Rada approves IMF-required banking law, drawing Western acclaim

Ukraine’s parliament approved on May 13 the final version
of the long-anticipated banking resolution bill with 270 votes (out of 226
needed). The bill’s adoption is the last item in Ukraine’s To Do list to
initiate a new IMF loan program. The move was welcomed by the head of the EU
delegation to Ukraine, Matti Maasikas, calling it “a vital measure to protect
Ukraine public finances” and to continue IMF and EU financial assistance. The
ambassadors of G7 countries to Ukraine tweeted that the bill’s approval “will
strengthen Ukraine’s economy and promote deeper international economic and
commercial ties”.

Recall, the bill on banking resolution (also known as
the anti-Kolomoisky bill) was insisted by the IMF as an ultimate legal measure
to make impossible the return of Privatbank (PRBANK) to its former shareholders,
including Ihor Kolomoisky. The bank was declared insolvent and nationalized in
December 2016, which is being challenged in the Ukrainian courts by the former
shareholders, who have won some cases.  The bill was first drafted in December 2019,
then redrafted on Mar. 24 and voted on
in the first reading on Mar. 30.
After that, pro-Kolomoisky MPs overloaded the bill with more than 16,000
amendments, which threatened a five-month delay for its ultimate adoption. To
overcome the issue, Rada had to adopt a special law that allows for
an expedited review of voluminous amendments.

Just after the banking resolution bill was approved,
at least two MPs (aligned with Kolomoisky) submitted draft resolutions to
cancel the vote’s results, Interfax-Ukraine reported on May 13. This means the
Rada will have to meet one more time to vote against these draft resolutions,
only after which the bill can be signed by the president into law.

Meanwhile, finance minister Serhiy Marchenko told a
press briefing on May 13 that Ukraine is expecting to receive a USD 1.75 bln
loan tranche from the IMF under a new program by the end of May. With this
tranche, Ukraine is going to finance the state budget deficit, which is planned
at UAH 300 bln (over USD 10 bln).

Alexander Paraschiy: If the bill
becomes law next week, Ukraine will indeed be able to initiate the new IMF
program in a week or two. This will allow the country to receive very soon USD
1.75 bln in financing from the IMF under a new (possibly SBA) program, EUR 1.1
bln in financing from the EU under two MFA programs, and about USD 1.0-1.5 bln
in financing from the World Bank and other official lenders. In this way,
Ukraine will fully secure funds for the refinancing of upcoming external debt
repayments for all of 2020 (about USD 3.6 bln is due) and will partially
finance the budget deficit.

If the next IMF and EU tranches arrive in 2H20,
Ukraine will be able to fund about a quarter or a third of the state budget
deficit with official borrowing. Also, Ukraine’s improved image will allow it
to enter external debt markets in mid-2020 to further fill the budget’s gap.

All in all, the risk of Ukraine’s default in 2020,
which we highlighted in our Mar. 6 note, has been removed.