March 31, 2015 / 4:25 PM / 4 years ago

EU governments back 1.8 billion euro Ukraine loan

BRUSSELS (Reuters) - European Union governments formally approved a 1.8 billion euro ($1.9 billion) loan for Ukraine on Tuesday to help save it from bankruptcy.

Ukrainian President Petro Poroshenko attends a news conference in Kiev March 20, 2015. REUTERS/Gleb Garanich

The decision was the last approval required after the European Parliament agreed the loan last week.

It will be paid out in three instalments with a maximum maturity of 15 years, an EU statement said.

Ukraine, fighting a costly war against pro-Russian separatists, is relying on international support to avoid default.

The International Monetary Fund’s board earlier this month signed off on a $17.5 billion loan for Ukraine. That will be combined with $7.5 billion in loans from other international organizations and an expected $15.4 billion in debt relief that Ukrainian officials hope to negotiate with bondholders.

The European Commission will work out an agreement with Kiev, laying down economic policy and financial conditions for the EU loan, focusing on structural reforms and sound public finances, the EU statement said.

An EU document approving the loan said Ukraine faced balance of payments and liquidity problems, worsening finances due to the cost of the conflict, a deeper-than-expected recession and loss of tax revenue from separatist-controlled areas.

“At the same time, pre-existing structural weaknesses and budgetary and external financial vulnerabilities have also contributed to the deterioration of the economic situation,” it said.

Ukraine had been struggling with its finances long before the conflict in the east began, with successive governments resisting IMF pressure to take unpopular steps such as removing gas price subsidies.

($1 = 0.9317 euros)

Reporting by Adrian Croft; Editing by Ruth Pitchford

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