Amid all the worrying about a new US administration’s Ukraine policy, and battlefield setbacks, there’s some very good news. The country is flush with cash and well able to survive through this year (and probably) next year too.
The Biden team saw the potential threats to Ukraine funding from a Trump administration and did much in its final months in office to bolster its finances.
A key element was the G7’s $50bn Extraordinary Revenue Agreement (ERA) for Ukraine finalized in the last few days of the Biden term. This securitizes and brings forward the future interest on the $300bn-plus in Central Bank of Russia assets immobilized in Western jurisdictions.
This is shaped around a non-recourse loan to Ukraine from the G7 countries, which it will repay once Russia agrees to make war reparations. The US contribution of $20bn was paid in December. The balance is being provided by the EU, and the balance made up from the UK, Canada, and Japan.
The first disbursements from the ERA have been made, but the bulk of the monies remain untouched as credits for Ukraine. Alongside the ERA, the EU still has the bulk of its €50bn ($52bn) Macro Financial Assistance (MFA) program for Ukraine, agreed in 2023 but to run for the period 2024-2027.
With annual commitments from the UK of about $3.5bn, Japan ($5bn), plus contributions from Canada, South Korea, and others, as well as another $10bn from various international financial organizations, Ukraine has ready access to well in excess of $100bn.
In addition to this, the National Bank of Ukraine has now accumulated record foreign exchange reserves of around $46bn. President Zelenskyy’s government hence has a potential war chest of close to $150bn regardless of any new decisions made in Washington.
Set against annual budget/balance of payments of $40bn billion, total funding needs of $100bn as per disbursements to date, Ukraine should be able to fund itself until well into 2026.
And yet there is a vulnerability. The US may not be the arsenal of the free world in the way that it was in the mid-20th century, but it remains a far greater military producer than Europe (despite the continent’s efforts to rearm.)
The US has provided an estimated $66bn in military support from a combined bill of close to $100bn. It’s true that Europe and other allies has sent much more aid to Ukraine as part of all Western efforts — $125bn compared with $88bn, according to the Kiel Institute’s Ukraine Support Tracker —but that includes non-military assistance.
The US is absolutely critical in provision of military gear and munitions for Ukraine. Clearly without this key US backstop, Ukraine’s ability to continue the war would be in doubt.
Sure, the Biden administration has front loaded and pre-positioned a weight of military supplies in or close to theater, as part of the $61bn package of support for Ukraine agreed by the US Congress in the spring of 2024 (after much delay.) But these supplies will likely only last a period of some months — perhaps to mid-year.
If US military support ends or flags (there is no current discussion in Washington about a new aid package) then Western allies might try but would probably fail to bridge the gap. Or the Trump administration will relent and release additional military supplies.
There is a third possibility. Zelenskyy’s government has the money (see above) to fund contracts in the US. The Trump administration may have to decide whether to decline a multi-billion dollar order for weapons.
This order could be further bankrolled by non-US allies or even by seizing all the underlying Russian Central Bank assets still in Western hands.
The idea of arms contracts fulfilled in the US but paid for without recourse to the US taxpayer may prove appealing to the administration’s mercantilist instincts. It would produce one of the biggest foreign arms orders in history, likely running to many, many billions of dollars in a multi-year program.
Just think about all the lovely US jobs created as a result.
Timothy Ash is a Senior Emerging Markets Sovereign Strategist at RBC BlueBay Asset Management in London. He is an Associate Fellow at Chatham House on their Russia and Eurasian program.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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