IMF approves USD 1 bln loan tranche for Ukraine

The IMF’s executive board completed on Sept. 14 the second review of its Extended Fund Facility (EFF) program with the Ukrainian government. This enables the disbursement of the program’s third loan tranche under the program in the amount of USD 1 bln, the IMF reported the same day. With this tranche, Ukraine will have received USD 7.62 bln in loans since the program’s launch in March 2015.

Commenting on the board’s decision, IMF Managing Director Christine Lagarde stated that “Ukraine is showing welcome signs of recovery, notwithstanding a difficult external environment and a severe economic crisis. Activity is picking up, inflation has receded quickly, and confidence is improving.” Lagarde stressed the significant contribution of Ukrainian authorities to the improvement, at the same time stating that “determined policy implementation, however, remains critical to achieve program objectives”.

She stressed on the need to avoid tax policy changes that would expand the budget deficit, and the need to further reduce inflation and strengthen the banking system. She said there’s “much to be done” in the area of fighting corruption and ensuring equal application of the rule of law, as well as stressed the need for “decisive steps” to restructure and divest state-owned enterprises.

Alexander Paraschiy: The IMF’s approval of the third tranche is a positive sign for Western lenders and investors. This is first time in the last 12 years that Ukraine managed to pass the second review of an IMF program. Ukraine can now expect the soon arrival of an additional USD 1 bln loan under U.S. guarantees and at least a EUR 0.6 bln loan from the European Union. Clearly, all this will be good support for Ukraine’s international reserves, which are now much more likely to increase to USD 17 bln as of the year’s end.

What’s worrying about this decision is the reduced amount of the third tranche, initially planned at USD 1.65 bln, which is a clear sign of Ukraine’s incomplete fulfilment of all its earlier taken commitments. The “to do” list from Lagarde is illustrative as well – corruption and rule of law remain the key concerns of not only the IMF’s board, but all the potential investors.

As we can see, it’s increasingly hard for Ukraine to pass each successive program review made by the IMF, which makes Ukraine’s prospects for receiving the next tranche (out of a total planned USD 17.5 bln) very unclear.