IMF Survey: Policy Adjustments Move Ukraine Forward

May 8, 2009

  • Ukraine program back on track with release of second loan tranche
  • Program conditions adjusted to Ukraine's current economic realities
  • Despite declining growth in early 2009, some encouraging economic signs visible
  • Pazarbasioglu: “There are a number of encouraging signs that Ukraine’s economy has started to adjust to the large economic shocks” (IMF photo)

Reeling from the impact of the global economic crisis that has depressed demand for its steel and manufacturing exports, Ukraine is poised to receive the second installment of a $16.4 billion IMF loan, designed to buttress the economy against the fallout from the worldwide turmoil.


On May 8, the IMF’s Executive Board approved the first review under the Stand-By Arrangement with Ukraine. IMF Survey online spoke with Ceyla Pazarbasioglu, the head of the IMF mission, about key economic and financial issues facing the country and the risks of problems in Ukraine spilling over into the rest of Europe.

IMF Survey online: Why has the second tranche of the loan to Ukraine been increased to $2.8 billion from the originally planned $1.9 billion?

Pazarbasioglu: We have agreed to rephase the disbursements for the remainder of 2009. Accordingly, the second tranche has been increased to $2.8 billion. There are two reasons to increase this next tranche: first, the government has already made good progress; and, second, the first review was delayed for so long that it only seems fair to partially advance the disbursement originally scheduled under the second review.

IMF Survey online: Have some of the loan “conditions” been revised? For example, in this review you have agreed to a budget deficit, which differs from the earlier requirement of a balanced budget.

Pazarbasioglu: Given the sharp decline in growth and fiscal revenues, a balanced budget is neither feasible nor economically justifiable at this time. So, it makes sense to revise the program’s initial target of a balanced budget, and we agreed with the authorities to a budget deficit of 4 percent of GDP in 2009. From the outset of the economic program last fall, we have been saying that the program may have to be adjusted depending on economic developments and realities. Some flexibility should always be maintained in these arrangements.

But don’t forget that this is a two-way street: the authorities have taken corrective fiscal measures that they are confident will bring in the revenue to meet their fiscal targets, while keeping in mind financing constraints. Given these developments, the IMF and the authorities agreed that it is feasible to adjust the fiscal objective under the program.

IMF Survey online: What steps are being taken to protect vulnerable groups in Ukraine?

Pazarbasioglu: Ukraine has a comprehensive social safety net, including lifeline tariffs for utilities and a well-designed unemployment insurance system, which will protect the most vulnerable groups of the population. One of the reasons for the widening of the fiscal deficit target is to make sure that these programs will receive the funds necessary to function effectively during the crisis. Indeed, social expenditure as a percent of GDP is programmed to increase between 2008 and 2009.

Pazarbasioglu: “There are a number of encouraging signs that Ukraine’s economy has started to adjust to the large economic shocks” (IMF photo)

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