European Commission vice-president Valdis Dombrovskis said the 1 billion euro ($1.17 billion) loan to Ukraine "will address economic vulnerabilities and support economic stabilisation"

Kiev (AFP) - The European Union agreed to lend Ukraine 1 billion euros ($1.17 billion) to encourage the war-torn country’s economic stabilisation, the European Commission vice-president in charge of the euro said Friday.

“This programme will address economic vulnerabilities and support economic stabilisation,” European Commission vice-president Valdis Dombrovskis said after signing an agreement with Ukraine’s authorities.

According to the deal, the funds will be disbursed in the form of medium- and long-term loans that aim to support “key reforms” in return for Kiev committing to policy changes.

The EU has already paid 1.2 billion euros in low-interest loans to Ukraine since 2015 to help it cope with a devastating economic crisis triggered by the annexation of Crimea by Russia, and a Kremlin-backed separatist insurgency in its east.

But in 2017, the 28-member bloc withheld an additional tranche of 600 million euros because Kiev had not made enough progress on a wide-ranging programme of reforms, including fighting corruption.

In March, in response to Ukraine’s request, the European Commission proposed a new assistance package.

The proposal was adopted by the European Parliament and EU Council in July, just weeks after Kiev set up an anti-corruption court – a key demand of Ukraine’s Western backers.

The new funds will be disbursed in two instalments of up to 500 million euros, each of which is conditional on Ukraine implementing measures demanded by the EU.

“Our current timeframe is to work towards the first disbursement already this year and then potentially the second disbursement in spring next year,” Dombrovskis said.

The agreed programme of policy changes covers in particular the fight against corruption, public finance management, and reforms in the energy sector.

The loans will also be contingent on Ukraine meeting conditions of the International Monetary Fund, which is in ongoing talks with Kiev on resuming its $17.5-billion aid package.