IMF approves SBA program, releases USD 2.1 bln tranche

The IMF executive board approved on June 9 a 18-month
Stand-by Arrangement program for Ukraine with access to SDR 3.6 bln in
financing (USD 5.5 bln), the fund reported the same day. The first tranche under
the program will amount to SDR 1.5 bln (USD 2.1 bln). The new SBA “will provide
an anchor for the authorities’ efforts to address the impact of the crisis,
while ensuring macroeconomic stability and safeguarding achievements to date,”
said Kristalina Georgieva, the IMF’s managing director.

The new arrangement will focus on four priorities, the
IMF press release said. They are mitigating the economic impact of the crisis,
ensuring continued central bank independence and a flexible exchange rate, safeguarding
financial stability while recovering the costs from bank resolutions, and
moving forward with key governance and anti-corruption measures. Georgieva
warned that uncertainty about the direction of economic policies in Ukraine
“remains substantial.”

Also, the IMF has presented its updated macro forecast
for Ukraine, now seeing a 8.2% plunge in real GDP in 2020 (vs. a 7.7% decline
in its April forecast), which will be followed by tiny 1.1% growth in 2021
(down from 3.6% expected in April) and 3.0% growth in 2022.

Alexander Paraschiy: The program
approval is an expected event, while the size of the first tranche is a
positive surprise as USD 1.75-1.90 bln had been expected. As we highlighted
before, the initiation of the program will allow Ukraine to count on other
official loans, bringing total loan support up to USD 7 bln this year. On top
of that, it creates a solid opportunity for Ukraine to enter the international
bond market soon.

What looks disturbing from the IMF’s press release
is the fund’s expectation of slow recovery of Ukraine’s economy in 2021. If
this 1.1% growth figure comes true, it will hurt the value of Ukraine’s GDP
warrants (UKRAIN 2040). Also remarkable is the IMF’s apparent concern that
Ukraine’s government could infringe upon the independence of the central bank:
the need to maintain NBU independence was mentioned three times in the press
release.