IMF approves second tranche to Ukraine under SBA for USD 700 mln

The Executive Board of the IMF completed on Nov. 22
its first review under the Stand-By Arrangement initiated in June 2020, the fund
reported the same day. This will allow Ukraine to receive an SDR 500 mln (USD
699 mln) loan tranche under the program. The IMF board also approved Ukraine’s
request to extend the on-going program, which originally terminated in December
2021, to end-June 2022.

The IMF listed key commitments that the Ukrainian
authorities took under the program: consistent fiscal policy that will preserve
mid-term debt sustainability and lower risks “from quasi-fiscal operations,
including in the energy sector”; safeguarding central bank independence and
inflation targeting; “ensuring banks’ financial health, including through good
governance”; “tackling corruption and pushing forward with the implementation
of judicial reform”; and “reducing the role of the state and vested interests
in the economy”.

Recall, Ukraine had been scheduled to receive in total
SDR 3.6 bln (USD 5.1 bln) under the current SBA program, split into five
tranches and four program reviews, with the fourth having been initially
scheduled for October 2021. With the approved tranche, Ukraine will use SDR 2.0
bln of the program’s funds.

Alexander Paraschiy: The event
is positive for Ukraine’s image and the outlook of its fiscal and currency
stability. The approval of the review without the actual voting for Ukraine’s
budget for the next year, which is usually being demanded by the IMF, seems to
be a gesture of trust toward the Ukrainian authorities. Hopefully, Ukraine’s
parliament won’t let the IMF down and will approve the budget with the agreed upon
fiscal deficit of no more than 3.5% of GDP.

The delay of more than a year with the first review
under the program was related not to the inability of the government to fulfil
its commitments under the program, but to the failure to support policies which
were commitments under previous programs (in anti-corruption and energy areas).
As the likelihood of further deviations from previous commitments remains
significant, there is a high risk that this tranche will be the last under the
on-going program. Key risks for deviation are in the monetary, anti-corruption
and corporate governance areas.