Eastern Enlargement and the Coordination of Ukraine’s Financial Assistance

Last month, the European Commission adopted an enlargement package that recommended opening accession negotiations with Ukraine and Moldova. According to the official language, Ukrainian authorities have “demonstrated resolve in making substantial progress” toward meeting the seven requirements for such negotiations. However, this means that in the third year of Russia’s full-scale invasion, Ukraine must deliver structural reforms while defending and liberating territories, recovering, rebuilding, and modernizing in line with the Euro-Atlantic integration conditionalities. This has been a tall order for neighboring countries in times of peace. Making it work in times of war requires new and innovative support instruments.

Several plans have been designed to offer financial assistance to Ukraine, and they overlap in their demands for political and anti-corruption reforms. The EU’s Ukraine Facility Plan could indeed serve as the foundation for a unitary vision of assistance with realistic expectations for compliance with conditionalities over the next four years. While it is not a comprehensive and exclusive recovery and reform strategy for Ukraine, and it covers only some of the reforms that focus on macroeconomic growth, it can serve as a basis for other partners to join recovery efforts, especially within the Ukraine investment framework (Pillar II).

International donors are imposing two sets of conditions on Ukraine. The first combines political recommendations such as the European Commission’s seven recommendations for Ukraine’s EU candidate status with the G7’s recommendations for the top 3 anti-corruption and judiciary reforms. Political conditionalities such as these construct a partnership of values, and do not directly link financial allocations to specific compliance milestones. In addition, the OECD launched a four-year Ukraine Country Program to support Kyiv’s agenda for reform, recovery, and reconstruction while advancing its ambitions to join the OECD and the EU.

The United States, the EU, and other bilateral partners and international financial institutions have also provided unprecedented macro-financial and economic support to Ukraine. These financial instruments—the EU’s Macro-Financial Assistance+ (to be replaced by the Ukraine Facility 2024–2027), IMF’s Extended Fund Facility, and the World Bank Ukraine Relief and Recovery Development Policy Loan—come with conditionalities linked to reforms. These overlapping layers of complex financial assistance provide a broad range of material resources and incentivize Ukraine to comply with internal reform milestones.

The EU has provided macro-financial assistance of more than €20 billion in  2023 and requests reforms in the areas of financial and fiscal policies, governance, anti-corruption measures, judicial independence, corporate governance, and business climate. With the new Ukraine Facility, Kyiv and the EU are developing the Ukraine Plan—an agreed reform and investment agenda helping to maintain macroeconomic stability, rebuild Ukraine, and foster the transition to a sustainable, inclusive economy with a stable investment environment. The plan invites other international partners to use the Ukraine Facility as a guide for their assistance programming, including through the Multi-Agency Donor Coordination Platform for Ukraine. The IMF’s 48-month Extended Fund Facility (IMF EFF) provides access to more than $15 billion in loans and forms part of an international support package for Ukraine in exchange for reforms aimed at maintaining macroeconomic stability and strengthening governance and anti-corruption frameworks. The World Bank’s Ukraine Relief and Recovery Development Policy Loan provides another $1.5 billion in loans through June 2024. The package focuses on three areas: households affected by the war, reforms to improve the transparency and accountability of public resource expenditures, and improved functioning of markets during and after the war.

We have compared these financial assistance programs to understand the extent to which they are complementary or duplicate administrative efforts in Ukraine. We have found that all of them require anti-corruption, judicial, and energy-sector reforms, and there are some overlaps in reform of state-owned enterprises (SOEs), macro-stabilization, and business environment improvement.

But there is also the question of overlapping public investments of multilateral organizations such as the EU and bilateral donor commitments (for example, the US, UK, and Danish governments). The largest share of bilateral assistance to Ukraine comes from the United States, with more than $43 billion in security assistancesince the start of the war, but also aid for peacekeeping, humanitarian, and technical assistance. In July 2023, USAID chief Samantha Power pledged $250 million to create and expand alternative routes for Ukrainian grain to leave the country—meaning rail and through Poland, and canal, river, and rail through Romania.

While previously the United States had provided unconditional support to Ukraine, in September it shared a list of necessary reforms with the government of Ukraine. The list’s informal conditionalities covered the anti-corruption agenda above all: ensuring transparency and accountability by strengthening corporate governance of state-owned enterprises and reforming anti-corruption, judicial, and law enforcement bodies. Some of these conditions overlap with those of other conditionalities frameworks, but the US list is the only document that refers to a military reform component. The United States is suggesting reforms of the Ministries of Defense and Strategic Industries to bring them into accord with NATO standards in terms of procurement, defense planning, resource management, and so on.

The question, then, is how to synchronize the political and economic commitments Ukraine is undertaking and how to ensure their effective implementation?

Feasibility of Requirements: Some requirements may be too strict or need additional funding for implementation. For instance, the increase in the number of detectives by at least 300 within 3 months at the National Anti-Corruption Bureau of Ukraine depends on the possibility of hiring so many specialists in such a short time, which may not be realistic.

Coordination Among Financial and Economic Assistance Programs: The Ukraine Plan will represent an integrated and accepted approach for future reform and provide an investment agenda for the next four years. Moreover, the plan is developing in consultation with a wide range of stakeholders: civil society, think tanks, business representatives, regional and local authorities, parliamentary representatives, and G7 countries within the Multi-Agency Coordination Platform for Ukraine. This increases the document’s political value among national and international stakeholders and, therefore, should serve as a framework for any additional conditionalities.

Crowd In Private Sector Support: The ultimate goal of all external assistance should be to strengthen the political and economic environment and engage the private sector in Ukraine’s recovery and reconstruction process. The economic impact of the measures listed should therefore be assessed once the formal document is finalized. Economic diplomacy and a strategic approach to regional supply chains should aim to ensure that the public resources made available to Ukraine achieve the best possible outcomes.