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19 Mar, 2014 18:18

​Europe offers further €1 billion in financial aid to Ukraine

​Europe offers further €1 billion in financial aid to Ukraine

The European Commission has proposed another 1 billion euro for Kiev, which will come as a part of the 11 billion euro package agreed earlier in March. Conditions for the new installment will be agreed in the coming weeks with the IMF.

A rapidly worsening balance-of-payments and weak fiscal situation in the wake of the latest developments in Ukraine pushed the EU to consider a new perk.

"It is in the essential interest of Ukraine and of the EU to maintain peace and political and financial stability in our continent. This financial aid will help in stabilising the worsening financial situation in Ukraine and therefore will be one vital part of achieving a solution to the crisis," Olli Rehn, Vice-President of the European Commission responsible for Economic and Monetary Affairs and the Euro, said in a statement.

The new package is expected to be approved by the EU's Council of Ministers in the coming weeks.

The EU remained pretty vague on the exact terms of the financial aid.

The disbursement of the assistance would be conditional on the successful implementation of a financing arrangement that the Ukrainian authorities are expected to conclude with the IMF and on specific economic policy conditions that the Commission and the Government of Ukraine will agree on, both in the coming weeks,” it said.

It will come as a part of the 11 billion euro helping hand proposed by the European Commission on March 5, and would be implemented parallel to the existing 610 million euro programme, which has been available since 2010 but has not yet been released.

Increasing debt

In real terms, any additional financial aid to Ukraine from international lenders automatically increases the country’s debt.

Under the terms of the Russia-Ukraine deal signed in December, Ukraine's debt shouldn’t exceed 60 percent of the GDP. When the debt burden goes above the set limit, Russia has the right to demand immediate repayment of the $3 billion tranche it gave to Ukraine in the end of last year.

However, deputy Russian Finance Minister Sergey Storchak said Russia won’t require early repayment of the debt, as it is interested in stabilizing the economic situation in Ukraine.

"I don’t see such a scenario (that Russia demands early repayment of Ukraine debt). Obviously it won’t be a technical decision. And the technical decision won’t be made," Storchak said.