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Frozen hopes: Europe’s reluctance to approve a loan program backed by Russian funds has left the Ukrainian budget on the brink of a crisis
Kyiv urgently needs 140 billion euros, but its Western partners have yet to agree on where the money should come from. Belgium is blocking the use of frozen Russian assets, meaning the aid will have to come from national budgets or through a joint EU loan at a time when EU countries are already running deficits and ramping up their own defense spending. If the funds are not found, Kyiv risks losing other support programs as well and could face a severe cash shortfall as early as the beginning of 2026.
Content
What a reparations loan means
Why Ukraine needs the money
How Ukraine was previously financed
The money is already running short
And the shortfall will only deepen
What a reparations loan means
The European Union is actively discussing how best to deliver Ukraine a substantial Christmas gift: the long-awaited 140-billion-euro reparations loan that would be backed by frozen Russian assets. Without extra funding, Kyiv could find itself in a serious financial crisis by early next year, Ukrainian President Volodymyr Zelensky warned at a summit in Brussels in late October.
At the start of Russia’s full-scale invasion, a collection of Western countries froze approximately $300 billion worth of assets belonging to the Bank of Russia, with around 140 billion euros being held at the Belgian depository Euroclear.
In 2024, EU member states agreed to provide Ukraine with financing generated by the interest derived from Russian deposits and securities frozen in Europe. A larger loan program that included an additional 45 billion euros pledged by EU and G7 countries — the Extraordinary Revenue Acceleration for Ukraine (ERA) — was later announced. As of late October 2025, the ERA had provided Ukraine with 25.3 billion euros.
But even this support is no longer enough for a country exhausted by war. That is why European Commission President Ursula von der Leyen proposed giving Ukraine a loan backed not by revenue from frozen Russian assets, but by the assets themselves. The mechanism was called a reparations loan, since Kyiv would be obligated to begin repayment only after it begins to receive reparations from Moscow (i.e., no time in the foreseeable future).
However, Belgium refuses to approve the scheme, fearing that the reputation of its financial institutions would suffer. A Brussels representative said EU countries must agree on how to share risks and joint liability in the event that competent authorities later decide that the 140 billion euros must be reimbursed to Russia. (The official was told that the European Union should not turn into a “debating club incapable of action” and that Russia, not Ukraine, should pay for the war.)
Sweden’s EU Affairs Minister Jessika Roswall noted that Ukraine’s needs are enormous and that, in the long term, EU countries will not be able to cover them via their national budgets. At present, Germany, the Nordic states, and the Baltic countries shoulder the greatest financial burden, which is why, as the Swedish official put it, “more countries need to take responsibility and agree.”
Interest payments on the frozen Russian assets amount to only 5.6 billion euros a year — far short of the needed sum. If the reparations loan cannot be approved, EU capitals will have to authorize joint borrowing or put up taxpayer money themselves, the European Commission explained in a letter circulated to member states. But both options have drawbacks. A loan would add billions in new obligations to national budgets already weighed down by debt, and governments have no spare funds for direct grants. EU countries will try to reach a decision before the next summit in December.
Why Ukraine needs the money
Kyiv hopes that frozen Russian assets can still become one of its main sources of funding. A reparations loan could cover most of the Ukrainian state budget deficit over the next two years, providing 40 billion out of the 52 billion euros currently needed. The remaining 100 billion euros would go towards meeting military needs.
However, if the EU fails to reach a compromise, Ukraine risks losing other support programs as well. The International Monetary Fund may postpone issuing a new $8-billion loan to Ukraine if no solution is found on Russian assets. (A total of $10.6 billion has already been disbursed from a current $15.6-billion IMF program.)
One European Commission official, along with diplomats from three EU member states, told Politico that securing an agreement on the reparations loan would convince the IMF of Ukraine’s financial viability in the coming years — a prerequisite for any country seeking financing from the fund.
How Ukraine was previously financed
Ukraine’s 2024 budget benefited from $41.7 billion in external funding. Nearly one third of that figure ($12.6 billion) came in the form of grants that do not need to be repaid, while the rest consisted of concessional loans.
The main donor to Ukraine has been, and remains, the European Union. In 2024 the bloc provided the largest share of financial assistance under the Ukraine Facility for 2024–2027. Total support reached $17.3 billion, including $3.2 billion in grants.
U.S. support was also critically important, including through grant funding that helped prevent an increase in Ukraine’s debt burden. In December 2024, the United States transferred the first $1-billion tranche to Ukraine under the ERA program, which is backed by revenue from frozen Russian assets. It marked the first time Russia effectively began paying for the damage it has inflicted on Ukraine.
In 2024, Ukraine successfully completed four reviews of the IMF’s Extended Fund Facility program, which made it possible to secure an additional $5.3 billion from the fund. It also received support from Japan, the World Bank, and Canada.
These funds were mainly directed toward priority social and humanitarian expenditures. “This made it possible to pay for pensions, and for salaries in education and healthcare. The entire humanitarian and social system received funding,” noted Ukraine’s Finance Minister Serhiy Marchenko.
The European Union has been, and remains, Ukraine’s main donor
This year, Kyiv’s external financing needs are slightly lower — $39.3 billion — and the budget has already received most of that amount. ERA is now the primary source of funding, followed by the EU’s Ukraine Facility — 18.1 billion euros have been pledged under ERA and 12.5 billion through the Ukraine Facility. In addition, earlier this month Ursula von der Leyen announced that the European Union is providing nearly 6 billion euros more through ERA and the Ukraine Facility. Ukraine is expected to receive the remaining EU funds by the end of 2025.
The United States, despite announcing new sanctions against Russia, is not promising additional financing for Ukraine. Under the Ukraine Security Assistance Initiative (USAI), only $300 million is allocated for 2025. In May, Volodymyr Zelensky said that $15 billion had been planned for assistance this year and the same amount for next year. But this money will go toward the American contribution to the US–Ukraine Recovery Investment Fund, created this year to support the country’s economic reconstruction. Under the agreement, the United States and Ukraine will make equal contributions to the fund, which will then be used for Ukraine’s postwar recovery.
The money is already running short
Despite Budget Committee Chair Roksolana Pidlasa’s statements that this year’s deficit would be fully covered by external financing, funds are falling short.
For example, to fully finance military salaries, the Verkhovna Rada had to amend the current budget, increasing approved spending on the security and defense sector by roughly $7.9 billion. The plan is to cover this outlay with ERA funds (even if the government has not officially acknowledged the need to increase external support).
The budget shortfall is already being felt. For instance, over the past two months Ukrainians have not received payments under the National Cashback program,which provided a refund of 10 percent of the cost of Ukrainian-made goods. Normally, the money is credited to a special bank card that can be used to pay for utilities, medical services, education, sports, mobile service, or even to buy war bonds. According to government sources cited by Ukrainian outlet Ekonomichna Pravda, there is no funding for this program in the budget, and although the plan was to reallocate money from the reserve fund, those funds have also run out.
Even earlier, Ukraine stopped awarding medals to school graduates. This was partly done to preserve the state budget. Regions may award their own medals — for example, “for indomitability” — at their own expense.
As a cost-cutting measure, Ukraine has scrapped school graduation medals
The program supporting agricultural producers was also suspended in 2025. “The funds allocated in the state budget for grants to establish or develop horticulture, berry farming, viticulture, and greenhouse operations have been exhausted,” Ukraine’s Ministry of Agrarian Policy and Food stated.
And the shortfall will only deepen
Ukraine’s need for external financing in 2026 stands at $47 billion, according to the draft budget for next year. Meeting that requirement will mean tapping every available source: the EU’s Ukraine Facility, frozen Russian assets through ERA or a reparations loan, as well as new programs with the IMF and other partners.
Several countries — including the Netherlands, Germany, and Sweden — have already made substantial contributions and plan to increase their levels of support in 2026. The Netherlands has pledged $3.8 billion in support for next year, with Prime Minister Dick Schoof noting that 700 million euros of that amount will be invested in drones for Ukraine. Germany has earmarked more than $9.6 billion for Ukraine in its 2026 budget, amounting to an increase of roughly $3.5 billion. Sweden has announced plans to provide about $8 billion in military assistance in 2026 and 2027.
As for U.S. support, the amounts being discussed are far smaller — and even those depend on congressional approval. In October, the Senate passed the 2026 defense budget, which includes $500 million for Ukraine under USAI. Also in October, The Telegraph reported that Donald Trump was aiming to increase pressure on Russia and accelerate a diplomatic settlement. The American president reportedly instructed the Treasury Secretary to discuss with European allies a plan for a “victory fund” for Ukraine financed by higher tariffs on imports from China. So far, however, no details on that fund have been released.
Taking into account all the commitments made so far, Ukraine’s unmet need for external financing stands at about $60 billion, according to Finance Minister Serhiy Marchenko. But Zelensky has said that even this amount will not be sufficient in 2026.
“The cost of this war at the moment is a challenge for us. The cost of one year is $120 billion. The Ukrainian budget provides $60 billion. And I need to find $60 billion for next year,” Zelensky said at a press conference with European Parliament President Roberta Metsola in Kyiv in September.
Patrick Turner, head of NATO’s mission in Ukraine, said the North Atlantic Alliance plans to provide that same $60 billion in assistance to Ukraine.
If partners fail to reach the $60-billion target, then “the only remaining solution is a loan secured by frozen Russian assets so that it can be used to finance Ukraine’s armed forces and their needs,” Ukrainian Defense Minister Denys Shmyhal cautioned.
The Verkhovna Rada, for its part, believes the largest unmet need for financing from international partners will arise in 2027. While there are already enough preliminary agreements for 2026, there are none yet for 2027, said Roksolana Pidlasa, chair of the Rada’s Budget Committee. Funding from partners depends primarily on whether the war continues, since defense spending will decline once active hostilities end.
The cost of one year is $120 billion. The Ukrainian budget provides $60 billion, which means another $60 billion must be found
If a substantial portion of the outside aid fails to arrive on time, Kyiv will be forced to prioritize. Cutting military spending is unlikely, even with expenditures amounting to 27.2% of GDP (slightly more than in 2025, when the figure was 26.3% of GDP).
However, without the reparation loan, Kyiv is unlikely to be able to raise military salaries, a step that is being demanded by both the army and the public. As Ukrainian economist Oleg Pendzin told The Insider:
“The president of Ukraine turned to the European Union, to our partners, asking them to consider allocating additional money for increasing the pay of Ukrainian service members from the funds provided under the reparation loan. But I think this issue will be resolved only after the matter of granting Ukraine this loan in general is settled.”
As Pendzin went on to explain, Europe is currently determining how the support package for Ukraine will be financed, and once an approximate amount becomes clear, funds will then be distributed by sector in line with the country’s needs. However, budgets for healthcare and education may come under pressure. In addition, social benefits or pensions may be delayed, which would significantly affect the lives of Ukrainians already exhausted by the war.