IMF contacts Zelenskiy, stands ready to support Ukraine

IMF Managing Director Christine Lagarde has
established contact with President-elect Volodymyr Zelenskiy, IMF spokesman
Gerry Rice assured the press in a May 9 briefing. In their exchange, Lagarde
“underscored that the IMF continues to stand ready to support Ukraine and to
help it meet the challenges that lie ahead,” Rice said. He also expressed
his expectation that an IMF mission to assess Ukraine’s progress under the
ongoing Stand-By program will arrive  in Kyiv “some time in the coming
weeks.”

Recall, the IMF and Ukraine signed a new Stand-By program for 14 months
in late 2018 stipulating the disbursement of three tranches (USD 1.4 bln
provided in December, USD 1.25 bln planned for May and USD 1.25 bln planned for
November).

Alexander Paraschiy: Ukraine’s
government has already met three out of four structural benchmarks listed in
its latest memorandum with the IMF that has a deadline of end-March, and has
also delivered partially on two other benchmarks with later deadlines. This is
an impressive delivery rate, taking into account the earlier experience of
Ukraine-IMF cooperation. However, it’s not clear at the moment whether this
will be enough to pass the first review of the program. In particular, other
issues have surfaced in recent months that the IMF might require addressing.

First, Ukraine’s Constitutional Court cancelled legislation to punish officials for illegal
enrichment, which is considered as a serious
setback in anti-corruption efforts. Second, the IMF might be concerned about
the risk of Zelenskiy trying to undermine the independence of Ukraine’s central
bank, as Lagarde told president Poroshenko last week.
Third, the latest undelivered structural benchmark – adopting a law that
enables the central bank to control insurance companies and credit unions –
might be a concern (though, this issue looks much less critical than the two
others).

So far, we expect the IMF mission to arrive only
after Zelenskiy’s inauguration, the date for which will be decided next week,
at the earliest. Also, we expect Ukraine will receive the second tranche under
the Stand-By program this summer. The third tranche is much less likely.