IMF might reduce next wire to Ukraine

The International Monetary Fund (IMF) might reduce its next loan tranche to Ukraine to USD 1.0 bln from USD 1.7 bln discussed previously, according to a June 6 report by the apostrophe.com.ua news site, which cited an anonymous source in the Ukrainian government familiar with the talks. The following fourth and fifth wires – as part of the Extended Funds Facility loan program – could be proposed at USD 1.3 bln and USD 2.0 bln, respectively, the report said. This schedule was proposed by the IMF during negotiations with Ukrainian authorities, with “the main part of the assets arriving at the year end,” the report said.

Recall, the initial IMF loan schedule planned for a USD 5.0 bln wire in March 2015 (which was fulfilled), followed by USD 1.67 bln in every subsequent quarter in 2015 and USD 0.6 bln in quarterly credits in 2016-2018. Instead, Ukraine has received only USD 6.7 bln (USD 5.0 bln in March 2015 and USD 1.67 bln in August 2015) from the Fund. After the 2016 budget was approved, Finance Ministry officials claimed in January there would be no merging of delayed wires.

Alexander Paraschiy: Some kind of rescheduling of the IMF wires was inevitable taking into account that four tranches of USD 4.5 bln are already being delayed. Still, we did not expect this rescheduling would mean reductions in the loan amounts since this approach has never been applied to Ukraine. If the report is true, it might mean the Fund wants to encourage decision-makers to adopt a more assertive approach to reforms since larger initial loans (and smaller ones later on) cause bureaucrats to relax, especially when the economic situation is not that pressing, as is the case currently. But we don’t advice drawing any conclusions based on this report or similar anonymous claims, prior to the official memorandum being released. This rumored rescheduling could very well be limited to talks and nothing more.