Ukraine reaches latest IMF agreement, paving way for USD 1 bln tranche

The Ukrainian government reached an agreement with IMF staff to update its economic and financial policies memorandum, IMF Mission Chief in Ukraine Ron van Rooden announced on March 4. As a result, the third review of the Extended Fund Facility (EFF) program by the IMF’s executive board – for a loan tranche of USD 1 bln – will occur in the second half of March, he said.

The almost certain approval of this tranche will bring total IMF disbursements to Ukraine to USD 8.32 bln, based on IMF calculations in SDRs, since the first EFF loan in March 2015. Ukraine has received three tranches under the EFF worth USD 7.6 bln, based on Concorde Capital’s calculations in U.S. dollars.

The last wire of USD 1 bln was approved for Ukraine in September 2016. After that, Ukrainian authorities failed to meet key structural benchmarks outlined in their memorandum with the IMF, including approving a law on an agricultural land market and strengthening the targeting of utility-related social assistance payments. But the successful nationalization of Privatbank in December 2016 unlocked the negotiations with the IMF, Ukrainian authorities said.

Alexander Paraschiy: This IMF decision was widely expected since both IMF and Ukrainian authorities had been signaling that a positive decision was in the pipeline.  The big question has been about the tranche’s value and demands for further cooperation. The outlined sum of fourth wire appeared to be somewhat lower than the USD 1.3 bln, as was scheduled in the previous IMF memorandum. Meanwhile, the requirements and structural benchmarks for the next tranche have yet to be confirmed. 

We believe that the approval of an agricultural land market, not just the preparation of legislation, will be among the key demands of the updated memorandum since Finance Minister Oleksandr Danylyuk had mentioned this point in his talks with the IMF.

We also expect to see more anti-corruption requirements and strengthened discipline on social spending, as part of standard practice. The fourth wire’s approval is having a positive effect on the ForEx market, as well as the general political mood, which has been strained by the tension related to the blockade of railway routes to the occupied territories.