FT: EU considering options to cover Ukraineʼs budget deficit

The European Commission is urgently exploring ways to cover Ukraineʼs budget deficit, which could reach $19 billion next year. Options under discussion include extra-budgetary grants for Ukraine, loans from G7 countries, and the use of frozen Russian assets in the EU.

This is reported by the Financial Times, citing sources familiar with the discussion.

Ukraine’s projected budget deficit for next year has not yet been covered by external financing. The European Commission has already had to adjust spending on Ukraine-related funding streams through 2025 in response to the lack of confidence in an imminent ceasefire with Moscow.

The IMF estimates that Ukraine’s financing needs for next year are covered, but this is contingent on the war ending this year or in mid-2026. Ukraine and the EU are not counting on such a scenario. IMF Managing Director Kristalina Georgieva said in June that the Fund would assess whether this financing gap would widen and would request further external financing.

The urgency in Brussels comes ahead of the International Conference on Ukraineʼs Recovery, which will be held in Rome on July 10-11. European Commission President Ursula von der Leyen will participate.

One EU diplomat said the aim was to ensure Ukraine’s needs were met well before winter, especially given the uncertain prospects for further US military support. The commission was due to discuss the options with EU finance ministers on the evening of 7 July.

One of Ukraineʼs ideas, which is being discussed by the G7 countries and the European Commission, is to provide military aid in the form of direct grants. These funds would not be officially included in the budget, but at the same time would be counted as defense spending by the donor country. This would allow Ukraine to simultaneously help and fulfill its commitment to NATO to increase defense spending to 5% of GDP.

Another option is to expect payments under the existing $50 billion G7 scheme, under which Ukraine receives loans from the proceeds of Russian state assets frozen in the West.

Another option is to try to get more profit from the frozen Russian assets by investing them in riskier but potentially profitable investments. At the same time, they are discussing a way to share possible losses so that all responsibility does not fall solely on Belgium, where most of these funds are stored.

Without a ceasefire agreement, Ukraine expects a deficit of at least $8 billion in 2026, even if some of the promised amounts can be brought forward. If this does not happen, the financing gap could reach $19 billion.

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