Press Release: IMF Approves Stand-By for Ukraine
IMF News, August 25, 1997
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- Published: August 25, 1997
Approval and financing
- The IMF approved a one-year stand-by credit for Ukraine, equivalent to SDR 398.92 million (about US$542 million).
- Of the total, SDR 36.27 million (about US$49 million) is available immediately.
Background and recent progress
- Ukraine made considerable progress under its 1996 economic reform program supported by an earlier stand-by credit.
- Achievements noted:
- Rapid reduction in inflation.
- For the first time since independence, a measure of stability was achieved, even though real GDP continued to decline.
- Progress in privatization, price liberalization, and trade liberalization.
- In mid 1997, VAT and enterprise profit tax reforms were introduced.
- The authorities had intended a comprehensive three-year EFF program, but domestic consensus could not be reached on several key elements; internal discussions on a program for 1998 and beyond continue.
- During the first half of 1997, authorities followed the spirit of the proposed EFF by implementing monetary and fiscal policies in line with specified internal targets.
1997-98 program objectives and targets
- Key objectives:
- Lay the basis for the resumption of economic growth through structural reforms.
- Consolidate gains already achieved.
- Further reduce inflation.
- Strengthen the external reserve position of the National Bank of Ukraine.
- Inflation targets:
- Reduce inflation from 40 percent during 1996 to 15 percent during 1997 and to 12 percent during 1998.
- Output and reserves:
- The fall in output is projected to level off in the second half of 1997, partly because of an expected recovery of agriculture, and to record modest growth in 1998.
- Increase gross international reserves from the equivalent of 5.2 weeks of imports of goods in 1996 to 6 weeks of imports in 1997, and to 7.4 weeks of imports in 1998.
- Fiscal policy:
- Consolidated budget deficit limited to 4.6 percent of GDP in 1997 and 4.5 percent of GDP in 1998.
- After adjusting for arrears accumulation in 1996 and net payments of arrears in 1997 and 1998, the underlying budget deficit will be reduced from over 6 percent in 1996 to 4.3 percent in 1997 and 2 percent in 1998.
- Major fiscal objective: reduce existing arrears on wages, pensions, and social benefits, while avoiding new arrears.
- Need for speedy implementation of measures to expand treasury operations and to better monitor expenditure commitments.
- Monetary policy:
- Key element: maintenance of a stable exchange rate within a narrow band.
- Monitoring and review:
- Monthly monitoring to provide early warning signals.
- Quarterly reviews to provide for continuous dialogue between authorities and the IMF.
Structural reforms (policy thrust)
- Main thrust: further deregulation, privatization, and demonopolization, alongside improvements in the payments system to ensure better governance.
- Deregulation measures:
- Simplify business registration and drastically reduce the number of activities subject to business licensing and registration.
- Privatization strategy:
- With small-scale privatization virtually complete, focus on privatizing medium- and large-scale enterprises.
- Several large monopolies and difficult privatization cases previously excluded will be privatized by end-1997.
- Develop capital market institutions to support post-privatization trading in shares.
- Reform bankruptcy procedures to provide a workable framework for financial restructuring and liquidation.
- Other structural reforms:
- Establish more efficient labor markets through increased wage flexibility.
- Implement faster land reform and privatization within the agro-industrial complex.
- Widen and deepen energy sector restructuring.
- Maintain a liberal and transparent trade regime as part of an outward-oriented growth strategy.
Addressing social costs
- Recent improvements in targeting social protection programs, especially subsidies for communal services.
- Medium-term objectives:
- Further strengthen means testing of social programs.
- Streamline the diverse set of allowances to provide a higher level of benefits to the most needy recipients.
- Rationalize the pension and unemployment insurance systems.
The challenge ahead (policy risks and governance)
- Formidable challenges remain as domestic consensus on the nature of reform is sought, particularly as parliamentary elections approach.
- Policy vigilance required to:
- Maintain current budget ceilings.
- Control expenditure commitments.
- Track revenue developments that may warrant offsetting measures.
- Important to resist pressures from the enterprise sector to stimulate production by loosening monetary policy, as this could lead to higher inflation and undermine the program.
IMF membership and outstanding credit
- Ukraine joined the IMF on September 3, 1992; its quota is SDR 997.3 million (about US$1,356 million).
- Its outstanding use of IMF credit currently totals SDR 1,635.5 million (about US$2,224 million).
Selected Economic Indicators (Ukraine)
- Real GDP (Percent change)
- 1995: -12
- 1996: -10
- 1997*: -3
- 1998*: 3
- Consumer prices (end of period) (Percent change)
- 1995: 182
- 1996: 40
- 1997*: 15
- 1998*: 12
- Consolidated budget balance (deficit-) (Percent of GDP)
- 1995: -4.9
- 1996: -3.2
- 1997*: -4.6
- 1998*: -4.5
- External current account balance (deficit -) (Percent of GDP)
- 1995: -4.4
- 1996: -2.7
- 1997*: -3.6
- 1998*: -1.9
- Gross international reserves (Weeks of imports)
- 1995: 3.7
- 1996: 5.2
- 1997*: 6.0
- 1998*: 7.4
- Sources: Ukrainian authorities; and IMF staff estimates.
- *Program.
Press Release: IMF Approves Stand-By for Ukraine — August 25, 1997