IMF has yet to study Ukraine budget to decide on loan, Jaresko says

The IMF has yet to study Ukraine’s 2016 budget, approved on Dec. 25, in order to decide on whether to approve its next loan tranche, Finance Minister Natalie Jaresko said in an interview to delo.ua news site on Dec. 25. On the other hand, the Cabinet’s draft submitted to parliament on Dec. 11 (which was significantly amended by the parliament) met all IMF requirements for each number and each item of fiscal reform, she said. “I cannot say how the IMF will evaluate these changes,” she said, adding, “I cannot forecast when the new tranche will arrive and when the IMF’s decision will be made.” The 2015 budget was also adopted in late December and had to be revised in March on IMF demand, which Jaresko said shouldn’t be ruled out this time as well.

Jaresko also commented on the USD 3 bln Eurobond due on Dec. 20, stating that the IMF’s recognition of it as official debt of Ukraine does not change how the Ukrainian government acts with it. “We are doing our best to restructure our debts in line with the program of cooperation with the IMF,” she said, adding the Russian side “decided not to participate in debt restructuring. That was their choice.” She said the IMF will review whether Ukraine made good faith efforts with its creditors. “We always have had with good faith with all creditors, including the holders of the so-called Russian debt,” she said.

Alexander Paraschiy: In our view, the final version of Ukraine’s 2016 budget and tax changes comply with the IMF’s key requirements, including the budget deficit of 3.7% of Ukraine’s GDP and broadening tax base. On top of that, Ukraine reduced the tax burden for private natural gas producers, which was also one of the requirements of the IMF’s program. Therefore unlike Jaresko’s position, we see little risk that the 2016 budget and accompanying tax changes will be criticized by the IMF.

On the other hand, we see more risk to a smooth IMF review of Ukraine’s behavior with its Russian creditor, the holder of USD 3 bln Eurobond. In particular, we have no confidence that the Russian debt holder will considered to be a holdout, in the event of which Ukraine will be considered as having good faith, which is critical for the IMF to continue lending to Ukraine. Yet despite our skepticism on this matter, we are comfortable in relying on Jaresko’s confidence that the IMF will support Ukraine.

Therefore, we believe the IMF’s next tranche, of about USD 1.7 bln, is possible as soon as January 2016. The IMF’s positive decision on a new tranche will open additional financing for Ukraine from its other partners, inducing the U.S. and EU, of a total amount of about USD 2.2-2.4 bln. All this will play to support Ukraine’s financial stability and its currency in early 2016, we believe.