IMF cites much progress in Ukraine loan, promises more money

The IMF noted “very good progress” made in
its negotiations with Ukraine to secure the EFF loan program in a Mar. 26
statement. It also encouraged Ukrainian legislators to secure the loan by
approving two key items of legislation. “Adoption of legislation to improve the
bank resolution framework and on land reform would allow moving forward quickly
with finalizing the parameters of the new arrangement, with larger access than
previously envisaged,” IMF Managing Director Kristalina Georgieva commented in
the statement.

Recall, in December, Georgieva told President
Zelensky that the IMF has agreed upon the conditions of an
External Funds Facility program worth USD 5.5 bln at the staff level. The
deal’s approval at the IMF board level is conditional on Ukraine’s
implementation of prior actions, particularly prohibiting the return of failed
banks to their former shareholders (including Privatbank) and launching a
farmland market. 

Alexander Paraschiy: With
Georgieva’s latest statement, the IMF has officially confirmed that the EFF
loan could be enlarged beyond the USD 5.5 bln that had been initially agreed
upon. Its amount could be enlarged to as much as USD 8 bln, said the
Interfax-Ukraine news site, citing anonymous pro-presidential MPs. But for
Ukraine’s prospects, what’s most critical is not the amount of the total loan
(which Ukraine never fully withdrew in the past), but the amount of the first
tranche.

Earlier, Ukrainian media reported that such a tranche could be increased from
initially planned USD 0.6 bln to USD 2.0-2.5 bln. This may include IMF tranches
from the recently initiated global programs of USD 50 bln to fight the
consequences of the coronavirus. Ukraine can count on about USD 1.5 bln from
such programs, as reported by the epravada.com.ua news site earlier. On top of
that, upon the launch of the EFF program, Ukraine will automatically get EUR
0.5 bln in financing from the E.U. under the MFA IV loan program and up to a
USD 1 bln loan (guarantee) from the World Bank.

Therefore, total multilateral lending for Ukraine in
2020 could exceed USD 4 bln, the amount of external debt that Ukraine is due to
repay by the end of this year. Some bilateral official support could also
finance Ukraine’s enlarged budget financing needs in 2020. If Ukraine makes
even more progress with the IMF program and qualifies for the second tranche,
the amount of multilateral support will be much higher.

The key uncertainty now is whether the Ukrainian
parliament will be able to adopt the necessary legislation soon. Unfortunately,
we see a lot of problems with both bills. Adoption of the law on farmland
reform would require long hours as MPs still need to consider about 720
amendments to the draft bill. That would require two intensive sessions at
minimum (on average, parliament was able to review 330 amendments to this bill
per day). Amid the threat of coronavirus (at least four MPs are officially
infected) lawmakers are unlikely to be willing to spend much time in the
session hall, which would put their health at risk. Therefore, the fast
adoption of such legislation will demand some creative solutions.

Regarding the second bill on failed banks (the
so-called anti-Kolomoisly law), the billionaire’s loyal MPs are likely to work
hard now to stall it. President Zelensky has already met with faction heads to
ask them to help muster efforts to approve the needed legislation, but he will
need to continue exerting strong will in the approaching days.

We expect more clarity on the future of the IMF
program by Sunday, which is the latest day rumored for the special session
(with Saturday apparently being abandoned). At the same time, we see a high
chance that the special session will be postponed to the start of next week.