The EC has finally announced details of its new €90bn loan facility for Ukraine agreed at the EU council meeting in December.

Remember this was the last minute compromise solution to cover Ukraine’s estimated €140bn financing shortfall for 2026-2027 given the war extends and the US continues to withhold any funding for Ukraine - instead the US under Trump seems eager to profit, literally, from the war in getting Europe and Ukraine to write big cheques for US weapons purchases. The hope had been that the €210bn in immobilised CBR assets in Europe would be used to cover that but the usual vested business interests in Europe appear to have blocked that for the time being.

Securing agreement on covering the €140bn financing gap was key to getting IMF agreement on a new four year IMF EFF. Of the above gap the IMF estimated the budget shortfall at $63bn (the overall shortfall is budget plus military, to make up to €140bn) so the interest here is finding out what portion of the €90bn above has been earmarked for budget support. Therein member states have been eager to have funding to help cover their own cost of military supplies to Ukraine, so the split 30:60 seems to have been agreed between budget and then military funding.

Obviously then €30bn ($35bn - more if Trump debases the Fed and the $) is not $63bn so the question is how the IMF can get the required financing assurances that the $28bn gap can be filled.

Therein helping square the circle will be remaining funds from the Extraordinary Revenue Arrangement (ERA) - that’s the facility secured against the interest flow from immobilised CBR assets. For 2024-2025 only $38bn of the $50bn facility had been drawn, leaving $12bn to cover 2026-2027 financing needs.

Further, Ukraine managed to significantly prefinance its 2026 financing needs in 2025 via above plan disbursements and cost savings. I understand around 40% of 2026 financing needs have been prefinanced, so likely something like $15bn. Note here this also takes into account Ukrainian assumptions that some fiscal consolidation will reduce the budget deficit from 22.5% of GDP in 2025 to perhaps 17.5% of GDP.

So doing the maths, $12bn plus $15bn gets close to $27bn, and perhaps additional contributions from other non EU, no US Western allies closes the gap.

The other issue for the IMF was the form of the loan and that the terms would make it a “loan in name” only sufficient for it to fall outside the envelope of its DSA. That seems to have been the case with the loan to Ukraine being zero coupon, and with no determinate payment date. And the assumption there is that it might only have to be repaid if Russia eventually agrees to pay reparations to Ukraine, and perhaps not even then. So in terms of IMF calculations of debt service, and debt/GDP it will be excluded from calculations therein ensuring that Ukraine’s debt profile remains sustainable to use IMF jargon.

So I guess that all should be enough for the IMF to sign off on a new EFF, once member states, and the European Parliament signs off on this new Ukraine facility.

Well I guess that covers the budget financing needs, but €90bn is not the €140bn total funding gap prior identified by the EU in budget and military needs. Working backwards again, and adding back the $27bn spare ERA and pre financing budget funds, it gets to 90 + 31 = €121bn. So roughly a €19bn shortfall which will fall mostly on the military front. I guess there again the assumption will be other allies will again do more - the Brits, the Canadian, Norway (making a huge $8bn commitment for 2026 alone now), ANZACs, Japan, S Korea, etc al, and perhaps IFIs can step up, and perhaps by front loading the €90bn disbursement other funding sources will appear later in 2027.

But, all in, it looks doable, the gaps look like closing, and obviously if there is an early end to the war (looking unlikely given Trump’s amateurish peace efforts) then Ukraine’s financing needs will likely moderate from $100bn plus a year (the overall shortfall (the €140bn identified above was the financing gap, not the total financing need) to perhaps half that in any peace/then recovery and reconstruction agenda.

Timothy Ash is the senior sovereign strategist at BlueBay Asset Management in London and a veteran observer of Russia, Ukraine, Turkey and other Emerging European markets. This note first appeared on the @tashecon substack blog here.