The governors of the European Bank for Reconstruction and Development (EBRD) have approved a resolution to increase the bank’s paid-in capital by €4bn, raising its capital base to €34bn, the EBRD said in a statement on December 19.

The additional capital from shareholders will be used to provide significant and sustained investment for Ukraine’s real economy, both in wartime and in reconstruction, and will help support the EBRD’s priorities in all economies where it operates. The EBRD has already deployed more than €3bn in Ukraine since Russia’s invasion of the country in February 2022.

This final step, which follows a recommendation submitted by the EBRD’s board of directors in November 2023, concludes the formal process of increasing the EBRD’s authorised capital stock. The capital increase will take effect on 31 December 2024.

This is the third capital increase in the EBRD’s history, following similar decisions in 1996 and 2010. It follows the governors’ recognition in May 2023 that supporting Ukraine should be the bank’s highest priority – now and in the future – while also ensuring that it can continue to pursue its strategic priorities across all its regions.

EBRD President Odile Renaud-Basso said: “This is a historic moment for the EBRD. The decision by our shareholders reaffirms their confidence in the bank, with its unique mission and business model focused on delivering impact.”

“The increase in the bank’s capital will enable us to deliver more and become an even stronger bank – a stronger bank for Ukraine, a stronger bank for all our economies and clients, and a stronger bank for our shareholders,” the president added.

The EBRD has been the largest institutional investor in Ukraine for the past 30 years, greatly boosting its support since Russia's 2022 invasion. It deployed €3bn ($3.3bn) to Ukraine for 2022-2023.

Ratings agency Fitch pegged the EBRD's net exposure to guarantees to Ukraine at €2.5bn in June, accounting for 12.8% as a ratio of shareholder equity.

Fitch warned that the EBRD and the World Bank's International Bank for Reconstruction and Development (IBRD) could lose their coveted triple-A credit ratings if Ukraine defaulted on its loans.

The capital addition comes as doubts over the West’s continued funding of Ukraine increase. A US $61bn funding package is tied up in Congress, although senators said there will be another attempt to vote through more money this week, before the year ends.

Likewise, a four-year €50bn EU funding package has been tied up, after Hungarian Prime Minister Viktor Orban vetoed an attempt to approve the funding at a EU summit in Brussels last week. The vote has now been put off until January.

Both packages are needed to cover a $41bn deficit in Ukraine’s 2024 budget, for which the Ministry of Finance (MinFin) admits that $29bn remains unallocated. The Pentagon will run out of funds to replenish arms and equipment sent to Ukraine on December 30 unless Congress passes additional funding, Pentagon Comptroller Michael McCord said in a letter to congressional defence committees made public on December 18.

The head of the International Monetary Fund (IMF), Kristalina Georgieva, warned on December 18 that Ukraine’s efforts to defend itself against Russian aggression could collapse if more Western support is not forthcoming soon.

She said Ukraine can cope with the likely short-term financing deficit for "a couple of months," but Ukraine's economic recovery will be in jeopardy if it is forced to make cuts if not enough support is provided by the West. Further delays could force Ukraine to return to destabilising policies such as money printing.

"We need Ukraine's partners to contribute – both the US and the EU. In the end, I remain optimistic," Georgiyeva said.

Advisor to the President of Ukraine Oleg Ustenko told journalists the government has a Plan B and can finance all planned expenditures in January-February 2024, even without new financial aid. However, the government will run out of money after that.

The warnings come on top of a CNN report that US military experts believe that Ukraine will start to suffer from shortages of materiel “within weeks” if the funding stops. The Armed Forces of Ukraine (AFU) will run short of long-range missiles first, then within months run out of ammunition for its air defence before finally running out of artillery shells in the summer. 

Ukrainian forces already face shortages of artillery shells and have to scale down some military operations due to a decrease in foreign aid, AFU Brigadier General Oleksandr Tarnavskyi said in a comment for Reuters on December 18.

The additional capital will strengthen the EBRD, enabling it to continue providing a sustained level of annual investment in Ukraine of around €1.5bn during wartime, supported entirely by its own balance sheet, and to have the means to increase its support up to €3bn annually once reconstruction begins.

The increase will also ensure that the bank is strong enough to continue fully supporting the other economies where it invests in tackling their transition challenges. 

Shareholders will be entitled to subscribe to the additional shares in accordance with Article 5.3 of the Agreement Establishing the EBRD. The first subscriptions are expected to be received in early 2024, with payments starting from early 2025.

With Iraq having become an EBRD shareholder in November 2023, the bank now has 72 national shareholders in addition to the European Union and the European Investment Bank. The EBRD was founded in 1991 and since that time has invested more than €190bn in more than 6,800 projects. EBRD investments are aimed at making the economies in its regions competitive, well governed, green, inclusive, resilient and integrated.