EU drafts EUR 1 bln macro-financial assistance program for Ukraine

The European Commission adopted on March 9 a proposal
for a fourth Macro-Financial Assistance program for Ukraine, the commission’s
website reported the same day. The new MFA IV program assumes two loan tranches
of EUR 500 mln each to be disbursed in 2H18 and 1H19 (but no later than in 2.5
years since the program’s inception). The proposal is subject to the approval
of the European Parliament and the EU Council.

Ukraine already received EUR 2.81 bln under the
previous three MFA programs with the EU in 2014-17. Under the third program, it
received only two (EUR 1.2 bln total) of the planned three (EUR 1.8 bln total)
tranches as Ukraine failed to fulfill all the EU requirements to get the last
tranche before the program was terminated
in January 2018. In particular, Ukraine fulfilled 17 of the 21 policy
commitments before the program expired (and later on fulfilled one more).

The EU Commission said the new program will “reflect”
the three unfulfilled measures under MFA III. In particular, the EU expects
that a) an automated verification system of e-declarations in Ukraine will be
introduced, b) some progress will be reached in verification of data on the
beneficial owners of the companies, and c) a solution will be found on a wood
export ban introduced by the Ukrainian parliament. The program will also
include some other policy measures in the area of public finance.

“Delivering on key anti-corruption and governance
reforms will be indispensable if the MFA operation is to be successfully
completed,” according to the commission’s proposal document. It also stresses
that the new tranches will be “conditional on satisfactory reviews under the
IMF program and the continued drawing by Ukraine on IMF funds.”

Alexander Paraschiy: The size of the new MFA program is slightly smaller than we expected
(two or more tranches of EUR 600 mln each), but the proposal in itself is a big
positive for Ukraine. As we expected, the EU clearly links the new MFA program
to Ukraine’s progress with the fourth review of the IMF’s Extended Fund
Facility program. So MFA IV won’t be approved if Ukraine fails to agree upon
legislation with the IMF on the independent anti-corruption court. So far, our
base-case scenario is that Ukraine will get this year both the next IMF tranche
and the first tranche under the MFA IV program.