Press Release: IMF Completes First Review Under Stand-By Arrangement for Ukraine and Approves US$1.39 Billion Disbursement
IMF News, August 29, 2014
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- Published: August 29, 2014
Executive Board decision and disbursement
- The Executive Board completed the first review of Ukraine’s performance under a Stand-By Arrangement (SBA).
- Approved disbursement: SDR 914.67 million (about US$1.39 billion).
- Total disbursements under the arrangement after this disbursement: SDR 2.97 billion (about US$4.51 billion).
- Original two-year SBA: SDR 10.97 billion (about US$16.67 billion), approved on April 30, 2014.
- Press Release identification: Press Release No.14/399 (this release) and reference to Press Release No. 14/189 for the SBA approval.
Program implementation and economic context
- Overall assessment: economic policies have generally been implemented as agreed in the program.
- Implementation context: Ukrainian authorities have persisted in taking difficult measures despite a volatile political situation.
- Adverse factors: the conflict in the eastern part of the country is taking its toll on the economy and society.
- Program conditionality: program remains highly challenging and continues to hinge crucially on the assumption that the conflict will subside in the coming months.
- Compensatory measures: deemed critical to achieve key program targets agreed for 2014 and beyond.
Waivers, review scheduling, and technical approvals
- The Board approved waivers of nonobservance of performance criteria related to:
- international reserve accumulation, and
- the cash deficit of the general government,
- on the basis of corrective actions taken.
- The Board approved waivers of applicability of performance criteria related to:
- the cash deficit of the general government,
- the cumulative change in net domestic assets of the central bank, and
- publicly guaranteed debt.
- Timing adjustment: in light of a slight delay in completing the first review, the Board approved the authorities’ request for merging the remaining two reviews scheduled for 2014, while keeping the total financing under the arrangement unchanged.
Policy commitments and corrective measures (as stated by Ms. Christine Lagarde)
- Compensatory policy package commitments:
- (i) take steps to accumulate international reserves,
- (ii) tighten the fiscal stance in 2015–16 relative to the initial program targets, and
- (iii) step up efforts to put Naftogaz on a sound financial footing by improving bill collections and adjusting energy prices as needed.
- Monetary and exchange rate policy:
- maintain exchange rate flexibility,
- refocus monetary policy on price stability,
- remove administrative exchange restrictions and controls gradually at a pace consistent with macroeconomic and financial stability.
- Financial sector reform progress:
- regulatory and supervisory framework is being enhanced,
- bank diagnostics are on track,
- capacity of the Deposit Guarantee Fund to fulfill its mandate is being strengthened,
- efforts to strengthen banks’ capacity to resolve bad loans, including incentive schemes for voluntary debt restructuring.
- Fiscal policy and Naftogaz:
- authorities remain committed to fiscal consolidation,
- a supplementary budget has been adopted to meet the revised deficit target,
- efforts will focus on spending restraint and fiscal reforms to reverse the debt dynamics, while improving social safety nets,
- after a temporary increase in the Naftogaz deficit, authorities are taking steps to return to the programmed deficit reduction path already in 2015.
- Structural and governance reforms:
- press ahead with critical structural reforms to address governance issues and improve the business climate,
- work continues on the establishment of a strong anti-corruption agency,
- enhancing the anti-money laundering framework,
- simplifying the regulatory environment.
Risks and outlook
- Downside risks to the program remain very high.
- Program success hinges on:
- a timely resolution of the conflict in the East, and
- the authorities’ strong policy performance and adherence to the planned reforms.
- External support: financial and technical assistance from the international community are described as indispensable for achieving macroeconomic stabilization and reviving growth.
Source: Press Release No.14/399, IMF, August 29, 2014.