Much of the Aid to Ukraine is in the Form of Loans

What happens when it's time to repay billions on billions?

A billion here, a billion there a billion, billion everywhere for Ukraine, sing world leaders almost weekly. It's almost as though they are trying to outdo each other with announcements of how much aid THEY are giving Ukraine. Most of these announcements don't mention that a lot of that aid is in the form of loans that Ukraine will need to pay back.

The Twitter boards go wild with thanks and appreciation and accolades each time new aid is announced. Which, fine, that’s great. However, the foreign aid announcements sound as though they’re giving Ukraine a lot of this aid, which is just not true. The more a country gives in various forms of loans to Ukraine, the greater Ukraine is beholden to that country.

The finance ministers of the G7 nations - Canada, France, Germany, US, UK, Italy, and Japan met this week and announced they would be providing Ukraine with close to $20 billion in aid.

Also this week, US President Joe Biden signed a bill approving a $40 billion aid package for Ukraine. That’s in addition to the $13 billion already promised.

Also, this week, European Commission President Ursula Von Der Leyen announced this via Twitter.

“Today, we disbursed a new tranche of €600 million in Macro-Financial Assistance to Ukraine. More is coming - we proposed an additional €9 billion loan for in 2022.”

These are just this week’s examples. There have been numerous others since the Russian invasion of Ukraine on February 24. For example, Canada has announced close to $1.2 billion in aid via loan programs. The numbers can get quite confusing when millions and billions of dollars in aid are announced almost weekly.

This most recent announcement from Von Der Leyen is actually a part of a €1.2 billion aid program announced in March. The first half of that was sent to Ukraine on March 11 and 18. This is the second half of that €1.2 billion. All of this is a loan that the commission expects to be paid back with interest.

The Memorandum of Understanding Between the European Union and Ukraine states, “...The Decision makes available to Ukraine (hereafter referred to as “the Country”) macro-financial assistance (hereafter referred to as “assistance”) of up to EUR 1.2 billion in the form of a loan. The assistance shall be made available for one year from the first day after the entry into force of this Memorandum of Understanding (hereafter referred to as “the MoU”).”

Over to the US billions, a lot of that money will be going into replenishing US weapons supplies, intelligence, and US military deployment as well as providing loans for weapons supplies. Close to $40 billion is wrapped up in military, security, and weapons. The rest then will be provided in various forms of loans and grants for other things like to help keep Ukraine’s economy moving.

The International Monetary Fund (IMF) has said that Ukraine needs about $5 billion a month to stay afloat, part of that staying afloat is for paying salaries and pensions. So a lot of this loan money will need to be used for that. Not a ton in those billions for Ukrainians to rebuild.

When there’s a $1000 to divvy up, it’s easier to see where it’s all going to go. When there are billions, it gets fuzzy. These billions are seemingly just being thrown into a big cauldron and somehow they are expected to land in the right places and right hands.

The loans will pass from the loaning entity to the Ukraine government. The government will utilize the money for salaries, pensions, and whatever else they see fit to spend the money on. Then the day will come when the money with interest will need to be paid back.

The biggest winners are weapons suppliers and military contractors. The Ukrainian people will likely see a small portion of the ‘aid’. And what happens when Ukraine is unable to pay all of these billions back? In 2021, the country had a GDP of $164.52 billion and also an external debt of $129 billion according to the World Bank.

Analysts at the Economist Intelligence Unit say Ukraine’s economy will not recover for more than a decade. The blue and yellow flag-waving loan givers are unlikely to be very understanding when it comes time for loan repayments. And since a lot of this money is likely to be wrapped up in weapons and salaries, the loan billions will not help rebuild Ukraine, but rather just provide a life jacket to keep it from drowning.

All amounts are in USD unless otherwise indicated.