By Eurasia Business News – February 17, 2021

The International Monetary Fund wants more progress in reforms and stronger anti-corruption measures before extending a second $ 5 billion tranche to Ukraine.

The COVID-19 pandemics added pressure on Ukraine, as its GDP fell by 4.2% in 2020. Picture : View on Kyiv, the capital and largest city of Ukraine. Photo credits : Pexels.

The International Monetary Fund’s spokesman in Ukraine, Goesta Ljungman, announced on February 14 the completion of the mission on the first revision of the IMF stand-by program, which had lasted since December 2020, without unlocking the second $ 5 billion tranche. According to the official, additional discussions and more progress on reforms from Ukraine are needed to secure a new tranche of financial help from IMF. Goesta Ljungman described the discussions as productive talks.

Thus, the IMF’s mission to first review Ukraine’s stand-by program granted in June 2020 ended in failure :

“The discussion has been productive, but more progress is needed to complete the first review of the program. Discussions will continue” said Goesta Ljungman.

The Ukrainian Prime Minister Denys Shmygal said the government would take into account the recommendations suggested by the IMF mission. The adviser to the head of the President’s Office, Tymofii Milovanov, added that Ukraine still attempt to reach an agreement with the IMF :

“Both sides need to find compromises in common interests. […] There are no significant risks. The situation is absolutely under control. The financial – macroeconomic stability is maintained, there are no systemic risks, the situation with the budget is normal. […] The Ukrainian side works, first of all, in the interests of the state and does everything possible to reach agreements with the IMF.”

This year, Ukraine must pay $ 3.8 billion in foreign debt. Peak payments fall in September. In addition, the state budget deficit in 2021 is planned at UAH 246.6 billion (more than USD 8.8 billion), as the national GDP fell in 2020 due to the coronavirus pandemics. The government had expected that Ukraine would receive a tranche from the Fund in February-March 2021. 

In total, Ukraine expects to receive in 2021 from the IMF three tranches totalling $ 2.2 billion, said the head of the National Bank of Ukraine Kirill Shevchenko. Experts believe that Ukraine still has an opportunity to agree with the Fund, in spite of slow pace of reforms.

Read also : Ukraine and IMF agree on new $ 5.5 billion aid package

The IMF considers as necessary to further progress in the fight against corruption and strengthening of the judiciary, to prevent any price regulation in the energy sector, as well as to provide greater clarity regarding the 2022 State Budget and the audit of the COVID Fund. The adoption of the banking reform bill was also mentioned as one of the conditions for the provision of the second tranche.

The Washington-based lender conducted negotiations with Ukraine from late December 2020 to 12 February to assess its progress on reforms and decide whether or not to recommend the disbursement of the second tranche of the approved credit in 2020.

To address the large balance-of-payments and fiscal financing needs due to the COVID-19 pandemics, preserve achievements and advance structural reforms, the IMF approved in June 2020 an 18-month Stand-by Arrangement (SBA) for Ukraine, with access of about $ 5 billion from IMF. Ukraine had already received $2.1 billion in summer 2020 to cope with the COVID-19 economic consequences, but further disbursements are now unlikely as the IMF is adding more parameters to the agreement.

The other four tranches were expected in 2020 and 2021, but none have yet been paid due to the slow pace of reforms in this former Soviet republic of some 40 million inhabitants, where the average wage was around UAH 14,179 (USD 509) a month as of December 2020, with UAH 21,812 (USD 783) in Kyiv.

The COVID-19 pandemics added pressure on Ukraine, as its GDP fell by 4.2 % in 2020.

The refusal to unlock the second $ 5 billion tranche takes place as the IMF is particularly worried about the independence of the Ukraine’s central bank and that of new anti-corruption structures, as well as a government decision to temporarily reduce domestic gas tariffs.

Ukraine needs a positive decision from the IMF before September 2021 when Kyiv will have to make significant disbursements in respect of its external debt service.

As of 1 February 2021, Ukraine had an equivalent of USD 28.821 billion in international reserves, reported the Central Bank.

Important work remains to be done in the reforms of the Ukrainian economy and administration so that the financial assistance of the IMF can be effective and limited in time. Investors, Ukrainian and foreign ones, are asking the government for improvements of the business climate.

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