Ukraine asks IMF to replace stand-by loan with extended fund facility

The Ukrainian government has submitted a request to the IMF to replace the existing stand-by loan program with a multi-year, extended fund facility, reported the IMF website on Jan. 21, citing Christine Lagarde, the IMF managing director.

“The new arrangement would support immediate macroeconomic stabilization measures, as well as broad and deep economic reforms over several years to ensure economic and financial stability and restore sustainable growth,” Lagarde said in her statement.

“We will consult with the IMF Executive Board on the authorities’ request. Following the Executive Board’s agreement to proceed, the Fund mission currently in Kyiv would begin discussing the policy program underpinning the authorities’ request,” Lagarde stated. ”Discussions are ongoing on official financing support from Ukraine’s international partners.”

The IMF mission is currently working in Kyiv and is expected to finalize its evaluation of the implementation of the stand-by program by Jan. 29. In April 2014, the IMF approved a two-year, USD 17 bln stand-by loan agreement with Ukraine, out of which Ukraine received USD 4.6 bln in 2014.

Alexander Paraschiy:  The extended fund facility does not necessarily mean more financial support to Ukraine. The main difference between the stand-by arrangement and the extended fund facility is the repayment period. The extended fund is a longer program designed to help countries implement medium-term structural reforms and presumes a longer repayment period, according to the IMF.

The IMF’s decision on both a new format, as well as more funding, is still conditional on the result of ongoing negotiations. As we discussed previously, the unrealistic 2015 state budget is the main bottleneck of the negotiations. Finance Minister Natalie Jaresko confirmed on Jan. 19 that the negotiations are very complicated and the Fund is requiring more budget cuts. 

Against this backdrop, we anticipate the IMF mission to outline for the Cabinet the parameters of an acceptable budget by Jan. 29, which should be approved prior to any further IMF funding. Given the difficulties in reaching in a consensus, we can expect the next IMF wire not earlier than mid-February.