraine with $1.4 billion under the Rapid Financing Instrument (RFI). On October 7, 2022, the IMF approved an additional allocation of $1.3 billion to Ukraine under the RFI to address urgent balance of payments needs. On April 3, 2023, the first tranche of $2.7 billion from the IMF was received into the general fund of Ukraine's state budget under the new four-year Extended Fund Facility (EFF) program for Ukraine.
"Since the beginning of the war, the EBRD has provided unwavering support to Ukraine, ensuring record levels of financing, mobilising support from partners, and providing guarantees from international shareholders and donors. In 2022, we mobilised over 1.7 billion euros, in addition to over 200 million euros from our partner financial institutions. We are focused on supporting the real economy," Mind was told by the EBRD.
These investments are directed towards five key areas: energy security, vital transport and municipal infrastructure, food security, private sector resilience, and trade finance. "We have taken a significant risk in terms of our balance sheet, but we have also received very generous support from a range of our shareholders who are working with us to strengthen the Ukrainian real economy," said the EBRD.
Who provides grants to Ukraine? The main grant providers for Ukraine are the United States, from which Ukraine has received $15.5 billion in financial support exclusively in the form of grants, and Germany, which has provided around $1.3 billion in grants.
After the start of russia’s full-scale invasion of Ukraine, cooperation with the World Bank has significantly intensified. 50% of all financial support received by Ukraine in 2022 was obtained through World Bank instruments. Specifically, new platforms have been created: the Ukraine Relief, Recovery, Reconstruction and Reform Trust Fund (URTF) and the Multi-Donor Trust Fund (MDTF).
Thanks to the interaction between the Ukrainian Ministry of Finance and the World Bank team in 2022, loans and grants totalling $12.9 billion (of which $12 billion were grants) and €2.968 billion (of which €1.088 billion were grants) were mobilised. Out of this amount, $9.8 billion and €2.3 billion have already been received for financing the general fund of the State Budget.
The largest joint project initiated by Ukraine and the World Bank in 2022 was the Public Expenditures for Administrative Capacity Endurance in Ukraine (PEACE) project. It is the largest project ever implemented by the World Bank. In 2022, $12.7 billion was allocated to the Ukrainian State Budget within its framework, intended for salaries of civil servants, teachers, healthcare workers, and emergency services personnel, as well as support for priority social expenditures (pension payments, payments to internally displaced persons, low-income individuals, and persons with disabilities), and more.
Ukraine received €1.5 billion from the government of the Federal Republic of Germany and the German development bank, Kreditanstalt für Wiederaufbau (KfW). Out of this amount, €1.2 billion was granted for budgetary support and support for living assistance to internally displaced persons.
What are the main requirements of fund providers? "All the money that Ukraine receives from abroad goes towards supporting the country's livelihood, social expenditures, salaries of doctors and teachers, pensions, and so on. We commit to not spending this money on war. In other words, military expenses are funded through the revenue from our taxpayers," says banking analyst Stanislav Shlapak.
Unfortunately, partnerships are being used for numerous manipulations, attributing requirements to donors that have not been actually voiced. For example, stories started circulating in early May suggesting that the IMF supposedly demands the nationalisation of Sense Bank. However, the IMF Memorandum states otherwise, namely, it highlights the high risks of possible nationalisation and provides recommendations for reprivatisation.
"As the risks of further bank nationalisation increase, the authorities make decisions that align with the overall strategy of reducing state ownership in the banking sector. One small bank is in the process of nationalisation (referring to Pinbank – Mind), and the risk of further nationalisation remains high. The authorities have committed that any decisions that could potentially increase state ownership in the banking sector are made after consultations with IMF staff and strictly limited to issues related to national security during the period of martial law and the preservation of financial stability. Therefore, any further nationalisation should also include plans for rapid reprivatization or liquidation of the respective banks," the IMF Memorandum states.
What is happening with the projects of international financial institutions (IFIs) and state banks? Prior to the war, there were active discussions about two major projects involving the sale of stakes in state banks – the entry of the EBRD into Oschadbank and the IFC into Ukrgasbank. According to the National Bank of Ukraine (NBU), cooperation with Ukrainian banks continues, albeit with adjustments due to the wartime conditions.
"Some IFIs, primarily the EBRD, remain partial owners of stakes in a number of Ukrainian banks, including those with foreign capital. An important area of cooperation is the collaboration between IFIs and state banks, which are seen as potential future stakeholders in these banks. Banks have also continued to cooperate with IFIs within lending programmes, particularly in critical sectors for the Ukrainian economy. Overall, after the start of the large-scale russian invasion, most IFIs have expanded their support to Ukraine," says the NBU.
In regard to the relations between IFIs and Oschadbank and Ukrgasbank, the National Bank believes that the principles of institutional investors' entry into the capital of these institutions, as outlined in the government's Strategic Framework for Reforming the State Banking Sector, should be achieved. At the beginning of 2021, a credit agreement was signed between the Ministry of Finance of Ukraine, the IFC, and Ukrgasbank for a sum of 30 million euros, with the possibility of converting the credit funds into the bank's statutory capital. Prior to the full-scale invasion, Oschadbank and the EBRD signed a mandate letter within the framework of the privatisation roadmap for the bank.
Doesn't the increase in external debt pose a problem for Ukraine? "There is currently no major problem with the increase in external debt. While Ukraine receives significant volumes of external loans, they are mostly provided on very favourable terms, with low-interest rates and long maturities. For example, the EU provides funds with a term of 35 years. Therefore, discussions about any write-offs or restructuring of the loans provided by international partners during the war are unlikely to be relevant," explains Taras Kotovych, Senior Financial Analyst at ICU Group.
In his words, the next potential issue in external debt could be commercial debt – Ukrainian Eurobonds, for which investors have agreed to defer payments for two years, with the next payment due in August 2024. "The Ministry of Finance has announced negotiations with investors in the spring of 2024 regarding this debt. However, it is premature to predict any components of possible agreements until that time, as the market situation, the state of Ukraine's economy, and its recovery prospects will only become clear later," says Kotovych.
Vitaliy Shapran, former member of the NBU Council, believes that "Ukraine's external debt should be reduced, including through payments from the gold and foreign exchange reserves of the central bank of russia and russian oligarchs. After all, the growth of Ukraine's public debt occurred due to russia's aggression, and it should pay for it, including compensating for the debt's value."
At the same time, according to Shapran, the position of some of Ukraine's partners is 'surprising': while they have approximately $500 billion of russian assets frozen, they are not in a hurry to provide them to Ukraine but actively offer loans. "The US and Canada have already started transferring confiscated assets to Ukraine, but the EU's position on this issue is not clear," he says.
How do donors check that the money is used for its intended purpose? "Each of the EBRD projects undergoes a thorough and rigorous assessment before it is signed and disbursed. It includes proper checks on integrity, finances, environment, and procurement. Although this process takes time, it minimises risks during the implementation of financed operations and ensures that our projects adhere to the 'gold standard' guarantees. The Bank adheres to this principle and is committed to supporting Ukraine without compromising on quality. This is beneficial for everyone, and it is a legitimate requirement of our shareholders, who are responsible for the use of taxpayers' money. These standards are very similar across all international institutions," Mind explained at the EBRD.
What concerns do the partners have? Partners, unfortunately, have many questions regarding the use of the provided funds. There are legends circulating in the EU about people from Ukraine driving expensive cars who are now coming to the Côte d'Azur and buying real estate in the most expensive corners of the EU. Meanwhile, in Ukraine, one corruption scandal after another arises regarding the misuse of funds.
While the main focus now is on defeating russia, none of the partners are willing to turn a blind eye to Ukrainian corruption forever. "The scale of financial, military, and humanitarian aid to Ukraine is unprecedented. So, there is ample room for manipulation. But the recipe here is clear – maximum transparency in reporting and effective work of anti-corruption bodies," says Oleksandr Parashchiy, a financial analyst.
"As for corruption scandals, as we see from the materials of investigative journalists and civil society monitoring, they are mainly related to procurement," adds banking analyst Stanislav Shlapak.
It can be confidently stated that with sufficient political will, the US can track every dollar provided to Ukraine. If it is not being done now because supporting Ukraine is crucial for the West, it doesn't mean it won't be done in the future.
If you have read this article to the end, we hope that means it was useful for you.
We work to ensure that our journalistic and analytical work is of high quality, and we strive to perform it as competently as possible. This also requires financial independence. Support us for only UAH 196 per month.
Become a Mind subscriber for just USD 5 per month and support the development of independent business journalism!
You can unsubscribe at any time in your LIQPAY account or by sending us an email: [email protected]
