IMF confirms it won't insist on Ukraine farmland market for next tranche

The IMF decided it won’t insist on the Ukrainian government
launching a farmland market in order to gain the fifth loan tranche of its
four-year EFF loan program, IMF Deputy Spokesman William Murray confirmed at a
July 20 press briefing. “Land reform remains an important condition under
the program,” he said. “However, given the need to design the reform well
and reach consensus on key steps ahead, there was a need to reset its timing to
later in the year.”

Murray’s comment was the first official confirmation
of Ukrainian media reports – citing anonymous sources – stating that the IMF
had decided to allow the postponement of the farmland market’s launch. He also
stressed that authorities have to “move ahead in the coming months with
necessary preparatory work and the timely implementation of an appropriate land
reform.”

Instead, the focus of the next review will be on
pension reform and measures to speed up privatization and ensure concrete
results in anti-corruption efforts, Murray said.

In its April memorandum with the IMF, the Ukrainian
government committed for the 2Q17 to hire an adviser to help Privatbank collect
impaired loans (which has been done), adopt legislation on pension reform
(likely to be approved in early September), adopt legislation to create an
agency to investigate financial crimes (yet to be done), adopt legislation to
launch a farmland market (not yet done), and adopt legislation to create an
independent anti-corruption court. Local media said the IMF may ease its demand on the
anti-corruption court, though the IMF spokesman said
nothing about that on July 20.

Alexander Paraschiy: Murray’s
confirmation supports our expectation that Ukraine will get approval for its
next IMF loan tranche this autumn. At the same time, given that the IMF still
expects measures such as the farmland market launch, further tranches will be
harder to get for Ukraine. We also expect that with the postponement of key
requirements, the IMF will also reduce the amount of its next loan tranche for
Ukraine. We see the next tranche at only USD 1.0 bln (same as the previous
two), while the current plan is to disburse USD 1.9 bln.

Thus far, Ukraine has received from the IMF only four
tranches worth USD 8.5 bln from the External Funds Facility program, launched
in March 2015 with a total value of USD 17.5 bln. (To be precise, Ukraine can
get about USD 16.8-17.0 bln based on the actual USD/SDR rate).

Its initial plan called for Ukraine already receiving
ten tranches worth USD 13.5 bln, or a tranche every quarter starting 1Q15. The
program ends in late 2018, and Ukraine has to accelerate its reforms to be
eligible for more IMF loans. We expect much difficulty, given that To Do list
is getting stricter with more challenging demands. Moreover, Ukraine’s
government will be more reluctant to implement unpopular reforms ahead of 2019,
when presidential and parliamentary elections are scheduled.