IMF delays board meeting on loan to Ukraine

The IMF announced on March 19 it has postponed its meeting on Ukraine from its executive board agenda that had been scheduled for today. The meeting “has been postponed to allow staff time to assess the implications of recent developments for the program,” Jerome Vacher, the head of the IMF’s office in Ukraine, informed Bloomberg News on March 19 by e-mail. In its turn, the Finance Ministry announced the same day on Facebook that the IMF has requested estimates of the macroeconomic consequences of the government’s official ban on trading with the occupied territories of Donbas imposed on March 15. The IMF board was scheduled to approve a third review of its USD 17.5 bln Extended Fund Facility program with Ukraine and provide a fourth loan tranche under the program in the amount of USD 1.0 bln.

In regards to the macro-economic impact of the trade blockade, the rbc.ua news site reported that MinFin’s optimistic scenario is a -1.2pp impact on GDP growth, hryvnia depreciation by an extra 3 UAH/USD (about 10%) till the year end and a relatively neutral fiscal effect (only UAH 2.2 bln in net budget losses, including extra debt servicing costs, or 0.2% of planned budget revenue).

Alexander Paraschiy: This news on the very eve of the executive board meeting is a negative surprise, raising more questions than offering answers. The official explanation for the delay – a need to estimate the consequences of the trade blockade – looks logical, but may not be the only reason. There have been numerous negative political developments in the last week (from the standpoint of Ukraine’s Western partners) that it might be just a formal excuse to put the IMF tranche on hold.

In particular, the latest scandal involving the National Anti-Corruption Bureau of Ukraine has erupted invoving its head, Artem Sytnyk. In light of the recent detention of the State Fiscal Service head, who had the president’s favor, civic activists reported strong pressure to replace Sytnyk through an annual audit. Last week, parliamentary MPs tried to appoint to the auditing commission a dubious candidate, considered to be close to President Poroshenko. Given that anti-corruption is among key points of the IMF memorandum, these events might have also triggered the delay. 

Meanwhile, we do not share our government’s pessimistic expectations about the blockade. Its numbers are based on the assumption that the Ukrainian economy won’t adjust to new economic realities created by the trade blockade. Ukrainian business has adjusted to just about any geo-economic shocks over the last three years, and it will adjust pretty fast to the recent developments. Moreover, the trade blockade has lasted for more than a month (since Feb. 11), with no tangible consequences for Ukraine’s trade balance and currency (which are as stable as never before since last month).