European Commission confirms no loan this year, possible in 2018

The European Commission officially confirmed on Dec. 1
that it won’t disburse the third EUR 600 mln tranche of its macro-financial
assistance (MFA) program this year, citing requirements that have yet to be
fulfilled. At the same time, it said it is willing to assess a Ukrainian
proposal for a renewed loan program in early 2018. EU officials anticipate
Ukraine reinforcing the reform momentum and resisting internal pressures for
policy reversals on important reforms, according to a press release posted on
the commission’s website. The commission also expects the IMF program to remain
on track. On Nov. 24, Ukrainian President Poroshenko expressed
an interest in a renewed EUR 1.8 bln MFA loan program in 2018.

Previously, EU Ambassador to Ukraine Hugh Mingarelli mentioned
requirements yet to be fulfilled by Ukraine, including (a)
lifting a moratorium on timber exports, (b) launching automatic reviews of
electronic asset and income declarations, (c) a law creating a debtor registry
and (d) an electronic register for the beneficiary owners of companies.

The EU MFA program was launched in July 2015 at a
total amount of EUR 1.8 bln. The initial plan foresaw three loan tranches for
Ukraine, EUR 600 mln each, to be provided in 2Q15 (upon the program’s launch),
3Q15 and 1Q16. Ukraine was able to receive the second tranche only in 2Q17.

Alexander
Paraschiy:  The Commission is preserving incentives for
Ukraine for further reforms, but the press release was replete with
dissatisfaction with the current lack of progress. So a new MFA program does
not mean that funding will be available shortly. Indeed, it looks like the
Commission will be very demanding in assessing Ukraine’s new program proposal
and will maintain a tough position on completing committed reforms. This press
release reassured us in our view that we can expect only one more wire from the
EU in 2018 amid the slow reform process undertaken by the Ukrainian government.