The cost of failing to enact pledges reforms: what sums will Ukraine forfeit because of holdups from the administration, legislature, and head of state?
Following the enactment by the legislative body and signing by the president of legislation that would undermine the autonomy of the National Anti-Corruption Bureau of Ukraine (NABU), Ukraine was stunned by the announcement that the EU had curtailed its budgetary financial support from approximately €4.5 billion to €3.05 billion.
This is detailed in the “European Truth” publication.
Despite President Zelenskyy tabling a bill in parliament that revokes the regulations he had just endorsed, the European Union determined that remaining silent regarding the issues was no longer tenable. Specifically, a representative from the European Commission indicated that the EU would allocate fewer resources to Ukraine due to Kyiv’s deficiency in executing promised overhauls. That same day, the nations sanctioned a “decreased” installment, and the government should acquire these funds imminently. All of this gave many Ukrainians the sense that Ukraine had been penalized €1.5 billion for an “abortive anti-corruption effort.”
“However, the truth deviates. And the situation arguably 'doesn’t improve,'” the journal observes.
Certainly, the suspension of these assets (which have not been forfeited yet, merely suspended) is unrelated to the assault on NABU. This can be easily demonstrated. The European Commission formally verified this two weeks prior in Rome, but opted not to publicly emphasize Ukraine’s “punishment.” Another point is that the preceding week’s occurrences have impelled Brussels to openly reveal its reform challenges.
But the central matter is that even more substantial adversities are impending. Ukraine is entering a downturn of failed reform. This implies impending penalties and censure, since obscuring the concerns is no longer viable.
“Funds for reform” coupled with penalties
The report underscores that this method of dispensing aid to partner nations is commonplace in Europe. And well ahead of Ukraine commencing its path toward membership, it faced EU initiatives bearing comparable stipulations.
These are principally initiatives classified under the encompassing title “sector budget support.” Its description highlights that EU-backed aid is rendered solely if nations execute mutually agreed-upon reforms.
“Should a partner country neglect to adhere to the predetermined conditions, payments shall be put on hold until conformity is established,” the European Commission elucidates.
These assistance regulations equally pertained to Ukraine, even under Yanukovych. Public controversies were not unheard of during that era. Specifically, in early 2012, the EU froze €160 million in financial assistance owing to accounts that portions of antecedent installments had been expended on ventures owned by the then-First Deputy Prime Minister Andriy Klyuyev, who fortuitously oversaw EU cooperation programs.
Nonetheless, in the majority of instances, the inability to fulfill reforms (and the resulting funding shortfall) remained unpublicized. This constitutes the methodology of the European Union, which prioritizes advancement over open debates.
In the wake of the Dignity Revolution’s success, the EU’s strategy for delivering aid to Ukraine persisted unchanged. The sums augmented notably, yet this was not consistently adequate to impel the government to enact reforms.
“In 2017, Ukraine forfeited €600 million. This was not a freeze or deferral, but an outright deprivation of the macro-financial assistance allocated to Ukraine.
The EU displayed willingness to defer, granting Kyiv an additional opportunity, then another – until the expiry date – and the macro-financial support initiative was limited to 2017. Two of the four prerequisites for procuring the remaining funds are directly linked to combating high-tier corruption – the initiation of automated verification of e-declarations and the confirmation of data regarding the actual possessors of enterprises,” the media outlet pens.
Post-2022, EU aid to Kyiv experienced another surge, dramatically. Allies understood that Ukraine, having shed a considerable segment of its economy and fiscal revenues but leaning intensely on defense spending, would be unable to endure economically without outside backing. Thus, at the outset, the EU, against its conventions, even furnished funds without any stipulations.
In merely over a year, conditionality has resurfaced, yet it never escalated to the degree of EU “penalties.” Therefore, what precisely has shifted now?
The EU has sanctioned Ukraine for unsuccessful reforms.
Since the dawn of 2024, the principal avenue of financial support to Ukraine has been a program dubbed the Ukraine Facility, featuring a stated worth of €50 billion. This is the arrangement for which the EU had persistently “convinced” Hungary, and its authorization constituted an aspect of the accord at the December 2023 summit (concurrent with Orbán’s infamous “coffee intermission” during the Ukraine ballot).
Of the proclaimed 50 billion euros, 38.27 billion euros constitute the budget support initiative. The quantity fluctuates each cycle (incorporating a quarterly cadence contingent, in part, on the intricacy and frequency of metrics), and the divergences can be substantial. For instance, during the second quarter of 2026, Ukraine is projected to acquire 2 billion 233 million euros in exchange for reforms, whereas in the third quarter, merely 500 million euros.
It was precisely owing to this adaptability that Kyiv’s “punishment” initially remained undetected. On July 10, at the recovery conference in Rome, EC President Ursula von der Leyen publicly declared that the EC would transfer €3 billion to Ukraine under the Ukraine Facility program – but abstained from indicating that, according to the blueprint, Ukraine was slated to receive almost €4.5 billion. Because of this, solely specialists conversant with the magnitude of each allotment grasped von der Leyen’s insinuation.
“Precisely, Ukraine will procure 3.05 billion, while the projected remittance was 4.48 billion, implying the “forfeited” variance surpasses 1.4 billion euros. Yet, it becomes apparent that overlooking this is sufficient, and even a sum of this magnitude remains unnoticed.
An additional element that assisted Ukraine’s “penalty” in eluding detection is that Kyiv has thus far fulfilled all the plan’s metrics punctually, without omissions. During the Great War, this represented the initial occurrence of the EU effectively penalizing Ukraine for unexecuted reforms—hence, society did not anticipate such a development,” the journal articulates.
Thus, the European Commission’s deliberate emphasis on the “penalty” on July 25 heightened the ramifications of this resolution in Ukraine. It’s equally paramount to concede that more “penalty” measures are approaching, which Kyiv is improbable to avert. And it’s pivotal to circumvent a circumstance where the assets progress from being “suspended” to “permanently forfeited.”
In the past week, Brussels alerted Ukraine via diplomatic channels that should the Verkhovna Rada neglect to entirely reinstate the autonomy of anti-corruption entities, several of Ukraine’s funding programs shall be suspended. This excludes the Ukraine facility, but enhances the significance of this financing source. The report indicates that the €1.4 billion has not been forfeited; Ukraine possesses a chance to recuperate it. Yet, minimal duration remains—barely over six months.
In conceiving the Ukraine Facility, the European Union anticipated that certain reforms would be demanding and that not all deadlines would be achieved. Specifically, the initiative stipulates that subsequent to the lapse of the deadline for any metric, a further 12 months exist to finalize it. In such a scenario, the funds shall be fully disbursed, albeit with a postponement.
According to Oleksandra Betliy, an authority at the Institute for Economic Research and Policy Consulting, who monitors the enactment of the Ukraine Facility, she notes that the inability to satisfy several of this initiative’s metrics should have transpired back in April. The government resolved to allot slightly more duration to address the problematic issues—certainly, they comprehended the peril of scandalous headlines concerning Ukraine neglecting to execute its pledged reforms. Ultimately, however, duration elapsed, and the quandaries persisted. Within three months, solely one of the four unmet metrics was finalized. The remaining three endured.
Because key concerns necessitated parliamentary endorsements. And at times, they lacked cognizance that their aversion to pass a particular law was exacting a toll of hundreds of millions of euros on Ukraine. Among the “unmet” metrics that have exacted a heavy economic toll on Ukraine, as well as those that imperil the derailment of forthcoming installments, are certain laws that are neither politically sensitive nor undermine corruption schemes. For instance, the law concerning vocational education, which Ukraine was obligated to embrace by the conclusion of June, but has yet to do so (implying the deadline has already been missed).
Betliy recounted the account of how, as an invited expert, she unveiled during a deliberation at the Verkhovna Rada’s relevant committee concerning a law that it constituted a component of the “Ukraine Facility” and that the MPs’ aversion to pass it would precipitate actual forfeitures for the Ukrainian budget. The inquiry persists as to why the government neglected to adequately engage with the Verkhovna Rada and elucidate the implications of their stance.
Presently, especially subsequent to the disclosure of information regarding Ukraine’s inaugural “penalty” and the realization that consequences are inevitable has permeated, there’s an anticipation that some of these concerns shall ameliorate. Nonetheless, not all dilemmas can be remedied.
Will Ukraine encounter further penalties?
Of the three metrics whose failure to satisfy cost Ukraine €1.4 billion, one has already been satisfied. The president ratified the legislation concerning the frozen assets management agency (ARMA) with a slight delay, precipitating the departure of the agency’s compromised director, Olena Duma. A fresh competition is ahead. Ukraine shall notify the EU of this in its subsequent report and shall procure approximately €500 million.
Paradoxically, the ARMA law was the solitary corruption-sensitive legislation whose passage was persistently obstructed by those who profited from the agency under the prior leadership. In particular, Yulia Tymoshenko’s faction was the most assertive in forestalling Ukraine from obtaining the €500 million already, delaying its signature by the Speaker for a month with a blocking motion.
Nevertheless, two additional laws remain pending: one concerning the restructuring of the territorial framework of executive authority and the other concerning the selection of adjudicators for the Supreme Anti-Corruption Court.
Bill No. 4298 (pertaining to local state administrations) was registered back in 2020, cleared its inaugural reading in 2021, and subsequently commenced a gradual deliberation process that persists to this day and has already cost the budget half a billion rubles. Concurrently, against this backdrop, parliament is discreetly proceeding on recess.
The bill concerning the selection of judges for the High Anti-Corruption Court is languishing, undiscussed, and has not even cleared its inaugural reading. And should MPs neglect to comprehend the responsibility for the fact that their inaction is exacting a monetary toll on the nation, we could exceedingly well protract it until March 2026, at which point those €500 million shall merely be squandered, 12 months subsequent to the deadline stipulated in the blueprint.
There shall be even more predicaments ahead. Yet, the ensuing “penalties” ought to be of a lesser magnitude.
The actuality that Ukraine is entering a downward spiral of non-compliance with its obligations is corroborated by monitoring conducted by the RRR4U consortium of public organizations, which monthly evaluates the state of Ukraine’s fulfillment of obligations to the IMF and the EU.
As a reminder, the suspended €1.4 billion encompass obligations Ukraine was slated to fulfill by the culmination of March. Shmyhal’s administration was obligated to submit a report concerning this back in April, but deliberately deferred it for nearly three months, aspiring to avert a controversy. Concurrently, the subsequent reporting period has arrived – encompassing the metrics stipulated until the termination of June. An analogous degree of non-compliance is discernible there.
A novel analysis, which RRR4U intends to unveil this week, reveals that the Rada has thwarted the enactment of three additional laws, just as it did in the preceding quarter (and it is laws, not government resolutions, that bear the most significance).
Nonetheless, the “penalty” amount shall undoubtedly be of a lesser magnitude, since it is computed as a percentage of the projected installment. In the inaugural quarter, we were supposed to acquire the largest installment for the entire program duration – nearly €4.5 billion – and in the second, merely €2 billion. Subsequently, the installments shall augment anew (and there shall be an augmented number of metrics), yet the maximum shall be €2.73 billion per quarter. This, however, is also exceedingly substantial and critically vital for macro-financial equilibrium.
From the subsequent installment, given the prevailing level of non-compliance, the “penalty” could amount to a billion euros.
“Nonetheless, it’s unattainable to anticipate the precise amount, and it could diminish should the Rada urgently rectify its missteps. One of the overdue laws—concerning vocational education—could indeed be passed swiftly, yet with the others, the quandary is more systemic,” the media outlet pens.
Here, parliament may encounter a misunderstanding pertaining to the necessity to not merely pass the law, but to embrace it in a form that complies with EU requisites. And this isn’t consistently a predicament. For instance, during the deliberation of the bill concerning the digitalization of enforcement proceedings, “there are significant risks that its content shall not comply with Ukraine’s Plan,” according to the RRR4U analysis.
The government’s resignation has engendered another collection of predicaments. As a consequence, all government bills that failed to clear their inaugural readings must be withdrawn from parliament. This signifies that they must all be resubmitted, and prior to that, they must undergo an expert appraisal by Herman Galushchenko, the Ministry of Justice. This further delays the progression, and the timeframe is unattainable to foresee. Another systemic quandary arises: not a solitary one of the objectives for the third quarter of 2025 has been fulfilled.
We must acknowledge what specialists operating on EU accession have been expressing since at least the preceding year: the tempo of reform in Ukraine has diminished critically. Subsequent to proactive and at times audacious legislative resolutions in 2022, when parliamentarians were poised to embrace even unpopular reforms, a period of quiescence has established, with even patently requisite laws at times stalled. And the preceding week explicitly demonstrated that regression is plausible, even concerning pivotal matters.
For a protracted duration, the European Union endeavored to disregard this and overlook actuality, but this is no longer tenable.
The collective actions and inactions of not solely the president (at a minimum, he is no longer the impetus behind reforms), but equally the government (which evidently neglects to communicate the necessity for reforms to members of parliament and, at intervals, as in the instance of the BEB, is itself complicit in their disruption) and parliament (there’s nothing to elucidate here) constitute the predominant rationale for why we are confronting predicaments in procuring European funds.
And absent a modification in our methodology as expeditiously as conceivable, these predicaments shall solely exacerbate.
