Ukraine jittery over funding delays from frozen Russian assets

Ukrainian officials are increasingly anxious about delays in securing a deal to unlock $50 billion in financial aid from frozen Russian central bank assets.

This funding, which was set to support Kyiv by the end of the year, was agreed upon by the Group of Seven (G-7) in June. The plan involves using the profits from around $280 billion in frozen Russian funds to back loans, Caliber.Az reports via foreign media.

However, the implementation of this plan has been hindered by demands from the US and potential delays from Hungary that could affect EU-wide decisions on support for Ukraine and sanctions against Russia. The financing is crucial for Ukraine as it battles a prolonged Russian advance and faces new challenges, including recent incursions into Russia’s Kursk region.

The G-7 agreement has a deadline of December, but Ukraine needs a decision by next month to align with a funding review by the International Monetary Fund (IMF) that will assess Kyiv's budgetary needs. Ukrainian President Volodymyr Zelenskyy has expressed frustration with the prolonged negotiations, urging for decisive action.

The assets of the Russian Central Bank, mostly held in Europe, were frozen by Ukraine’s allies following Russia’s invasion in February 2022. These funds were intended to be used for war reparations and rebuilding efforts in Ukraine.

Complications have arisen due to US concerns over the need for the EU to renew the asset freeze every six months, alongside broader sanctions. The US is seeking more concrete assurances that the funds will remain frozen until a fair peace agreement is reached and Russia compensates Ukraine for damages. A senior Biden administration official indicated that if these conditions are met, the distribution of funds could start by year-end.

The EU is working on extending the asset freeze, but a consensus among its 27 member states has been elusive, partly due to Hungary's history of obstructing sanctions renewals. The European Commission is continuing discussions and will address the issue further as the EU resumes activities post-summer break.

In Germany, Chancellor Olaf Scholz has emphasized that Berlin will maintain its support for Ukraine, despite debates over military funding caps. Scholz highlighted the G-7 deal as a key new funding source and affirmed that the arrangement, though technically complex, is politically resolved and on track for the year-end deadline.

The central bank assets, potentially yielding up to €5 billion annually, will be distributed among G-7 members, with the EU and US each expected to provide substantial loans.

As of June, €173 billion of these assets were held by the Euroclear clearing house, which has already released an initial €1.6 billion installment of the profits to Kyiv. The total earnings from these funds amount to approximately €3.4 billion since the freeze, with some of the profits reserved for risk management and potential legal issues.