Ukraine has already lost 1.4 billion euros because Kyiv has not implemented promised reforms
After parliament passed and the president signed a law that destroyed the independence of the NABU, Ukraine was rocked by the news that the EU had "cut" its financial aid tranche to the Ukrainian budget from nearly €4.5 billion to €3.05 billion.
According to Censor.NET, this is mentioned in an article by European Truth.
Despite the fact that President Zelenskнy submitted a bill to parliament that repeals the regulations he had just approved, the European Union decided that now is not the time to remain silent about the problems. In particular, a spokesperson for the European Commission stated that the EU would give Ukraine less money because Kyiv had not carried out the promised reforms. On the same day, the countries approved a "cut" tranche, and the government should receive this money soon. All this has created the impression among many Ukrainians that Ukraine has been fined €1.5 billion for its "failed anti-corruption measures."
"However, the reality is different. And it cannot be said that it is 'better'," the publication notes.
Indeed, the freezing of these funds (which have not been lost, but merely frozen) is not related to the attack on NABU. This is easy to prove. The European Commission officially confirmed this two weeks ago in Rome, but decided not to publicly emphasize Ukraine's "punishment." Another thing is that last week's events prompted Brussels not to hide the problems with reforms.
But the main thing is that even greater difficulties lie ahead. Ukraine is entering a spiral of reform failure. And that means there will be penalties and criticism. Because it is no longer possible to hide the problems.
"Money in exchange for reform" and fines
The publication notes that providing aid to partner countries in this form is common practice for Europe. Long before Ukraine began its path toward membership, it encountered EU programs with similar conditions.
These are primarily programs that fall under the umbrella term "sectoral budget support." Its description emphasizes that EU financial assistance will only be provided if countries implement pre-agreed reforms.
"If a partner country fails to comply with the agreed conditions, payments will be suspended until compliance is achieved," explains the European Commission.
These rules of assistance also applied to Ukraine, including during Yanukovych's presidency. At that time, there were also public scandals. In particular, in early 2012, the EU froze financial assistance worth €160 million due to reports that part of the previous tranches had been spent to benefit the business interests of then-First Deputy Prime Minister Andriy Klyuyev, who, coincidentally, was in charge of cooperation programs with the EU.
However, in most cases, failure to implement reforms (and underperformance in terms of funds) remained unpublicized. This is the approach of the European Union, which is interested in change rather than public scandals.
After the victory of the Revolution of Dignity, the EU's approach to assisting Ukraine remained unchanged. The amounts increased significantly, but this was not always a sufficient argument for the authorities to carry out reforms.
"In 2017, Ukraine lost €600 million. And this was not a freeze or a postponement, but a definitive loss of the macro-financial assistance allocated to Ukraine.
The EU was prepared to wait, giving Kyiv another chance, then another, until the deadlines expired, and the macro-financial assistance program was limited to 2017. Two of the four requirements for receiving the money that remain unfulfilled are directly related to the fight against high-level corruption: the launch of automatic verification of e-declarations and verification of information about the beneficial owners of companies," according to European Truth.
After 2022, the amount of EU aid to Kyiv increased again, and significantly so – partners realized that otherwise Ukraine, which had lost a significant part of its economy and budget revenues but had to spend incomparably more to continue defending itself, would not be able to survive economically without external assistance. Therefore, contrary to its principles, the EU initially provided funds without any conditions.
A little over a year later, the conditionality returned, but the EU never imposed any "penalties." So what has changed now?
The EU punished Ukraine for failing to implement reforms
Since the beginning of 2024, the main line of financial assistance to Ukraine has been a program called Ukraine Facility with a declared value of €50 billion. This is the program for which the EU had long been persuading Hungary, and its approval was one of the elements of the agreement at the summit in December 2023 (precisely when the famous "Orbán's coffee break" took place during the vote on Ukraine).
Of the declared amount of half a trillion, €38.27 billion is allocated to the budget support program. The amount varies each time (there is a quarterly schedule, which depends, among other things, on the complexity and number of indicators), and the difference can be very significant. For example, in the second quarter of 2026, Ukraine is to receive €2.233 billion in exchange for the reforms carried out, and in the third quarter, only €500 million.
It was precisely because of this flexibility that Kyiv's "punishment" initially went unnoticed. On July 10, at a reconstruction conference in Rome, EC President Ursula von der Leyen publicly announced that the EC would transfer €3 billion to Ukraine under the Ukraine Facility program — but refrained from mentioning that Ukraine was supposed to receive nearly €4.5 billion under the plan. As a result, only experts who know the size of each tranche understood von der Leyen's hint.
"To be precise, Ukraine will receive 3.05 billion, while the planned payment was 4.48 billion, meaning that the "lost" difference is just over 1.4 billion euros. But it turned out that it was enough not to emphasize this, and even such a large amount remains unnoticed.
Another factor that helped keep the "penalty" for Ukraine unnoticed was that Kyiv had so far fulfilled all the indicators of the plan on time, without any delays. During the Great War, this was the first time that the EU had essentially punished Ukraine for failing to implement reforms, so society did not expect such a development," the publication writes.
Therefore, the fact that on July 25, the European Commission deliberately emphasized the "penalty" intensified the resonance of this decision in Ukraine. It is equally important to realize that new "penalties" are ahead, which Kyiv is unlikely to be able to avoid. And it is important not to let the situation reach a point where the funds are transformed from "frozen" to "permanently lost."
Last week, Brussels warned Ukraine through diplomatic channels that if the Verkhovna Rada does not fully restore the independence of anti-corruption bodies, several Ukraine's funding programs will be frozen. This does not apply to the Ukraine Facility, but it does increase the importance of this source of funding. The publication emphasizes that €1.4 billion has not been lost, and Ukraine still has a chance to receive it. However, there is not much time left, just over six months.
When developing the Ukraine Facility, the European Union anticipated that some reforms would be difficult and that not all deadlines would be met. In particular, the program provides that after the deadline for any indicator has passed, there are still 12 months to complete it — in this case, the money will be received in full, but with a delay.
According to Oleksandra Betliy, an expert at the Institute for Economic Research and Policy Consulting, Ukraine is monitoring the implementation of the Ukraine Facility. She notes that the failure to meet several indicators of this program was expected to occur in April. The government decided to take a little more time to resolve the problematic issues — probably because it understood the danger of scandalous headlines about Ukraine not carrying out the reforms it had promised. But in the end, time passed, and the problems remained. In three months, only one of the four failed indicators was completed. The other three remained unfulfilled.
This is because key issues required a vote in parliament. And there, they had no idea that their unwillingness to pass this or that law was costing Ukraine hundreds of millions of euros. Among the "failed" indicators that have cost Ukraine dearly, as well as those that threaten to disrupt subsequent tranches, are individual laws that are not politically sensitive or that break corruption schemes. For example, the law on vocational education, which Ukraine was supposed to pass by the end of June, has not yet been passed (i.e., the deadline has already been missed).
Betliy told a story about how she, as an invited expert, learned during discussions in the relevant parliamentary committee on one of the laws that it was part of the Ukraine Facility and that the unwillingness of MPs to pass it would lead to real losses for the Ukrainian budget. The question of why the government did not work with the Rada as it should have and did not explain the consequences of their position to the deputies remains open.
Now, especially after the information about the first "penalty" for Ukraine became public and it became clear that the consequences are inevitable, there are expectations that the situation will change in some respects. But not all problems can be solved.
Will there be more penalties for Ukraine?
Of the three indicators, failure to meet which cost Ukraine €1.4 billion, one has already been fulfilled. The president signed the law on the Asset Recovery and Management Agency (ARMA) with a slight delay, which led to the resignation of the agency's toxic head, Olena Duma; a new competition is ahead. Ukraine will inform the EU about this in its next report and will receive about €500 million.
Paradoxically, the law on ARMA was the only corruption-sensitive law whose adoption was persistently blocked by those players who had profited from the agency under the previous leadership. In particular, Yulia Tymoshenko's faction contributed the most to Ukraine not receiving €500 million right now, delaying its signing by the speaker for a month with the help of a blocking resolution.
However, two other laws remain unadopted: one on reforming the territorial organization of the executive branch and one on the selection of judges for the High Anti-Corruption Court.
Bill No. 4298 (on local state administrations) was registered back in 2020, passed its first reading in 2021, and then entered into a slow discussion process that continues to this day and has already cost the budget half a billion. Meanwhile, against this backdrop, parliament is calmly going on vacation.
The draft law on the selection of judges for the High Anti-Corruption Court remains stalled, without discussion, and has not even been adopted in the first reading. And if MPs fail to understand that their inaction is costing the country money, we may well reach March 2026, when these €500 million will simply "burn up" because 12 months will have passed since the deadline set in the plan.
There will be even more problems ahead. But the next "penalties" should be smaller.
The fact that Ukraine is entering a spiral of defaulting on its obligations is confirmed by monitoring conducted by the RRR4U consortium of civil society organizations, which assesses Ukraine's compliance with its obligations to the IMF and the EU on a monthly basis.
Let us remind you that the frozen €1.4 billion is a commitment that Ukraine had to fulfill by the end of March. The Shmygal government was supposed to submit a report on this in April, but deliberately delayed it for almost three months, hoping to avoid a scandal. But in the meantime, the next reporting period has arrived, based on indicators set for the end of June. There, we see the same level of non-compliance.
A fresh analysis that RRR4U plans to present this week shows that the Rada has blocked the adoption of three more laws, as it did in the previous quarter (it is laws, not government decisions, that carry the most weight).
However, the amount of the "penalty" will definitely be lower, as it is calculated as a percentage of the planned tranche. In the first quarter, we were supposed to receive the highest tranche for the entire duration of the program—almost €4.5 billion—and in the second quarter, only €2 billion. Further tranches will increase again (and there will be more indicators), but the maximum will be €2.73 billion per quarter. Which, however, is also a lot and critically important for macro-financial stability.
From the next tranche, taking into account the current level of non-compliance, the "penalty" could amount to an additional billion euros.
"However, it is impossible to predict the exact amount, and it may decrease if the Rada urgently works on the errors. One of the overdue laws—on vocational education—can indeed be passed quickly, but with others, the problem is more systemic," writes European Truth.
Here, parliament may encounter a lack of understanding that it is not enough to simply pass a law, but that it must be passed in such a way that it meets EU requirements. And this is not always easy to achieve. For example, during the consideration of a draft law on the digitization of enforcement proceedings, "there are significant risks that its content will not comply with Ukraine's Plan," according to the RRR4U analysis.
The resignation of the government created another set of problems. Because of this, all government bills that were not voted on in the first reading must be withdrawn from parliament. This means that all of them must be resubmitted and undergo an examination by Herman Halushchenko's Ministry of Justice. This further delays the process, and it is impossible to predict the timing. And another systemic problem arises: none of the tasks for the third quarter of 2025 have been completed.
We must acknowledge what experts involved in EU accession have been saying since at least last year: the pace of reforms in Ukraine has slowed dramatically. After the active and sometimes bold legislative decisions of 2022, when parliamentarians were ready to adopt even unpopular reforms, a period of stagnation began, when even obviously necessary laws are sometimes stalled. And last week clearly showed that a rollback is possible. Even on critical issues.
For a long time, the European Union tried to turn a blind eye to this and ignore reality, but now that is no longer possible.
Joint actions and inaction not only on the part of the president (who is certainly no longer a driver of reform), but also the government (which clearly does not communicate the need for reforms to MPs and sometimes, as in the case of the BEH, participates in their disruption) and parliament (no explanation needed here) are the main reasons why we have encountered problems in obtaining European funds.
And if we don't change our approach as soon as possible, these problems will only get worse.
