UK’s £2.26bn Loan to Ukraine: Funded by Russian Assets, with No Repayment Required

The UK has committed to providing Ukraine with a £2.26 billion loan to assist in combating Russia's invasion, with the stipulation that Ukraine will not be required to repay the loan. This financial support will be funded by the proceeds from Russian sovereign assets that have been seized by Western countries since the conflict escalated. According to the UK's Defense Secretary, these funds are expected to significantly impact Putin's military efforts.

By Deborah Haynes, security and defense editor, and Sophia McBride, security and defense producer

Tuesday, 22 October 2024, 01:27

The United Kingdom has pledged a loan of £2.26 billion to Ukraine for the purchase of arms and additional resources to combat the Russian invasion, with the funds to be effectively reimbursed to British citizens by Russia.

Rachel Reeves, serving as Chancellor, along with John Healey, the Defence Secretary, have detailed the UK's part in fulfilling a promise made by the G7 nations in June to provide Kyiv with a collective $50 billion (£38.5 billion) to support its military, budgetary, and rebuilding efforts.

Instead of requiring Ukraine to repay any portion of the loan once it is settled, the financial obligation will be fulfilled using the revenue generated from the vast amount of Russian sovereign assets that Western countries have seized since the onset of the intense conflict in February 2022.

This strategy is viewed as a means to compel Vladimir Putin to compensate for the destruction caused by his invasion of Ukraine, while also presenting a lesser risk of legal repercussions compared to directly transferring the frozen Russian assets to the Ukrainian government.

"The defense secretary stated that the funds derived from these sanctioned Russian assets could be used to effectively counteract Putin's military efforts."

"This critical financial aid will bolster Ukraine’s military defenses by utilizing funds obtained from assets that previously supported Putin's hostile actions."

The Chancellor refrained from specifying a timeline for the disbursement of the British loan to Ukraine, which is set to be paid in installments. However, he mentioned that more information would be provided in the upcoming week's budget announcement.

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"Ms. Reeves emphasized the importance of distributing the funds promptly, but she insisted that Russia should bear the costs, as they are accountable for the ongoing situation in Ukraine."

The European Union, featuring G7 nations such as France, Germany, and Italy, has indicated that it will supply the majority of the loan secured by Russian assets, amounting to $39 billion, while Canada has committed to a loan of $5 billion to Ukraine.

However, the strategy continues to be uncertain.

Approximately two-thirds of Russia's frozen assets, which amount to 210 billion euros (£175 billion), are located within the EU. However, the continuation of European sanctions against Russia needs to be affirmed every six months, a process that demands unanimous support from all 27 EU member countries.

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The situation creates a legal jeopardy where a country with closer ties to Moscow, like Hungary, could obstruct the renewal process, potentially unlocking the assets and complicating the repayment of debts.

The chancellor expressed confidence that the loans would be repaid using the proceeds from the seized Russian assets.

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The specific roles that the United States and Japan will assume in providing loans to Ukraine have not been defined yet. However, further information is anticipated this week when finance ministers and central bank officials from across the globe convene in Washington for the International Monetary Fund's (IMF) yearly meeting.

The UK's commitment includes a yearly £3 billion support package for Ukraine, which encompasses a range of aid from training and logistics to armaments.

Other G7 countries might impose restrictions on the use of their loans, but the UK has expressed its willingness to allow Ukraine to allocate the British funds to whatever areas they deem most critical, which is believed to primarily involve military needs like drones and missiles.

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