The European Union has suspended all financial aid to Ukraine after lawmakers voted through the controversial Law 21414 that strips the leading anti-corruption law enforcement agencies of their independence last week, Ekonomichna Pravda reported on July 29.

On July 24, EU representatives informed Prime Minister Yulia Svyrydenko’s government that aid payments were being paused in response to the curtailment of powers of the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialised Anti-Corruption Prosecutor’s Office (SAPO), Ekonomichna Pravda reports citing four senior sources in the Ukrainian government, diplomatic circles and parliament.

The suspension affects Ukraine’s access to the EU-backed Extraordinary Revenue Acceleration (ERA) Loans programme—valued at approximately $20bn, which Kyiv had expected to receive by the end of 2025. Financing from the European Bank for Reconstruction and Development and the European Investment Bank have also been frozen. Sources indicated that disbursements under the Ukraine Facility, another major funding mechanism, may also be halted.

Kyiv had expected to receive €12.5bn in 2025 under the Ukraine Facility and a further €17.2bn via the ERA Loans. While €3.7bn from the Ukraine Facility and €8bn from frozen Russian assets have already been transferred to the government, most of the anticipated EU funds—totalling about €18bn—have not yet been disbursed, according to the Ministry of Finance, Vedomosti reported.

The government is short of some $40bn in external funding to cover this year’s forecast budget deficit and defence spending, the Ministry of Finance (MinFin) said last week. Ukraine’s new prime minister, Yuliia Svyrydenko, said Kyiv will probably ask for a new International Monetary Fund (IMF) loan to plug a widening budget deficit.

The 2026 state budget's external financing deficit will reach $19bn. Roksolana Pidlasa, head of the parliamentary budget committee, said that after adopting amendments to Ukraine's budget this year, its planned deficit will be $42bn (based on the estimated exchange rate), and there is no reason to think it will decrease next year. As a result, the need for external financing will remain at about $40bn.

The suspension of outside help could be lifted if Ukraine’s parliament reverses the legislative changes. Ukrainian President Volodymyr Zelenskiy was forced into a humiliating climbdown on Law 21414 after the first anti-government protests appeared immediately after the passage of the law. However, rather than cancel the law, as the EU appears to be demanding, Zelenskiy immediately proposed a fixer law that will guarantee the independence of the anti-corruption bodies instead that is due to be read on July 31. It remains to be seen if that satisfies the European Commission (EC).

In a worrying development that suggests that Zelenskiy is more concerned with consolidating his power than sticking to the EU liberal reform programme, on July 28 the president signed a law increasing the number of Ukraine Security Service (SBU) staff both in peacetime and wartime. The SBU, Ukraine’s answer to Russia’s FSB, is directly under the president’s control. Law 21414 also put all Ukraine’s law enforcement agencies, including NABU and SAPO, under the control of the Prosecutor General Ruslan Kravchenko, who is also a presidential appointee.

The new SBU law envisages increasing SBU personnel from 27,000 to 37,000 during peacetime, and from 31,000 to 41,000 during wartime. The law increases SBU officers’ access to weapons and combat vehicles and a new 10,000-man strong Special Operations Center A, anti-terrorism unit will be established.

On July 25, European Commission spokesperson Guillaume Mercier said the EU would reduce the fourth tranche of Ukraine Facility aid due to Ukraine’s failure to implement three key reforms. On July 28, Frankfurter Allgemeine Zeitung reported that the European Commission had “threatened to cut off all financial aid to Kyiv”.