IMF agrees preliminarily on USD 14-18 bln aid to Ukraine

Макроэкономика 28.03.2014 The IMF mission in Ukraine has reached a staff-level agreement with the government on an economic reform program that would be supported by a two-year standby arrangement, according to an IMF statement released on March 27. The IMF will provide USD 14 to 18 bln in loan to Ukraine under the deal, which is subject to approval by IMF management and its executive board. The approval, expected in April, will depend upon the adoption of a strong and comprehensive package of actions by the Ukrainian government “aiming to stabilize the economy and create conditions for sustained growth”. The government program, as drafted with the IMF, will focus on reforms in the following key areas: monetary and exchange rate policies (targeting inflation, not the exchange rate), the financial sector (securing banking system stability), fiscal policies (consolidating the budget), the energy sector (increasing utility tariffs), and governance (transparent state procurement, independent quarterly audit of Naftogaz). The financial support from the broader international community that the program will unlock amounts to USD 27 bln over the next two years, according to Fund release. The IMF deal opens an opportunity for Ukraine to receive additional financial support from other countries and banks that may amount to USD 13.5 bln, according to Prime Minister Arseniy Yatsenyuk. Alexander Paraschiy: So far, we do not have a clear picture of when the IMF might wire the first transfer. The parliament’s rush to approve the revised 2014 budget and anti-crisis financial legislation testifies to the fact that the IMF wasn’t willing to offer any advances, likely given the poor track record of Ukrainian authorities (recall, the IMF cancelled its standby program with Ukraine in 2009). Yet with all the necessary IMF preconditions seemingly approved yesterday, we anticipate the first wire to arrive promptly after approval from the IMF executive board. Holders of Ukrainian debt instruments will be relieved to know that the agreed recovery measures do not require restructuring Ukraine’s sovereign debt, which was confirmed by IMF spokesman William Murray on March 27.