IMF accepts Ukraine budget, making tranche possible in early February

The IMF has accepted as satisfactory Ukraine’s 2016 state budget approved in late December and the package of laws adopted for its support, announced on Jan. 11 Finance Minister Natalie Jaresko, as reported by the Interfax-Ukraine news agency. At the same time, a positive decision on a third tranche under the USD 17.1 bln External Funds Facility program requires more anti-corruption and other structural reforms, she said. “The IMF agreed that the approved budget complies with the program objective,” she said in an interview with epravda.com.ua. “When deciding on the next tranche, the IMF executive board will consider implementation of all conditions and structural benchmarks targeted by December 2015, not only the fact that budget 2016 was approved.”

The IMF executive board may decide to release the next wire in late January or early February, she said, referring to the tranche that has been estimated at USD 1.65 bln. Importantly, she rejected the proposal of merging the two wires that were delayed in 2015 (at a total value of USD 3.3 bln), as had been previously assumed by Deputy Finance Minister Artem Shevalev.

Alexander Paraschiy: Ukraine has successfully passed one more stage of the IMF program. In fact, for the third wire, the IMF only considered a realistic spending plan with a narrow deficit (3.7% of GDP) to be critical factors, which means that a positive IMF decision was very likely.

Interestingly, Jaresko’s political position is against receiving the next two wires in a lump sum, which we believe is motivated by her desire to push forward with reforms. Given that ongoing IMF funding is the only incentive for local politicians to move forward with painful reforms that affect their corrupt revenue streams, Jaresko does not want to let them off the hook and receive the money all at once. Hence, we see the advantage of having naturalized foreigners – not in any way connected with Ukraine’s political-business clans – in key positions of government.