EU Parliament approves EUR 1 bln MFA program for Ukraine

The European
Parliament voted on June 13 to endorse the EU Commission’s proposal to initiate
the fourth package of its macro-financial assistance (MFA IV) program for
Ukraine, according to its press release the same day. The assistance is planned
to be disbursed in two equal loan installments totaling EUR 1 bln. The EU
Council is expected to give final approval for the aid on June 26, according to
the press release.

The key precondition
for granting the loan is Ukraine must respect effective democratic mechanisms,
the rule of law, and human rights, according to the press release. The EU
Parliament also insists that the loan “is conditional upon progress in fighting
corruption, and in particular, the setting up of a specialized anti-corruption
court in line with the Council of Europe’s Venice Commission recommendations.”

The EU Commission is
also considering including conditions that were not met under the previous MFA
III program, namely: setting of automatic verification of asset declarations of
public officials, some progress in verification of data to be provided by
companies on their beneficial owners and finding some solution on the removal
of Ukraine’s wood export ban. All the conditions for the tranches will be
agreed upon in a memorandum with Ukraine, which has yet to be drafted.

Also, the EU
Commission proposal highlights that the MFA loan disbursements “would inter
alia be conditional on satisfactory reviews under the IMF programme and the
continued drawing by Ukraine of IMF funds.” Provided the policy measures
attached to each tranche have been implemented in a timely manner, the first
installment is expected to be disbursed in 2H18, while the second installment
could be released in 1H19, according to the proposal.

Under the previous
three MFA programs in 2014-2017, Ukraine received a total of EUR 2.81 bln in
loans, out of a total amount reserved for the programs of EUR 3.41 bln. Ukraine
did not fulfill conditions to receive the third tranche of EUR 0.6 bln under
the MFA III program before it expired in January 2018.

Alexander
Paraschiy: The EU
Parliament voting in favor of MFA IV became possible after Ukraine parliament’s
approval of the law creating the High Anti-Corruption Court last week. This law
significantly raises the likelihood that Ukraine will be able to pass the
fourth review under the IMF’s EFF program.

Recall, Ukraine’s National Bank expects that Ukraine will receive up to
USD 3.4 bln in loans from the IMF, the EU and the World Bank in 2H17, all
dependent on a successful IMF review. Such financial support is vital for
Ukraine to secure the stability of its currency for the mid-term, as well as
the stability of its credit ratings.