Press Release: Statement by IMF Managing Director Christine Lagarde on Ukraine
IMF News, February 12, 2015
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- Published: February 12, 2015
Program agreement and overview
- IMF team in Kiev reached a staff-level agreement with the Ukrainian government on a new economic reform program.
- The program would be supported by an Extended Fund Facility of SDR 12.35 billion (about $17.5 billion, €15.5 billion) from the IMF.
- The arrangement is a four-year program aimed at:
- supporting immediate economic stabilization in Ukraine;
- implementing a set of bold policy reforms to restore robust growth over the medium term;
- improving living standards for the Ukrainian people.
- Christine Lagarde intends to recommend the program for consideration to the IMF Executive Board.
Reasons the IMF believes the program can succeed
- First: demonstrated commitment to reform
- 2014 fiscal deficit: 4.6 percent of GDP vs. a target of 5.8 percent.
- Adoption of a flexible exchange rate regime.
- Significant increases in household energy prices in 2014:
- household gas prices to 56 percent of the import price;
- heating prices to about 40 percent of the import price.
- Initiation of efforts to strengthen the country's anti-corruption and anti-money laundering framework.
- Second: front-loaded actions going forward
- Government commitments under the program include:
- further sizable energy tariff increases;
- bank restructuring;
- governance reforms of state-owned enterprises;
- legal changes to implement the anti-corruption and judicial reform agenda.
- Measures will be taken to strengthen and better target the social safety net to help cushion adjustment, especially for the poorest groups.
- Third: increased external support
- Change from a Stand-By Arrangement to an Extended Fund Facility provides:
- more funding;
- more time;
- more flexibility;
- better financing terms for Ukraine to implement reforms.
- IMF resources will be complemented by other bilateral and multilateral financing.
- The Ukrainian government intends to hold consultations with holders of their sovereign debt to improve medium-term sustainability.
- From these various sources taken together, a total financing package of around $40 billion is estimated over the four year period.
Risks and macroeconomic approach
- The program is described as ambitious, tough, realistic, and not without risk.
- Main identified risk:
- Geopolitical developments that may affect market and investor confidence, particularly the conflict in the East.
- Program design response:
- The program is based on conservative macroeconomic assumptions to buffer further the impact of the conflict.
- Resolution of the conflict would strengthen and speed up prospects for macroeconomic stabilization and growth.
Final assessment
- Effective implementation—after consideration and approval by the IMF Executive Board—can represent a turning point for Ukraine.
- The program offers an important opportunity for Ukraine to move its economy forward at a critical moment in the country's history, contingent on steadfast implementation and supportive external conditions.
Press Release No. 15/50 — Statement by IMF Managing Director Christine Lagarde on Ukraine (February 12, 2015).