War is war, but reforms are on schedule

The statement of the International Monetary Fund (IMF) on the approval of the second tranche under the program of expanded financing of Ukraine in the amount of $15.6 billion confirms and clarifies the estimates of the prospects for the country’s economy, which were given earlier in the fund. In the two months that have passed since the beginning of the program and after the allocation of the first aid package, the Ukrainian authorities managed, according to the fund, to “actively” confirm their interest in structural reforms of the economy. However, despite the generally positive forecasts, so far the volume of IMF funds allocated to Ukraine is a record only for the latest wartime – for example, support for Greece during the debt crisis in the euro area in 2010-2014 exceeded the current allocations by an order of magnitude.

The IMF has completed a mission to review Ukraine’s compliance with the terms and conditions of its approved Extended Financing Facility (EFF). Recallat the end of March, the IMF approved a four-year loan of $15.6 billion to Kiev – in exchange for financial support, the Ukrainian authorities committed themselves to easing foreign exchange restrictions, returning to a flexible exchange rate regime and inflation targeting, as well as ensuring the stable operation of the financial sector.

Ukraine was supposed to present the first results of the new policy at the end of May – it was them that the representatives of the parties discussed during the consultations of the fund on May 23-30 in Vienna.

As follows from IMF statements, published on Tuesday following the results of negotiations, the fulfillment of the conditions of the program in the fund were satisfied. In addition to approving the second tranche of $900 million (the first allocated in April amounted to about $2.7 billion), the document contains an assessment of the prospects for the Ukrainian economy. Fund analysts note its “gradual recovery”, emphasizing “the rapid recovery of the energy system, the stabilization of the foreign exchange market and the decline in inflation.” It should be noted that after the start of the military operation, the IMF refrained from making forecasts regarding the Ukrainian economy; at the end of March, some estimates of the prospects were given in a similar statement made in the context of justifying the approval of the EFF. Some of them have been revised for improvement in the new document: for example, now analysts expect GDP growth in Ukraine to be within 1–3% (against “from minus 3% to 1%” in March).

The four-year EFF program for Ukraine consists of two stages. At the first stage, the Ukrainian authorities should pay special attention to increasing tax revenues, maintaining exchange rate stability and strengthening the fight against corruption. On the second – “more ambitious structural reforms” related to increasing the competitiveness and productivity of economic sectors. The duration of the stages, as well as the amount of financial support that will be provided for each of them, will depend on the political situation (more see “Kommersant” dated April 3).

It should be noted that the loan under the EFF program was the first “aid package” of such a volume approved by the IMF for a country involved in a military conflict. With the amount of funds allocated by the fund in “peaceful” time, the current support of Kyiv, however, is incomparable.

So, for example, during the debt crisis in Greece (more see “Kommersant” dated July 23, 2011) in 2010 and 2011, the country approved two joint programs of financial assistance from the IMF and the European Financial Stability Facility, involving the issuance of loans in the amount of €110 billion and €130 billion, respectively (in 2012, the second program was expanded by €20 billion). As emphasized by the fund, the remaining restrictions on the volume of funding for Kiev are explained, in particular, by the “extremely uncertain” prospects for the development of events (including during the military operation) – analysts are of particular concern about the continued high budget deficit in Ukraine, which entails a constant and the growing need for external financing.

Christina Borovikova