The G7’s Extraordinary Revenue Acceleration Loans for Ukraine (ERA) mechanism is designed to provide Ukraine with an additional $50bn in financial assistance over 2024-27, guaranteed by profits from frozen Russian sovereign assets and structured to prevent fiscal liability by Ukraine.

Under the ERA, the European Union is providing $19.9bn in exceptional macrofinancial assistance (MFA) in the form of loans to be disbursed in 2025. This comes on top of the EU’s €50bn Ukraine Facility, which is also being provided during 2024-27. The United States are committing $20bn under the ERA mechanism – $15bn in grants and $5bn in loans – and the remaining members of the G7 – the United Kingdom, Japan and Canada – will contribute an additional $10.1bn. (For our assessment of the distribution of the ERA funds by type and partners, please see Table 5 and Figures 35 and 36).

Ukraine ERA funds disbursement schedule

With the ERA, Ukraine’s international partners are leveraging Russian funds to provide support. Specifically, they use profits derived from immobilised Russian central bank reserves. In the immediate aftermath of Russia’s full-scale invasion, several countries imposed sanctions on the CBR, and thereby immobilised a significant amount of reserves that the bank was holding abroad. While a full audit has still not been undertaken, the total is estimated to be above $300bn, of which more than €190bn is held at Euroclear, a central securities depository headquartered in Belgium. While Ukraine has long argued for full confiscation, the G7 opted to leverage profits derived from them to provide financial assistance under the ERA. In essence, as the principal of maturing bonds and any accumulated interest cannot be transferred to the CBR due to sanctions, they generate additional profits, which do not belong to the owner of the assets but to Euroclear and can be taxed. The EU estimates that these profits amount to €2.5-3.0bn per year.

Ukraine ERA funds by type and country

 

​The ERA funds are structured to prevent any fiscal liability for Ukraine’s government, ensuring that they serve as a non-repayable financial resource, and they can be used for a variety of purposes. In order to not burden Ukraine’s financial future with additional debt, ERA loans are set up as contingent liabilities, which means that they need to be repaid only under certain conditions, e.g., Ukraine receiving reparations from Russia. Should this not materialise, they will be repaid by other parties and, for Ukraine, will effectively be a non-payable contribution. Given the amount of external loans that Ukraine has already received, this is of critical important to keep debt dynamics from deteriorating further. Political conditions and transparency/accountability requirements related to the disbursement will be aligned with the terms of existing programmes, with each creditor also determining the specific use of the funds. Importantly, while money provided under the ERA largely consist of budgetary support, some funds can also be used for purchases of weapons.

 

The Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information on Ukraine. This content originally appeared on the KSE website.