Ukraine expects up to USD 2.5 bln first IMF loan tranche

Ukraine is in negotiations with the IMF to increase
the total amount of loans to USD 10 bln from USD 5.5 bln, the figure that has
been preliminary approved under the initiated EFF loan program, the epravda.com.ua
reported on Mar. 23, citing its an anonymous sources in the government. In
particular, they are considering either increasing the amount of the EFF
program, or combining the EFF with a new loan under a program that the IMF has
offered globally to address coronavirus-related issues.

Sources in Ukraine’s central bank believe one possible
option is to enhance the EFF program and, more importantly, increase the amount
of the first tranche to USD 2.0-2.5 bln, from the initially planned USD 0.6
bln. The government also expects that most of the IMF financing will be
directed to cover state budget needs, which have deepened as a result of the
pandemic, not just to fill Ukraine’s gross reserves, as was initially planned.

Alexander Paraschiy: A
significant increase of the planned first IMF tranche, as well as funding the
state budget with IMF money, is what Ukraine critically needs, taking into
account that fiscal needs will surge due to challenges related to the
coronavirus. By the end of this year, Ukraine will have to repay USD 4.1 bln in
external debt, and it is important for the government to secure external
financing that will more than cover this amount.

Cooperation with the IMF, followed by E.U. loan
tranche and possibly loans from the World Bank and other Western governments,
can easily cover Ukraine’s needs. In order to start this process, Ukraine’s
parliament needs to approve two bills, as agreed upon with the IMF: the measure
establishing the conditions of the farmland market, and legislation that will
prohibit the return of failed banks to their former owners. We believe the
Zelensky administration will do its homework, taking into account the tough
macro situation and the dire consequences of failure.