Ukraine reforms have slowed, IMF official says

The IMF has observed  “some slowdown in reforms”
in Ukraine, European Department Director Poul Thomsen told an Apr. 20 briefing
in Washington, as reported by the Ukrinform news agency the same day. In
particular, he referred to a delay in Ukraine gaining the fifth tranche of the
Extended Funds Facility program that had been planned for 2Q17. He sees no
short-term risks for Ukraine from the delay, while warning at the same time
that the delay is a waste of opportunities for the country. He confirmed that
creating an independent anti-corruption court and liberalizing natural gas
pricing for households are critical issues for Ukraine to continue IMF
cooperation.

Alexander Paraschiy: Thomsen was
being reserved in his remarks on Ukraine so as not to cause panic. But we see
real risks for Ukraine in the short term from the failure to get the next
tranche (up to USD 2 bln) this summer. In particular, without the IMF’s
support, there will be no financing from the EU and Word Bank, all of which
will total up to USD 3.4 bln in 2018. Ukraine needs these loans to accumulate
gross international reserves ahead of 2019, when external lending will be very
limited (as the country will hold two important political elections during the
year) but external payments on sovereign and quasi-sovereign debt will swell to
USD 6.1 bln (from USD 3.9 bln this year).

Without reserves accumulation under IMF-related loan
programs in 2018, Ukraine will face a decline in gross reserves to below the
critical three months-of-imports benchmark already in early 2019, which will
inflate the country’s solvency risks. Keeping all this in mind, we believe
concerns about Ukraine’s solvency will emerge already in June-July 2018 if
there is no positive news on IMF cooperation by that time.

We believe Ukrainian authorities are well aware of the
risks related to possible failure of the IMF deal, and they will do all their
best to prevent the failure. Therefore, we continue to see the fifth tranche
from the IMF in mid-2019 as our base-case scenario.