IMF Announces Staff Level Agreement with Ukraine on First Review of the Stand-By ArrangementPress Release No. 10/438
November 16, 2010
An International Monetary Fund (IMF) mission visited Kyiv during November 3-15, to conduct the discussions on the first review under the Stand-By Arrangement (SBA). At the conclusion of the visit, Thanos Arvanitis, Mission Chief for Ukraine, issued the following statement:
“The IMF mission has reached staff-level agreement with the Ukrainian authorities on the conclusion of the first review under the SBA. The authorities’ Letter of Intent will now be submitted to IMF Management. It is expected that following the completion of prior actions by the authorities, the Executive Board will consider the review before the end of the year. The completion of the review would release SDR 1 billion (about US$1.6 billion), of which US$1 billion would be provided for budget support.
“Performance under the SBA has been broadly in line with program objectives. All end-September quantitative performance criteria were met and steady progress was made on structural reforms.
“The government remains committed to fiscal consolidation aiming to bring public debt down over the medium term. To this end, the general government deficit in 2011 will not exceed 3½ percent of GDP. As the draft tax code is expected to be broadly revenue neutral in 2011, the needed adjustment to achieve the deficit target will be focused on expenditure rationalization, while preserving essential investment projects and social programs for the poorest. Spending pressures remain a challenge, and will require prudent execution.
“Fiscal consolidation will be also underpinned by reform of the energy sector, which already in 2011 will allow Naftogaz to balance its finances; reforms to strengthen the finances of the pension system; and public administration reforms.
“Monetary policy will be reoriented toward price stability and core inflation is expected to continue on a declining trend. The central bank should remain vigilant to possible second-round effects on inflation stemming from recent food and administrative price increases. Agreement has been reached on steps to improve the functioning of the foreign currency market, including to develop a forward market.
“The banking system as a whole remains liquid and adequately capitalized. The private bank recapitalization and resolution process is broadly on track. However, restoring credit flows in the economy will require measures to address non-performing loans, which are at elevated levels, and continued efforts to strengthen the financial sector legal framework.”