## Press Release: IMF Executive Board Approves 2-Year US$17.01 Billion Stand-By Arrangement for Ukraine, US$3.19 Billion for immediate Disbursement

_IMF News, April 30, 2014_

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## Bibliographic details
- Published: April 30, 2014

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### Stand-By Arrangement (SBA) — size and disbursement
- Arrangement amount: SDR 10.976 billion (about US$17.01 billion, 800 percent of quota).
- Approved under the Fund's exceptional access policy.
- Immediate disbursement: SDR 2.058 billion (about US$3.19 billion).
  - Of the immediate disbursement, SDR 1.29 billion (about US$2 billion) allocated to budget support.
- Subsequent disbursements:
  - Second and third disbursements based on bi-monthly reviews and performance criteria.
  - Remainder of program period subject to standard quarterly reviews and performance criteria.

### Program objectives and core policy pillars
- Overall aim: restore macroeconomic stability, strengthen economic governance and transparency, and launch sound and sustainable economic growth while protecting the most vulnerable.
- Program focuses:
  - Maintaining a flexible exchange rate to restore competitiveness.
  - Stabilizing the financial system.
  - Gradually reducing the unaffordable fiscal deficit.
  - Eliminating losses in the energy sector while enhancing social safety nets.
  - Decisively breaking with problematic past governance practices.

### Monetary and exchange rate policy
- Authorities committed to maintaining a flexible exchange rate regime following the floating of the hryvnia.
- Monetary policy will focus on domestic price stability.
  - Initially adopt a money-based monetary framework.
  - With IMF technical assistance, plan to adopt inflation targeting by mid-2015.

### Financial sector reforms
- Objectives:
  - Stabilize the financial system and maintain confidence in banks.
  - Strengthen balance sheets and financial regulation and supervision.
- Measures:
  - Diagnostic studies of the largest banks to assess resilience to economic shocks.
  - Reforms to restore confidence and stem deposit outflows.
  - Review and upgrade regulatory and supervisory framework.
  - Steps to facilitate restructuring of banks’ non-performing loans (NPLs).

### Fiscal policy and public finances
- Fiscal strategy:
  - Meet near-term spending obligations and gradually reduce the fiscal deficit over the medium-term.
  - Authorities target a structural fiscal adjustment of 2 percent of GDP over the program horizon.
  - For 2015–16, aim to reduce the fiscal deficit to about 3 percent of GDP by 2016 through further gradual expenditure-based fiscal adjustment proceeding at a pace matching the economy’s speed of recovery.
- Wage policy:
  - Aim to keep the minimum wage and public wage growth in line with productivity.

### Energy sector reforms
- Objective: eliminate large quasi-fiscal losses of Naftogaz by 2018 and strengthen transparency and governance.
- Measures:
  - Gradual, meaningful, and broad-based gas and heating tariff increases starting from May 2014.
  - Enhanced social assistance measures to protect the poorest from energy price adjustments.
  - Structural and governance reforms in Naftogaz to improve governance and reduce operational costs.
- Importance of resolving gas dispute:
  - Early agreement on repayment of accumulated arrears and the gas price dispute with Gazprom emphasized to prevent disruptions in energy trade.

### Governance, transparency, and business climate reforms
- Measures already taken and planned:
  - New public procurement law enacted to reduce misuse of public resources.
  - Address governance issues in state-owned companies and seek recovery of stolen assets.
  - Build capacity for enforcement of anti-money laundering and anti-corruption legislation.
  - Enhance effectiveness of the judiciary and tax administration.
- Intended outcome: reduce corruption, improve the business climate, and remove long-standing barriers to growth.

### Recent economic developments (context)
- Macroeconomic vulnerabilities and past policy failures:
  - Pegged and overvalued exchange rate led to deterioration of competitiveness and slower export growth.
  - Current account deficit reached over 9 percent of GDP in 2013.
  - Public debt rose to 41 percent of GDP; external debt at 79 percent of GDP.
  - International reserves fell to around two months of imports.
- Policy shift:
  - National Bank of Ukraine allowed the exchange rate to float in February, helping stabilize financial markets.
- Ongoing challenges:
  - Economic activity contracting; international debt markets closed.
  - Government revenues fallen due to political uncertainty and weak economic performance.
  - Political tensions in some regions; early presidential elections scheduled for May 25, 2014.

### Macroeconomic projections and key statistics
- 2014 outlook:
  - Real GDP expected to contract by about 5 percent in 2014.
  - Inflation expected to reach 16 percent at end-2014.
  - Current account deficit expected to fall to about 4½ percent of GDP.
  - Gross international reserves expected to stabilize at around 2½ months of import coverage.
  - Public sector debt expected to rise to 57 percent of GDP.
  - External debt expected to rise to just below 100 percent of GDP.
  - Unemployment rate: 8½ percent in 2014.
- 2015–16 and medium term:
  - Real GDP growth expected to rebound to 2 percent in 2015, rising to 4-4½ percent in the medium term.
  - Unemployment expected to decline to 7½ percent by 2016.
  - Exports projected to grow by over 6 percent a year in 2015–16.
  - By end-2016, inflation expected to fall to about 6 percent.
  - NBU expected to build international reserves to cover nearly 4 months of imports by end-2016.

### Risks, conditionality, and implementation challenges
- Risks:
  - Program risks described as high.
  - Further escalation of tensions with Russia and unrest in the east pose a substantial risk to the economic outlook.
- Implementation conditions:
  - Steady and rigorous implementation of policy measures and maintaining broad public support critical for success.
  - Successful implementation would unlock sizable international official assistance and private capital inflows.

*Press Release No. 14/189, April 30, 2014 — IMF Communications Department*

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## References

- [Ukraine and the IMF](http://www.imf.org/external/country/UKR/index.htm)
- [Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr14189_