January 23, 2015 / 10:24 AM / in 3 years

EU to consider raising new Ukraine aid to 2.5 billion euros

BRUSSELS (Reuters) - EU finance ministers will discuss on Tuesday offering additional money to help save Ukraine from bankruptcy, potentially increasing its original plan to as much as 2.5 billion euros ($2.8 billion), diplomats told Reuters.

Ukraine, fighting a costly war against pro-Russian separatists, is relying on a lifeline from the International Monetary Fund programme to avoid default but some economists say it is facing a $15 billion shortfall in funding.

Earlier this month, the European Union proposed loaning 1.8 billion euros to Kiev, subject to approval by EU governments and EU lawmakers.

“Given the urgency of the situation in Ukraine, ministers will see how much the EU can improve on its original, 1.8 billion euro offer,” said one EU diplomat preparing the discussion for Jan. 27.

Two other diplomats confirmed the discussion would take place, but cautioned that increasing the aid was not a done deal. The European Union uses some of its budget as a guarantee against the money it raises on capital markets for the loans.

“More money from the EU budget for provisioning loans means less money for other things, so it is not so straightforward,” the diplomat said.

The new EU loan when finalised would come on top of the 1.4 billion euros that Brussels handed over last year.

The International Monetary Fund’s existing package for Ukraine is worth $17 billion and Ukrainian authorities hope the new round of talks underway will unlock fresh loans.

The country faces about $10 billion in debt servicing this year, including corporate and sovereign loans and bonds, according to the Institute of International Finance, a financial group based in Washington DC.

The European Union and the IMF, whose new mission is expected to wrap up before the end of the month, has said that additional financial help will hinge on Kiev’s ability to implement reforms.

Once EU finance ministers agree on new aid for Ukraine, Kiev will need to sign a so-called memorandum of understanding committing to reforms.

($1 = 0.8878 euros)

Reporting by Robin Emmott; editing by Philip Blenkinsop

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