By David Lawder
WASHINGTON (Reuters) -The World Bank said on Wednesday its executive board approved $2.05 billion in Development Policy Operation funding for Ukraine that includes the first grant from a new $20 billion U.S. loan fund for Kyiv that is backed by income from frozen Russian sovereign assets.
The new package aimed at boosting Ukraine's financial and economic stability also includes World Bank financing of $1.05 billion that is enhanced with loan guarantees from a trust fund supported by Japan and Britain, the World Bank said in a statement.
The U.S. Treasury last week transferred the $20 billion in loan funds to a new World Bank financial intermediary fund for Ukraine, part of some $50 billion in financing for Ukraine backed by the Russian assets that have been frozen since Russia invaded Ukraine in February 2022.
The $1 billion grant from the fund marks the first resources flowing to Ukraine from the G7 loan plan, which was agreed by G7 allies Japan, Canada, Britain, France, Germany, Italy and the U.S. in October after months of negotiations.
U.S. President Joe Biden's administration had sought to lock in the loan to Ukraine quickly before the January inauguration of President-elect Donald Trump, who has complained about the high cost of U.S. support for Ukraine. Trump has said he will end the war quickly, without specifying how.
The new Development Policy Operation includes the funding to Ukraine's Finance Ministry for budget support alongside policy reforms to foster economic stability and facilitate a structural shift toward sustainable growth.
These include measures to enhance competition in the railway sector, promote renewable energy production, boost credit to agriculture and streamline state involvement in the banking sector, the World Bank said.
The bank's reform prescriptions also call for strengthening domestic revenue generation, including aligning motor fuel tax rates with those in the European Union and revaluing agricultural land. It also aims to update government procurement legislation.
Bob Saum, the World Bank's Eastern Europe country director, said that despite major challenges from the war, Ukraine has stabilized its economy and is working to build a "vibrant market economy" as it aspires to join the EU.
"The World Bank Group and our international partners will continue to support the Ukrainian people in realizing their EU aspirations," Saum said.