EU Commission approves EUR 600 mln MFA tranche for Ukraine

The European Commission decided to disburse a second tranche
under the COVID-related Macro Financial Assistance (MFA) for Ukraine in the
amount of EUR 600 mln, rbc.ua news site reported on Sept. 15, citing the
Commission’s vice-president Valdis Dombrovskis. PM Denys Shmyhal and president
Volodymyr Zelensky confirmed this in tweets. Ukraine has implemented all the
political conditions for the tranche and progressed in its IMF program, which
allowed the Commission to make a positive decision on the second tranche,
Dombrovskis told rbc.ua. He added that the payment is likely to be made in
October. The day before, Shmyhal revealed his expectation that the tranche would arrive in November. 

The COVID-related MFA program for Ukraine was
initiated by the EU in June 2020 for a total value of EUR 1.2 bln. The first
tranche under the program for EUR 0.6 bln was disbursed in December.

Alexander Paraschiy: The upcoming disbursement of the second tranche is a positive
surprise. With this tranche, Ukraine will secure its financial stability and
will lower its need to seek domestic financing of the budget deficit. This,
however, does not secure a positive result for the IMF’s review under the
Stand-by program. Moreover, easy money from the EU may make the Ukrainian
government relax its drive to keep its commitments to Western partners thus
raising the probability of political events/movement against reforms in the
short-term. As before, we estimate the probability of the IMF’s next tranche as
below 50% in 2021.