IMF concludes Ukraine visit, loan talks to continue

27 September 2019

IMF staff completed their two-week visit to Ukraine on Sept. 26 with Mission Head Ron van Rooden commenting that discussions on a new loan deal with Ukraine were productive and they “will continue in the coming weeks,” the IMF’s press service reported on Sept. 27. In attempts to reach agreement on a three-year Extended Fund Facility program, the most productive discussions were on fiscal and monetary policies and key reform measures, the IMF stated. Van Rooden stressed the importance of the central bank's independence and “minimizing the cost to taxpayers from bank resolutions.” He also highlighted the importance of improving competition in the energy and agricultural sectors and “reducing the role of the state and oligarchs in the economy”.

 

A day before, the epravda.com.ua news site listed the IMF's key concerns during its visit, which are (1) apprehension that the new government is pressuring the central bank, (2) uncertainty around Privatbank, whose bailout cost taxpayers about USD 5.9 bln, (3) uncertainty about the government’s commitments to fully liberalize gas prices in 2020, as well as (4) the absence of final state budget parameters for 2020. The news site cited an anonymous source "familiar with the IMF's position" for its information.

 

Alexander Paraschiy: Van Rooden’s comments largely confirm alleged IMF concerns about the future of the central bank and the outcome of efforts to resolve failed banks (read Privatbank). In the IMF’s press release, these two issues are mentioned twice. However, we do not expect these concerns will be impediments for the future IMF program. There are few signs that something is threatening the central bank’s independence (as it's protected adequately by legislation), even if some management reshuffle will happen there. In the case of Privatbank, it’s too early to make any conclusions about the probability of former owners’ compensation of state losses.

 

At the same time, it is natural that the IMF has not completed discussions on the new program before seeing and approving the final draft on the 2020 state budget. As before, we do not expect any deal with the fund before the final budget draft is approved by parliament, which is expected in late November or early December. That said, we stick to our expectation that the IMF will conclude a new deal with Ukraine in late 2019 and will disburse the first tranche under the new EFF loan program in December or early 2020.

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