This year, the European Investment Bank, the EU bank, plans to provide Ukraine with more than EUR 1 billion in loans for infrastructure projects, energy efficiency in state and municipal buildings, and support for internally displaced persons and their host communities. The EIB in Ukraine is also actively working to finance healthcare, small and medium-sized businesses. Find out more from the interview with Jean-Erik de Zagon, Head of the EIB Resident Representation for Ukraine.
What is the scale of the European Investment Bank’s activity in Ukraine?
— The European Investment Bank is a European Union institution, and therefore, the role of our bank is to support the EU policy by financing viable projects conformant with it. That’s why we work in Ukraine and allocate financing to it. The EIB boasts a substantial portfolio of investments in Ukraine, which includes close to €6.5 billion in signed loan agreements. Speaking about the sectoral allocation of this financing, the bulk goes to infrastructure: €1.1 billion invested in energy, €1.5-1.6 billion in transport, €1.3 billion in municipal projects and environmental protection. In addition, €2.0 billion was provided in support for small and medium-sized enterprises and over €500 million to finance the private sector. This credit portfolio is clearly conformant with the European Union’s wishes, and that’s not the limit of it.
Perhaps Ukraine needs even greater financing of infrastructure, in particular, road construction. When I’m traveling across your country, I can see a huge need in development of infrastructure. Apparently, in large cities like Kyiv or Lviv the condition of infrastructure is not that bad. But once you leave those cities and move in, say, the eastern or southern direction, the lack of quality infrastructure becomes more visible. I mean not just roads but also, for example, schools and hospitals, and also, public transport. It is very important for local administrations to be able to procure eco-friendly public transport, and this is also one of the key areas in which the EIB provides support. That’s why we are so focused upon supporting the transportation sector.
What plans does the EIB have concerning Ukraine for the nearest future?
— Our program plans are quite substantial. This year, we plan to issue over €1 billion in loans to Ukraine. This is a very ambitious goal, but I think that in the context of COVID-19 it is very important to set goals like that. For all these loans will support the Ukrainian economy, which, like all other countries of the world, was dealt a heavy blow by coronavirus crisis. Therefore, we must be ambitious, and it’s very good that the EIB has launched such a large-scale activity here. Of that amount, almost €600 million will go to infrastructure projects, including €200 million for development of public transport. Presently, we are also discussing a probable agreement on modernization of the Ukrainian Postal Service. It means a €30 million loan. In addition, the EIB will provide financial assistance for development of Boryspil International Airport. This is a complex project, because today, the volume of air transportation is declining. Still, we must prepare Ukraine for the future, that’s why we undertake this project.
I also would like to point out another two projects. Firstly, we are mulling the allocation of almost €300 million in support for energy performance of public and municipal buildings. I believe that this is one of the key initiatives. On the one hand, to increase energy efficiency it is important to develop renewable energy sources. On the other hand, energy consumption must also be efficient.
Secondly, we have an extraordinary financing program for Ukraine, Ukraine Early Recovery, worth €200 million. This program provides financing to eastern regions of Ukraine to support internally displaced persons and the communities receiving them. This is a complex project, because it is hard to work in Eastern Ukraine today. But at the same time, it is a very important project, because it is focused upon hospitals, kindergartens and schools where there is additional pressure upon infrastructure due to the presence of internally displaced persons. This program has been successful until now, and therefore, the EIB is considering the scaling of it with an additional €340 million, which will go to many various projects of supporting internally displaced persons in cities across Eastern Ukraine. I visited many cities and towns across the east of Ukraine, and saw for myself how badly they need infrastructure, and first of all, schools, kindergartens and hospitals. Therefore, this project is extremely important for us.
In what form do you provide financing to Eastern Ukraine?
— We disburse loaned funds to the Ministry for Development of Communities and Territories of Ukraine, and the ministry discusses possible projects with the local administrations. It is extremely important in this process that we maintain strategic coordination with the ministry. They have completely immersed themselves into this project, and successfully utilized the first €200 million.
A few weeks ago, Ukraine launched a new cooperation program with the IMF. Are the terms of EIB loans to our country tied to its cooperation with the IMF?
— As I said earlier, the European Investment Bank is a European Union institution working in Ukraine to implement the EU policy. Therefore, our loans have no direct dependence on cooperation with the IMF but are closely related to the priorities of a united Europe. Nevertheless, the European Union also offers macro-financial assistance packages for Ukraine. The terms of these packages are very much like those required by the IMF. In practice, therefore, if the IMF is dissatisfied with how Ukraine fulfils certain conditions, the EU would probably be also dissatisfied, and that would affect decisions of European institutions, in particular, prevent the disbursement of their loans. So, there is no direct relation, but in practice, the requirements of the IMF and the EU are similar, and therefore, the interdependence between EIB loans and cooperation with the IMF does exist.
To tackle the economic consequences of the COVID-19 pandemic the European Union launches numerous programs of assistance to various counterparties, in particular, in developing countries. What are these programs about, whom are they targeted at, and what is the EIB’s role in their implementation, especially in Ukraine?
— Discussions among EU member states, the European Commission and the European Council presently continue regarding the total amount of a financial package for stimulation of the economy. The sums mentioned range between €500 billion and €750 billion. In this context, the EIB will contribute €25 billion in the form of the so-called Pan-European Guarantee Fund. What we want to do with this money is to mobilize €200 billion more to support the European economy. Our goal is to make sure that all European small and medium-sized enterprises live though this crisis. This is the reason for the creation of this Fund. Outside the European Union, the EIB plans to spend €6.7 billion on tackling the economic consequences of the pandemic. This is a substantial amount. Historically, moreover, we have always been intensively involved in all projects concerning healthcare, and therefore, we have lasting traditions of working with this sector. For example, last year we allocated the total of €30 billion to finance healthcare. Apparently, we will continue doing it. The EIB is also working on a long list of special projects in the healthcare sector, for example, global partnership with the World Health Organization in our efforts in Africa, cooperation with the Bill Gates Foundation in Africa, etc.
Now, let’s get back to Ukraine. First of all, we were asked to provide €50 million in loans to the Ukrainian healthcare sector, mostly to finance medical needs related to the COVID-19 pandemic. In order to quickly respond to this request, we will redirect these moneys from the portfolio intended for local administrations and use them to procure medical equipment. This matter should be settled within the next few weeks. The EIB is also considering the allocation of additional €200 million to improve performance of hospitals. Presently, we discuss this matter with the Ukrainian Finance Ministry and Health Ministry.
In addition, the EIB has €800 million worth of programs supporting small and medium-sized enterprises. We are trying to expedite the utilization of funds loaned under these programs, because the sector of small and medium-sized enterprises (SMEs) was among the hardest-hit by today’s crisis, and therefore, it badly needs assistance. In this regard, we have very constructive talks with the NBU and the Finance Ministry. Fact is, SMEs mostly need funding in hryvnias, while we provide financing in euros or US dollars. Therefore, we are presently trying to find a solution to this problem. All in all, the EIB is actively working on financing healthcare, small and medium-sized enterprises in Ukraine today, and is trying to do everything possible to make sure that these funds in excess of €1 billion, the agreement on disbursement of which has already been signed, are eventually utilized by Ukrainian counterparties. It would provide a significant impetus to the Ukrainian economy in general.
The imposition of quarantine dealt a heavy blow to many countries. Can you assess the present situation and prospects of economies in the EU and beyond, considering the EIB’s insider information?
— The European Investment Bank is a special bank. I’m not sure that we are in the position to assess the situation with the best precision. Therefore, it would’ve been better to address this question to commercial banks in Ukraine. Still, I would like to cite one indicator, because it is extremely important. 14% of work hours has been lost in the world in 2Q 2020. It corresponds to 400 million jobs in the full-time equivalent. This is a huge figure. Recovery after a crisis of such magnitude will take a lot of time. This year, the global economy will decline by 6-8%. There is a probability that it could be even worse, for we still don’t know whether we will have a U-, V- or W-shaped economic recovery.
The situation will be really difficult in the latter-case scenario, because if we are hit by the second wave of spreading coronavirus infection, economic downturn could reach two-digit figures. Ukraine belongs to developing countries, and therefore, the decline here might be somewhat less drastic. Nevertheless, it would still be very significant. That’s why we must mobilize so many resources to fight this crisis. This is also the reason why the EIB’s balance is not the best basis to assess the magnitude of economic decline. In the times of crisis, our activity intensifies manifold, and we are trying to expand our balance, providing support to various countries and projects. The EIB is a very anti-cyclic institution.
What is your take on resignation of Yakiv Smolii as the NBU Governor?
— I don’t want to comment on personalities. This is not the EIB’s business. However, we highly praise the NBU’s performance. We believe that with that governor at the helm, the central bank of Ukraine had many achievements. The target inflation level was achieved, and now, inflation is under control. Having carried out reform of the banking sector, the NBU was able to properly stabilize the financial system. Today, the NBU has a high level of corporate governance: the governor, the board and various committees do a very good job.
For the EIB, it is very important that under the new governor the NBU continues to pursue the current policy. This is what other international financial organizations are also hoping for.
Jean-Erik de Zagon: Head of the European Investment Bank Resident Representation for Ukraine. He holds the degrees of Bachelor of Philosophy and Master of Laws from the Catholic University of Leuven (Belgium), and Master of Business Administration from the Solvay Brussels School of Economics and Management of the Université libre de Bruxelles. In the past, he worked at Nauta Duthil (Rotterdam), Banque Nagelmackers 1747 (Brussels), Banque Nationale de Paris, JP Morgan. Since 1995, he has been working at the EIB, and on 16 March 2018 he was appointed as the Head of the EIB Resident Representation for Ukraine.
By Liubomyr Shavaliuk