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EU approves EUR 600 mln loan tranche to Ukraine

The European Commission decided on March 16 to release a second loan tranche of USD 600 mln of its Macro-Financial Assistance (MFA) program to Ukraine, its official press release said the same day.  It stated the Ukrainian government largely fulfilled policy requirements. With the approval, "the EU reaffirms its long-standing commitment to support Ukraine in its efforts to maintain stability and ensure economic recovery in the country," said Valdis Dombrovskis, the commission vice president. 

 

The funds will be disbursed to Ukraine in late March or early April, the release said, with the expectation that the bill lifting the timber export ban, which has already been submitted to parliament, will be adopted without delay. As further steps, the EU anticipates Ukrainian authorities will work to improve social assistance for internally displaced persons, to address certain trade restrictions, to address energy sector reforms and to fight corruption.

 

With the tranche's approval, Ukraine will have received a total of EUR 2.81 bln in EU loans since early 2014. This includes EUR 1.61 bln disbursed in 2014-2015 as part of two earlier MFA programs, and EUR 1.2 bln as part of the third, ongoing program. Ukraine will be able to receive a final, third EUR 600 mln disbursement under the third MFA program if further reforms are performed.

 

Alexander Paraschiy: The approval of long-awaited EUR 600 mln wire is positive, particularly how the European Comission softened its position on Ukraine. In January, the EU demanded lifting the ban on timber exports as a precondition for the tranche. But already on Feb. 10, European Commission President Jean-Claude Juncker said the commission will be satisfied with merely the bill being submitted to the parliament. 

 

The commission's change of heart on the timber export ban - expecting it after the loan's release rather than requiring it beforehand - is likely related to the progress in IMF negotiations. The EUR 600 mln tranche is in line with our expectations and the funds should underpin gross international reserves growth to USD 19.5 bln (4.3 months of imports) by the end of 2017.

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