IMF managing director lauds Ukraine recent efforts

IMF Managing Director Kristalina Georgieva lauded on
Nov. 17 the recent efforts of Ukrainian leaders in cooperating with the fund to
resolve the negative fallout of the scandalous Oct. 27 Constitutional Court
ruling, according to a President’s Office press release. In particular, she
cited the “quick reaction and measures” by the government after the court
ruling in her telephone call that day with Zelensky. The fund reportedly
appreciates the cooperation of National Bank Governor Kyrylo Shevchenko, while
cooperation with PM Shmyhal has ensured relations between the sides at a high
level, with solid progress. They also discussed the importance of approving a
balanced 2021 budget, and the economic uncertainty related to the COVID-19
pandemic.

President Zelensky stressed that Ukraine is upholding
its commitments under its IMF stand-by loan program, including reforming the
customs and tax service and supporting the National Bank’s independence.
Meanwhile, the Finance Ministry and National Bank have worked on reducing the
share of NPLs in the banking system, he said. All the program’s structural
benchmarks have been completed, he said, as reported by the press release.

In her turn, Georgieva issued a Nov. 18 tweet
describing a “constructive call” with Zelensky on IMF program implementation,
including ensuring the independence of the NBU and anti-corruption efforts.
“Full agreement on actions needed prior to program review,” she concluded.

Evgeniya Akhtyrko: With this
phone call, Zelensky is demonstrating to the public that he understands the
critical importance of securing IMF financing for maintaining financial and
fiscal stability in Ukraine. The remaining conditions that need to be fulfilled
– including renewing the anti-corruption infrastructure and balancing the 2021
budget – will prevent the Zelensky administration from being tempted to serve
special interest groups, to the detriment of national interests.

Meanwhile, Georgieva’s short comment on the call is
sobering, fully corresponding to last week’s comments of the NBU head
that in the best case, Ukraine can expect merely a visit of the IMF mission
this year (but no loan tranche), providing “full agreement on actions” is
reached. In other words, the two sides are still far from returning to
constructive dialogue on the conditions of the new IMF tranche.

In light of this, the key question is what was the
purpose of the call. Considering that no IMF tranche will emerge in the nearest
couple of months, and amid the high financing needs of Ukraine’s state budget
till the end of 2020, we believe this was a cheer up call for Ukraine’s
potential external lenders. Namely, we continue to expect the government will
try to market a new Eurobond soon.