IMF Executive Board Completes the Second Review under EFF with Ukraine, Approves US$1 Billion Disbursement, and Discusses Ex-Post Evaluation of 2014-15 SBA
IMF News, September 14, 2016
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- Published: September 14, 2016
Completion of second review and disbursement
- Executive Board completed the second review of Ukraine’s economic program under the Extended Fund Facility (EFF).
- Completion enables disbursement of SDR 716.11 million (about US$ 1 billion).
- Total disbursements under the arrangement after this review: SDR 5,444.21 million (about US$7.62 billion).
- Original arrangement size: SDR 12.348 billion (about US$17.5 billion at the time of approval).
- Arrangement approval date: March 11, 2015.
Performance criteria, waivers, and program aims
- Executive Board approved waivers for nonobservance of performance criteria related to:
- net international reserves,
- non-accumulation of external payments arrears,
- non-introduction of new exchange restrictions.
- Stated aims of Ukraine’s four-year arrangement:
- put the economy on the path to recovery,
- restore external sustainability,
- strengthen public finances,
- maintain financial stability,
- support economic growth by advancing structural and governance reforms,
- protect the most vulnerable.
Ex-post evaluation (EPE) of the 2014–15 Stand-By Arrangement (SBA)
- The Executive Board discussed the ex-post evaluation of the SBA with Ukraine that was approved in April 2014.
- Summary observation from the EPE: while the 2014–15 program faced substantial risks from the outset and did not achieve many of its goals, it served as an important policy anchor in an uncertain environment.
Managing Director Christine Lagarde — key observations and policy guidance
- “Ukraine is showing welcome signs of recovery, notwithstanding a difficult external environment and a severe economic crisis. Activity is picking up, inflation has receded quickly, and confidence is improving. Gross international reserves and bank deposits have risen. While the social and economic cost of the crisis has been high, growth is expected to be higher in the period ahead. This progress owes much to the authorities’ program implementation, including sound macroeconomic policies, bold steps to bring energy tariffs to cost-recovery levels, and measures to rehabilitate the banking system. Determined policy implementation, however, remains critical to achieve program objectives, given the significant challenges ahead.”
- Fiscal policy guidance:
- “Further progress in fiscal reforms is key to ensure medium-term sustainability.”
- Authorities need to avoid tax policy changes that lead to higher deficits.
- Focus should be on improving tax and customs administrations.
- “Parametric pension reform is crucial to reduce the pension fund’s large structural deficit, help reduce fiscal deficits and public debt, and create room to bring pensions to sustainable levels over time.”
- Monetary and financial sector guidance:
- “Monetary policy has been skillfully managed and financial sector reforms have started to yield results.”
- Priority: reduce inflation and rebuild international reserves to enable gradual removal of remaining administrative measures.
- Authorities need to further strengthen the banking system through recapitalization, unwinding of related-party lending, and resolution of impaired assets.
- Structural and governance reforms:
- “A sustainable recovery requires completing the structural transformation of the economy, where much remains to be done, including combating corruption and improving governance.”
- Create a level-playing field and ensure equal application of the rule of law to raise investment.
- Start restructuring and divestiture of state-owned enterprises, and prosecute high-level corruption cases.
- International partner support and debt restructuring:
- “Ukraine’s international partners have contributed to efforts to strengthen the economy with considerable financial and technical support. These remain important for the success of the program.”
- Completion of restructuring of sovereign debt held by private bondholders was highlighted as an important step to put debt back on a sustainable path.
- “It is important that the resolution of remaining sovereign arrears proceeds promptly.”
IMF Press Release No. 16/407, September 14, 2016 — IMF Communications Department