IMF, Ukraine reach staff-level agreement on USD 5.5 bln loan program

IMF staff has reached a staff-level agreement with Ukrainian
authorities on the basic conditions of a new three-year EFF loan program worth
USD 5.5 bln, IMF Managing Director Kristalina Georgieva told President
Volodymyr Zelensky during a Dec. 7 call. The agreement is subject to the
approval of the IMF management and executive board, she clarified in a Dec. 7
press release.

The deal’s effectiveness will be “conditional on the
implementation of a set of prior actions,” she added, providing no details on
such actions. At the same time, she said that Ukraine’s success “depends
crucially on strengthening the rule of law, enhancing the integrity of the
judiciary, and reducing the role of vested interests in the economy.” Georgieva
also stressed the importance of safeguarding the gains made in cleaning up the
banking system and recovering state costs from bank resolutions.

“We are not satisfied with the current rate of
economic growth. Therefore, in order to accelerate economic growth, we,
together with our international partners, will continue reforms,” the president’s
press release stated.

Recall, in late 2018, Ukraine reached an agreement
with the IMF on a stand-by agreement program that assumed USD 3.9 bln in
financing in three tranches over 14 months. Ukraine received the first and only tranche – worth USD 1.38
bln – under the program in December.

Alexander Paraschiy: The call
and subsequent announcement on reaching a staff-level agreement seems like IMF
top management offering Zelensky a boost in morale ahead of his meeting with
Russian President Putin in Paris on Dec. 9.

The full list of tasks that Ukraine needs to implement
before the IMF deal is finalized remains unclear, but from Georgieva’s words,
we can conclude that the core issue will be the situation with Privatbank,
which was bailed out by the government at a cost of USD 5.9 bln in 2016-2017,
with no contribution from its former owners, particularly Ihor Kolomoisky.
Recall, the bank’s former shareholders are trying to overturn its nationalization
in local courts, and the next hearing on this case is scheduled for Dec. 19 in
a Kyiv appellate court.

For the IMF deal to be sealed, the best hearing
outcome will be a rejection of the former shareholders’ claims, though a
decision to postpone the hearing for an indefinite time could also work. We see
the likelihood of one of these two scenarios as very high.

So we expect the IMF board will be able to approve
the new loan program with Ukraine after Dec. 19: either on Dec. 20, or most likely
in mid-January.