IMF to resume talks on next Ukraine tranche only with new Cabinet

The IMF will resume active talks with Ukraine on the
next loan tranche only with the new Cabinet that will be formed after the
parliamentary elections, IMF Communications Director Gerry Rice said on May 23.
”Once the government has been formed, after the elections, we stand ready to
re-engage to discuss our further cooperation with Ukraine,” Rice said. He added
that the IMF mission is still visiting Ukraine, after begin talks in Kyiv on
May 21, and is “having constructive discussions with the authorities on recent
developments and economic policies.”

Recall, on May 23, newly elected Ukrainian President
Volodymyr Zelenskiy published a decree to dismiss the parliament
and appoint early elections for July 21. By law, the prime minister and Cabinet
are appointed by the parliament. The latest day to start the new parliament is
Sept. 4 (30 days after the official announcement of election results, which in
turn should not be announced no later than 15 days after the elections). The
new parliament will have up to one month to form a majority coalition and about
60 days to appoint a new Cabinet. In this way, the latest day of new Cabinet
being established is Nov. 3, by our estimates.

Recall, the current SBA program with the IMF was
signed in December 2018 for 14 months and for a total consideration of USD 3.9
bln, of which Ukraine got USD 1.4 bln in late 2018, and was planned to get
other two tranches of USD 1.25 bln each in May and November 2019.

Alexander Paraschiy: We expect
that the new Cabinet will be formed much ahead of these deadlines we outlined,
or by mid-September. However, this does not necessarily mean that Ukraine will
be able to finalize talks with the IMF and get the next loan tranche soon
after. A possible impediment for the tranche’s quick arrival could be the start
of preparation of Ukraine’s state budget for the next calendar year in
mid-September. Usually, the IMF tends to avoid issuing loans while the budget
is being formed (usually, it’s completed no earlier than in late November).

We do not rule out that this year will be an exception
for the IMF, as the state budget for 2020 is not among the focuses of the
current loan program. But our base-case scenario is that Ukraine will see the
next IMF tranche not earlier than in late November. At the same time, it’s
possible that Ukraine will get more than the USD 1.25 bln earmarked for this
tranche.