U.S. to provide USD 2 bln loan guarantee to Ukraine based on IMF success

The U.S. government announced on Jan. 13 that it intends to provide a USD 1 bln loan guarantee to the Ukrainian government in 1H15, “provided Ukraine remains on track with the reform program it has agreed with the IMF.” If Ukraine continues making concrete progress on its reform agenda and if conditions warrant, the U.S. Administration will be willing, working with Congress, to provide an additional USD 1 bln loan guarantee in late 2015, the statement said. The proceeds of these loan guarantees will help enable the government of Ukraine to protect the most vulnerable Ukrainian households from the impact of the needed economic adjustment.

In the statement, the U.S. government commends the progress of Ukrainian authorities – amid extraordinary circumstances – in implementing a robust reform program in cooperation with the IMF and World Bank, which includes measures to tackle corruption, overhaul the energy sector, repair the financial system, strengthen the business environment and adherence to the rule of law and put Ukraine’s finances on a sustainable path. “The authorities have demonstrated strong progress to date and this positive reform momentum has occurred despite Russia’s destabilizing actions in Crimea and eastern Ukraine,” the statement said.

Recall, the U.S. Treasury already provided a USD 1 bln loan guarantee for the Ukrainian government in 2014, which enabled Ukraine to issue U.S.-guaranteed Eurobonds on May 14.

Alexander Paraschiy: The otherwise positive signal from the U.S. government should not lead us to be overly optimistic. The progress in reforms is not that impressive and Ukraine’s Western partners perfectly understand that. Otherwise, support from the IMF would not have been delayed in 2014. With this maneuver, U.S. authorities are trying to offer support for painful reforms in Ukraine by committing financial backing for the period of tough transformation that will ensue.

An IMF mission is currently in Kyiv and the U.S. and EU are very interested in seeing a positive outcome of the talks, thus increasing financial remuneration for Kyiv in exchange for compliance with IMF demands. Austerity measures and revising the 2015 budget are crucial to securing a positive decision from the IMF, as well as additional funding from other donors.