GAD’s interest rate advice for the Ukraine loan
GAD advised HM Treasury on the interest rate to be charged on the UK’s £2.26 billion loan to Ukraine.
Credit: Max Kukurudziak, Unsplash
We analysed and advised HM Treasury on the options around setting an interest rate on UK’s loan to Ukraine.
The Chancellor Rachel Reeves and Ukraine’s Finance Minister Sergii Marchenko signed the UK-Ukraine Bilateral agreement at the beginning of March, witnessed by the Prime Minister and President Zelenskyy at a ceremony in Downing Street.
GAD assessed financial considerations for setting an interest rate on the loan of £2.26 billion to Ukraine. It will be paid back using the extraordinary profits generated on sanctioned Russian sovereign assets held in the EU.
This is the UK’s contribution to the G7 Extraordinary Revenue Acceleration (ERA) Loans to Ukraine scheme, through which G7 countries will collectively provide $50 billion to support Ukraine.
Repaying the loan
The loan is novel in that its repayments will be drawn from a future income stream derived from the profits on immobilised Russian sovereign assets. This means that careful consideration of the potential income stream of these assets had to be considered in our calculations.
Our analysis and supporting assumptions formed the basis of our advice to HM Treasury around the level and structure of the interest rate on the loan.
Credit: iStock Photo
UK commitment
Deputy Government Actuary Matt Gurden said: “The work we undertook to advise on the interest rate played a key part in ensuring the suitability of the UK government’s loan contribution to Ukraine.”
The funding will be delivered in 3 equal annual payments of £752m. The announcement of the loan agreement is on top of the £3 billion a year commitment by the UK to provide military aid for Ukraine.