The United States and other large Group of Seven economies agreed on Thursday to lend Ukraine $50 billion to help it buy weapons and begin rebuilding damaged infrastructure, a move that comes at a critical juncture in the war, where Russia has the upper hand.
The details haven’t been fully ironed out yet, but here’s what we know.
Where does the money come from?
Initial funding for the loan will come from the United States, the European Union and other G7 countries, but the exact amount each entity will contribute is still being determined.
The plan would use nearly $300 billion of Russian assets in the West, frozen after Moscow invaded Ukraine in February 2022, as the basis for the loan. The money would be repaid over time with profits from Russian assets, about two-thirds of which are in Europe.
Many of the assets are maturing bonds that generate $3 billion to $4 billion in interest each year, depending on interest rates.
Rather than just providing Ukraine with an annual aid amount (which is relatively small given the needs of the war), the G7 agreed to provide Ukraine with a loan until the end of the year.
Ukraine’s current financial and military needs are estimated at approximately $100 million per year.
Which countries will contribute?
The G7 countries have agreed at leadership level to finance the loan.
The United States has said they will provide all the money but also wants other countries to participate. A senior European official who spoke on condition of anonymity said Friday morning that it is all still under discussion, but for now, the EU is prepared to provide half, about $25 billion to $30 billion, with the rest coming from the United States and other countries. The money will come from the EU’s financial aid budget. The official requested anonymity to discuss closed-door financial deliberations.
The official said EU leaders would have to sign off on any EU commitments.
Since most of the assets are located in Europe, the Europeans want to ensure that European companies, especially European arms manufacturers, receive a fair share when the proceeds are used.
The United Kingdom, Canada and Japan have all expressed their willingness to participate.
Ukraine would be the beneficiary of profits from Russian assets but would not be responsible for repaying the loans.
What happens if interest rates fall?
One of the key questions is who will be responsible for the loans if interest rates fall or a sudden peace deal unfreezes Russian assets.
The assets are unlikely to be unfrozen because the G7 had previously agreed to use them to finance Ukraine’s post-war reconstruction. Since the money needed to rebuild Ukraine is at least twice as much as the frozen assets, and that amount will increase as the war continues, it is unlikely that Russia will be able to recover the assets.
Even so, it remains unclear who will guarantee the loan – responsibility is expected to be shared among the countries issuing the loans, according to two European officials familiar with the negotiations.
What will the money be used for?
Officials said the loan will be disbursed to Ukraine in batches before the end of the year and will have three main purposes: to provide military support to Ukraine, including helping it build military factories within its territory; to help fill Ukraine’s budget deficit; and to help with emergency infrastructure reconstruction.
The disbursement is expected to depend in part on how effectively Ukraine uses the funds.
But officials said how the money would be disbursed and through which institutions were still under discussion. The World Bank was one possibility, they said. Another question was whether Ukraine would decide for itself how to spend the money, said Nigel Gould-Davies, a senior fellow at the International Institute for Strategic Studies who has been studying the issue. “Or,” as he put it, “will this be a decision for Ukraine itself?”
“There are still a lot of details we don’t know,” Gould-Davis said, noting that he would prefer to simply seize assets, which would be simpler. But some countries and central bankers, including European Central Bank President Christine Lagarde, have ruled out that approach for now because it would set a dangerous precedent.
Mr Gould-Davis said the current plan was “suboptimal compared to a full seizure”.
He added: “It’s more complex and requires sophisticated financial engineering, which seizure doesn’t.”
But he acknowledged that “this result exceeded expectations, given the situation a few days ago.”
Ursula von der Leyen, president of the European Commission, the EU’s executive arm, said the deal “sends a very strong message to Putin that he cannot outlast us and that we will always stand by Ukraine”.
Nodding to Europeans already anxious about the cost of war, she added: “It is not European taxpayers who pay for the damage caused by Russia, but Russia.”
