What the $50 billion G7 loan means for Ukraine — analysis

The decision was announced on June 13, allocating $50 billion to Ukraine as part of the new Extraordinary Revenue Acceleration (ERA) loan program.

“We have reached a political agreement to provide additional financial support to Ukraine of approximately $50 billion by the end of the year through a loan that could be paid for by additional proceeds from Russian assets frozen in our jurisdictions,” Italian PM Giorgia Meloni told journalists at the G7 summit.

Meloni emphasized that Moscow’s assets are not being confiscated, rather the loan will be paid for by the interest revenues generated by them.

“In the presence of [Ukrainian] President [Volodymyr] Zelenskyy, we decided to make available approximately $50 billion leveraging the extraordinary revenues of the immobilized Russian sovereign assets, sending an unmistakable signal to [Russian] President [Vladimir] Putin,” reads the final communiqué of the summit.

Notably, Western countries are now discussing the confiscation of the assets outright, worth about EUR 300 billion ($321 billion). At this time, the move still looks risky from a legal standpoint, according to Western officials. Earlier, the European Central Bank’s president, Christine Lagarde, said that such a move could entail “breaking the international order that you want to protect; that you would want Russia to respect.”

But given the damage already caused by Russia, the G7 statement indicated that “Russia must end its illegal war of aggression and pay for the damage it has caused to Ukraine.”

The amount of damage caused to Ukraine is currently estimated at $486 billion, according to the World Bank. However, this amount grows every day, the G7 said.

Speaking at a joint press conference at the summit’s venue in Apulia, southern Italy, U.S. President Joe Biden said the loan would be “another reminder to Putin that we’re not backing down.”

NV Business analyzed what this loan means for the Ukrainian economy.

Does it guarantee Ukraine’s macro-financial stability in 2025?

Yes. First of all, as Ukrainian Finance Minister Serhiy Marchenko explained to NV Business, the said $50 billion enables Kyiv to draft a budget for 2025.

Secondly, it will reinforce Ukraine’s macro-financial stability, since the sources of financing the budget deficit for the next year looked unclear before the G7 summit. The lack of clarity with external funding and its urgency was made evident by the government talking about the need to raise taxes. Although, as Danylo Hetmantsev, Chairman of the parliamentary Finance Committee, told NV Business, no specific bills on this issue are being considered yet.

We should also note that our 2024 budget became workable only after the United States approved an aid package for Ukraine in April. The aid bill meant that Ukraine will receive the necessary $37 billion in foreign aid this year to finance state expenditures.

“This amount corresponds to the volumes expected by the government and included in the IMF program. But in order to fully finance the budget deficit, the Finance Ministry will still have to borrow in the domestic market, at least the same amount as last year, i.e. about $5 billion,” Olena Bilan, Director of the Analytical Department and Chief Economist of Dragon Capital, told NV Business.

The scope of the 2025 budget deficit is still unclear. However, Ukrainian PM Denys Shmyhal said Ukraine needs between $10 billion and $30 billion in annual external funding in the next 10 years.

Andriy Pyshnyy, Governor of the National Bank of Ukraine (NBU), said that “we received from the G7 countries an elegant solution for tapping into another source of funds — immobilized Russian assets.”

“The partners have confirmed their readiness to provide Ukraine with $50 billion through a new lending mechanism — Extraordinary Revenue Acceleration (ERA) Loans,” he told NV Business.

The ERA doesn’t circumvent or replace any of the existing support programs, he noted.

“First of all, this mechanism makes it possible to significantly reduce the risk of insufficient international support. This will strengthen the Ukrainian government’s ability to ensure macroeconomic and financial stability, defense needs, and economic recovery,” he said.

According to the communiqué, G7 members should take measures for Ukraine to receive the first tranche under the ERA program by the end of the year.

“A difficult path of technical consultations of finance ministers and political routine is yet to come. It is based on the results of these negotiations that the amount of financing for Ukraine within the new instrument will be determined,” the NBU head said.

However, according to Marchenko, the exact mechanism by which these funds will be provided is still under development.

The G7 communiqué states that “this financing will be disbursed through multiple channels that direct the funds to Ukraine’s military, budget, and reconstruction needs — within the constraints of our respective legal systems and administrative requirements. As it relates to reconstruction, we will also strengthen the Ukraine Multi-Donor Coordination Platform to help coordinate the disbursal of funds and ensure they align with Ukraine’s highest priority needs at a pace it can effectively absorb.”

What else can the G7 decision change?

The very possibility of confiscating Russian assets is now an option, which was stated in the G7 communiqué.

The parties emphasized that the issue of confiscation of frozen Russian assets remains on the agenda. The G7 jurisdictions hold about $280 billion of frozen Russian sovereign assets.

According to ICU financial analyst Mykhailo Demkiv, with this decision, the G7 launched the corresponding process.

“It’s not yet confiscation as such, but the process has started and is accelerating,” he said.

The ERA program is not the first time Russian assets would be used to aid Ukraine. On May 14, the European Council approved the plan for the Ukraine Facility, paving the way for regular payments under the Fund for Ukraine for EUR 50 billion ($53.5 billion). In 2024, the Ukraine Facility mechanism will be financed with the proceeds from Russian assets, worth EUR 2.5-3 billion ($2.6-3.2 billion). In July, Ukraine will already have access to the first EUR 1.5 billion ($1.6 billion) of proceeds from Russian assets, according to European Commission President Ursula von der Leyen.

Oleksandr Parashchiy, head of Concorde Capital’s analytical department, says that if the ERA program is effective, “Russia will no longer be able to return these assets — until it settles with Ukraine for the damages, or at least settles with the G7 countries for a new loan for Ukraine.”

“It’s worth noting this is just a declaration so far, but if the first tranche under this initiative goes to Ukraine (they still expect that this may happen by the end of this year), there will be no way back,” Parashchiy said.

“Obviously, the Russians will make great efforts to prevent this initiative from working by then (when they can hope for a change in the political leadership), so the struggle is still ahead.”