IMF sees outstanding issues on Ukraine’s path to new tranche

The IMF has not yet scheduled a board meeting to approve the second review of its External Funds Financing (EFF) program with Ukraine, IMF Communications Director Gerry Rice told a press briefing on Jan. 14. The scheduling will depend “on resolving some outstanding issues which we hope would be soon,” Rice said. He added that the issues “revolve around structural fiscal measures needed to ensure medium-term sustainability.” He also said that Ukraine’s 2016 budget, with its deficit planned at 3.7% of GDP, is consistent with IMF program objectives.

The IMF is not considering merging the third and fourth wires under the EFF program into one tranche, Rice added. “I don’t have any indication that the reviews are about to be combined. My information at the moment, is the second review that we are looking at.”

Rice also commented on Ukraine’s default on USD 3 bln Eurobond, owned by a Russian state fund, stating that IMF representatives “continue to encourage Ukraine and Russia to achieve a cooperative solution that contributes to the financing and the debt objectives of the program.”

Recall, Ukraine’s Finance Minister Natalie Jaresko said on Jan. 11 that the IMF completed its review of the 2016 budget and tax code changes and “agreed that the adopted budget, in general, corresponds to program objectives.” That statement came after she said in late December that she was not sure that the tax changes, adopted by parliament on Dec. 25, would be accepted by the IMF. She also said MinFin would offer legislation revisions as soon as possible, if necessary.

Alexander Paraschiy: Ukraine had several key tasks to earn a new IMF tranche, including “making good faith efforts” in negotiating with the Russians on the defaulted debt, implementing some anti-corruption measures, approving a 2016 budget with a 3.7% deficit, and amending tax legislation and performing some structural reforms. And from Rice’s comments, we see the IMF is only dissatisfied with the last item. Thus far, we have not heard anything from Ukraine’s Cabinet or parliament (as well as the IMF) on the details on the “remaining  issues” and the way they will be resolved. We still believe addressing these issues won’t be hard for the government and parliament. So we expect the IMF board will be able to approve a new USD 1.65 bln tranche for Ukraine in early February.