IMF approves USD 1.4 bln tranche for Ukraine, to merge next two tranches

Макроэкономика 01.09.2014 The executive board of the International Monetary Fund (IMF) completed on Aug. 29 its first review of Ukraine’s performance under an economic program supported by its stand-by arrangement (SBA) and enabled the disbursement of USD 1.39 bln, the program’s second tranche. Its economic policies have been generally implemented as agreed upon with Ukrainian authorities persisting in taking difficult economic measures despite the volatile political situation, the IMF reported, also recognizing that the armed conflict in the east is taking its toll on the economy and society. Nevertheless, the IMF reported it’s building its plans on the assumption that the conflict will subside in the coming months. In completing its review, the executive board approved waivers of nonobservance of performance criteria related to international reserves accumulation, publicly guaranteed debt and the government’s cash deficit on the basis of corrective actions taken. In addition, in light of the slight delay in completing the program’s first review, the board approved the Ukrainian authorities’ request for merging the remaining two reviews scheduled for 2014, while keeping the total financing under the arrangement unchanged. Alexander Paraschiy: The announcement is long-awaited news that should improve confidence in Ukraine’s solvency for the next few months. At least the redemption of USD 1.6 bln in Naftogaz Eurobonds in September looks much less risky now. Nevertheless, the Fund’s positive review, and its readiness to merge the third and fourth tranches (worth USD 2.8 bln combined) to provide the opportunity that all funds committed for 2014 are delivered by the year end, are very helpful in terms of stabilizing Ukraine’s ForEx market and strengthening the budget’s solvency. In light of the recent Russian army offensive though, the IMF assumption that the armed conflict in the east will subside in the coming months looks like a wishful thinking. Therefore, there could be more changes in the program over the upcoming months. The Fund said it has mitigated requirements on program benchmarks, providing no details. Indeed, we anticipate widened financial support from the Fund if Ukraine’s geopolitical situation worsens.