IMF, Ukraine negotiating on USD 5 bln standby program, fund officials say

The IMF is in talks with Ukraine for an 18-month
standby arrangement (SBA) instead of a three-year Extended Funds Facility (EFF)
program discussed before the COVID-19 crisis, the fund’s spokesman Gerry Rice
told a press briefing on May 7. “There’s an ongoing virtual mission discussing
policies that could be supported by what would be a standby arrangement,” he
said, adding that currently there is a more urgent need to focus on near-term
priorities of economic stabilization. “When a recovery is in place, the focus
could shift back to addressing Ukraine’s longer term structural reform, which
needs to foster stronger and more inclusive growth,” Rice said.

Recall, Ukraine reached a staff-level agreement with
the IMF on a new three-year EFF program for USD 5.5 bln in December 2019. In
late March, Ukrainian media reported that loans under the EFF program could be increased to a total of USD 8.0 bln,
given its worsened economic conditions.

Clarifying on the changes in program type for Ukraine,
the IMF director representing Ukraine, Vladyslav Rashkovan, wrote on his blog
that the total size of IMF lending for Ukraine won’t change in 2020-2021.
Namely, he confirmed that earlier the parties were discussing a three-year EFF
program for USD 8 bln, of which USD 5 bln was planned to be disbursed by the
end of 2021. The new SBA assumes disbursement of the same USD 5 bln for the
next 18 months, which corresponds to the end of 2021, he said.

Furthermore, Ukraine’s Finance Ministry confirmed in
its press release on May 7 that the amount of an IMF program’s financing for
the next 18 months won’t change, adding that a decision on whether it will be
an SBA or EFF is still under discussion, which should be finalized next week.

Alexander Paraschiy: The shift
from an EFF program (which usually demands delivery of structural reforms) to a
shorter SBA is logical given that Ukraine’s key focus will currently be on
macro stabilization and addressing higher fiscal needs. Therefore, such a shift
looks positive for Ukraine as it raises its chances to receive more than one
tranche under the IMF’s program.

This shift, however, does not mean that the fund will
close its eyes on Ukraine’s To Do list discussed a half year before. The IMF is
still requiring the adoption of the law that prevents the return of failed
banks to their former shareholders under any circumstances as among its core
demands, as well as no rollback of earlier implemented reforms in fighting
corruption (including preserving the institutional independence of the National
Anti-Corruption Bureau) and the financial sector (including preserving the
institutional independence of the central bank).

Based on the latest information from the zn.ua news
site, the IMF-demnded banking bill can be approved by parliament in the final
reading on May 13, which means it could become law in the week after that. This
allows us to expect that the new IMF program will be signed and Ukraine will
receive the first tranche under the program (about USD 1.8-2.0 bln) on the week
of May 22. In such case, Ukraine’s gross international reserves will swell
further in May despite the government’s large payments on foreign currency
debt due this month.