IMF concludes mission in Ukraine without review on SBA

The IMF mission to review Ukraine’s implementation of
the Stand-By Arrangement (SBA) concluded on Feb. 12 with no tangible result. “The
country must show more progress on reforms to reach an agreement for a new
tranche,” Reuters cited Goesta Ljungman, IMF Resident Representative in
Ukraine, on Feb. 13. The discussions between the IMF and Ukraine were focused
on “strengthening governance of the National Bank, improvements to the
legislative and regulatory framework for bank supervision and resolution,
policies to reduce the medium-term fiscal deficit, legislation restoring and
strengthening the anti-corruption framework and the judiciary, as well as on
energy policy”, Ljungman said, stating also that “discussions will continue”

Commenting on the mission results, Ukraine’s Finance
Minister Serhiy Marchenko told epravda.com.ua that “the government has productive
cooperation with the mission and has a vision on addressing the issues
necessary to receive the tranche under the SBA.” He added that legislative
drafts on outstanding issues are being studied by IMF representatives.

Commenting on the issue, Tymofiy Mylovanov, the
advisor to the head of Ukraine’s presidential office, stated on Feb. 15 that
“both sides could have done more” for the success in the negotiations. On Feb.
13, he also wrote that the delay in the negotiations with the IMF was due to the
firm statemen’s position taken by the Ukrainian side.

Recall, the IMF mission to conduct the first review
under the SBA loan program started in late December. Ukraine should have passed
the first review and received the second tranche in September 2020, according
to the initial schedule of the SBA program for USD 5.2 bln, approved in June.

Alexander Paraschiy: There is no
surprise that the recent IMF mission reached no results, and this is definitely
not because of “the firm statemen’s position” of Ukraine. To count on the next
IMF tranche, Ukraine not only needs to amend the laws on banks and deposit
guarantee system (as stipulated by the memorandum), but also restore the damage
made to the cooperation with the IMF after the memorandum had been signed
(including the restoration of anticorruption infrastructure). That said, we continue to expect that 2Q21 is
the most likely period for reaching a deal with the IMF and receiving the
second tranche. Meanwhile, if Ukraine is not able to reach an agreement with
the fund by early September, chances for any new tranche under the SBA would
fade.