IMF agrees to lend additional USD 17.5 bln to Ukraine

The IMF mission has reached a staff-level agreement with the Ukrainian government for a new economic reform program that would be supported by an extended facility fund of about USD 17.5 bln and other resources from the international community, IMF Managing Director Christine Lagarde said today in Brussels, according to an IMF press release. “It is an ambitious program, it is a tough program, and it is not without risk,” Lagarde said. “But it is also a realistic program and its effective implementation – after consideration and approval by our Executive Board – can represent a turning point for Ukraine.”

These IMF resources will be complemented by other multilateral financing, the IMF press release said. The Ukrainian government intends to consult with the holders of its sovereign debt to improve its medium-term sustainability. These sources taken together will result in a total financing package of around USD 40 bln over a four-year period, according to the IMF.

In April 2014, the IMF approved a stand-by program with Ukraine for total financing of USD 17 bln for two years and the plan assumed total financial aid to Ukraine in the amount of USD 27 bln for two years. Out of that amount, Ukraine received USD 8.9 bln, including USD 4.5 bln from the IMF and USD 4.4 bln from other donors.

Alexander Paraschiy: Our understanding is the new financial aid package (for up to USD 40 bln in four years) will come in addition to the funds provided in 2014. The extended facility will replace the remaining, untapped funds of the standby agreement, which amounted to USD 12.5 bln after USD 4.5 bln was provided last year, as we understand it.

There’s no need to say how positive this news is for Ukraine. At the same time, Ukrainian authorities will have to take immediate steps to close the deal. A realistic 2015 spending plan with a narrow deficit is one of the critical points for the Fund, which means that we should expect strong budget cuts passed by parliament already in the next few days. We believe the IMF will not provide advances to Ukrainian authorities, which means these votes on austerity measures will be the final decision in closing the deal with the IMF.