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The UK will provide $3bn as part of a G7 loan to Ukraine, leaving only the US and Japan to agree their contributions to the $50bn lending package, which will be repaid with profits generated by future profits from frozen Russian state assets.
Rachel Reeves, Britain’s chancellor of the exchequer, said she hoped the “other parts of the jigsaw would fall into place” when G7 finance ministers gather at the end of this week on the sidelines of the IMF and World Bank meetings in Washington.
G7 countries have been racing to agree on the structure of the loan and the amounts they will contribute so that Ukraine, which has faced repeated attacks on its energy infrastructure, can count on the funding before the end of the year.
They are also conscious that if Donald Trump wins next month’s US presidential election, Washington’s aid to Ukraine could be cut off in January when he is sworn in.
Reeves told reporters that the UK tranche could be released without other countries having to sign on. “But the idea is that this is a co-ordinated aid package . . .[by] the G7 and the European Union,” she said.
John Healey, UK defence secretary, said Ukraine would be able to use the UK funds solely for military purposes, but that “other countries may . . . take different decisions” as to how their money is used, such as paying for economic reconstruction.
The central aims of the $50bn loan are twofold. First, it will be repaid by Russia rather than by Ukraine or western taxpayers. Second, because it is secured against frozen Russian state funds, it is essentially risk-free and would not need approval by lawmakers, especially the US Congress.
However, designing the package has been a tortuous process. The EU pledged up to €35bn towards the loan package earlier this month, while Canada has said it would contribute $3.6bn.
The US last week indicated it was willing to provide up to $20bn. But it also has concerns about how it would be repaid after the EU failed to guarantee that the Russian assets it holds would be immobilised for at least three years.
Hungary earlier this month vetoed a decision to extend the bloc’s sanctions regime against Russia that would have provided that assurance.
Most of Russia’s frozen central bank assets are held in the EU and are expected to generate about €3bn in profits per year. The EU would need to contribute less if the US provided the full $20bn.
Reeves said she did not expect the UK portion of the loan would face any legal challenges, and that further detail on how it would be repaid would be in next week’s autumn Budget, the first by Britain’s new Labour government.