IMF concludes Ukraine visit, loan talks to continue

IMF staff completed their two-week visit to Ukraine on
Sept. 26 with Mission Head Ron van Rooden commenting that discussions on a new
loan deal with Ukraine were productive and they “will continue in the coming
weeks,” the IMF’s press service reported on Sept. 27. In attempts to reach
agreement on a three-year Extended Fund Facility program, the most productive
discussions were on fiscal and monetary policies and key reform measures, the
IMF stated. Van Rooden stressed the importance of the central bank’s
independence and “minimizing the cost to taxpayers from bank resolutions.” He
also highlighted the importance of improving competition in the energy and
agricultural sectors and “reducing the role of the state and oligarchs in the
economy”.

A day before, the epravda.com.ua news site listed the
IMF’s key concerns during its visit, which are (1) apprehension that the new
government is pressuring the central bank, (2) uncertainty around Privatbank,
whose bailout cost taxpayers about USD 5.9 bln, (3) uncertainty about the
government’s commitments to fully liberalize gas prices in 2020, as well as (4)
the absence of final state budget parameters for 2020. The news site cited an
anonymous source “familiar with the IMF’s position” for its
information.

Alexander Paraschiy: Van
Rooden’s comments largely confirm alleged IMF concerns about the future of the
central bank and the outcome of efforts to resolve failed banks (read
Privatbank). In the IMF’s press release, these two issues are mentioned twice.
However, we do not expect these concerns will be impediments for the future IMF
program. There are few signs that something is threatening the central bank’s
independence (as it’s protected adequately by legislation), even if some
management reshuffle will happen there. In the case of Privatbank, it’s too
early to make any conclusions about the probability of former owners’
compensation of state losses.

At the same time, it is natural that the IMF has not
completed discussions on the new program before seeing and approving the final
draft on the 2020 state budget. As before, we do not expect any deal with the
fund before the final budget draft is approved by parliament, which is expected
in late November or early December. That said, we stick to our expectation that the IMF
will conclude a new deal with Ukraine in late 2019 and will disburse the first
tranche under the new EFF loan program in December or early 2020.