## Press Release: IMF Approves Stand-by Credit and Second STF Drawing for Ukraine

_IMF News, April 7, 1995_

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## Bibliographic details
- Published: April 7, 1995

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### Summary of Approval and Financing
- The IMF approved credits for Ukraine totaling SDR 1,246.62 million (about $1.96 billion) to support the Government's 1995 economic reform program.
- Allocation of the total:
  - SDR 997.3 million (about $1.57 billion) under a one-year stand-by credit.
  - SDR 249.3 million (about $392 million) as Ukraine's second drawing under the systemic transformation facility (STF).
- The first STF drawing, SDR 249.3 million, was approved on October 26, 1994 (Press Release No. 94/76).
- Ukraine joined the IMF on September 3, 1992. Its quota is SDR 997.3 million (about $1.57 billion), and its outstanding use of IMF credit currently totals SDR 249 million (about $391 million).

### Background and Policy Context
- The Government that took office in the summer of 1994 took measures under the first STF program to address a deep economic crisis.
- Measures in the final quarter of 1994 included:
  - Containing a prospective explosion of the budget deficit.
  - Limiting the growth of credit to enterprises.
  - Beginning liberalization of prices and the exchange and trade system.
- Policy implementation under the first STF program was described as generally good, with most policy commitments eventually achieved and a tightening of financial policies that surpassed expectations.
- Persistent difficulties remained in inflation, the balance of payments, and economic activity, highlighting large macroeconomic imbalances and structural impediments to output recovery.

### The 1995 Program: Objectives and Targets
- Key aims:
  - Achieve a swift and enduring reduction in inflation.
  - Liberate the economy's export potential.
  - Implement meaningful structural reforms.
  - Normalize financial relations with creditors.
- Specific inflation targets:
  - Reduce monthly inflation to low single digits by the middle of the year.
  - Reduce inflation to about 1 percent by end-1995.
- Output and external balance objectives:
  - Limit the decline in real GDP to 10 percent in 1995.
  - Contain the deficit in the current account of the balance of payments to about $1.3 billion in 1995.
- Fiscal policy:
  - State budget deficit targeted to decline to 3.3 percent of GDP in 1995 from 8.6 percent in 1994, entirely on the basis of a reduction in expenditure.
  - Expenditure reductions to reflect government withdrawal from operations better discharged by the nongovernment sector, including:
    - Substantial withdrawal from agricultural financing.
    - Replacement of budget subsidies to the coal industry by a system of intra-industry transfers.
    - Curtailment of budget lending.
  - Other expenditure restraint measures: strict wage policy in the budgetary sphere, cash limits in certain areas, further increases in public utility charges, housing rents, and energy prices to households to contain subsidies.
- Monetary and labor policy:
  - Monetary projections support keeping the rate of monetary expansion substantially below the projected rate of increase in nominal activity in the first half of the year.
  - Program envisages a policy of wage restraint to support adjustment and limit prospective unemployment increases.

### Structural Reforms
- Measures to remove administrative controls and provide incentives for enterprise innovation, market entry, and cost reduction.
- Price policy:
  - Government will substantially reduce price controls by the end of the year.
  - Adjust prices for subsidized goods, continually reducing the level of subsidization.
- Privatization program:
  - Privatization through vouchers of about 8,000 medium and large-scale enterprises, as well as the majority of small-scale enterprises, by the end of the year.
  - Sales to foreign investors contemplated through individually negotiated deals and tenders of blocks of shares in the auction process.
- Trade liberalization:
  - Further reform of the trade system to remove impediments to export promotion.
  - Most export quotas already eliminated; preregistration scheme streamlined.
  - Removal of the export quota on grain planned in the course of the year.

### Social Protection and Mitigating Social Costs
- Authorities prioritize protecting the most vulnerable social groups from adjustment and liberalization impacts.
- Budget provides for an increase in spending on social protection by close to 2 1/2 percent of GDP.
- Existing benefits will be indexed to wage increases, with, where necessary, a flattening of the pension-benefit structure to allow minimum incomes to keep pace with inflation.
- With World Bank assistance, a review of all social benefits will begin in 1995, including design of measures to strengthen the pension and unemployment compensation systems.

### Challenges and External Support
- Restructuring the Ukrainian economy and restoring external viability extends beyond 1995 and will require continued adjustment and external assistance over the medium term.
- The program has received pledges of support from the international community in the form of grants, credits, and debt rescheduling for a total of US$1.5 billion.

### Ukraine: Selected Economic Indicators
- Real GDP (percent change)
  - 1992: –17
  - 1993: –23
  - 1994*: –10
  - 1995**: (program target) — limit decline to 10 percent
- Consumer prices (percent change)
  - 1992: 1,210
  - 1993: 4,735
  - 1994*: 891
  - 1995**: 389
- External current account balance (deficit –) (millions of dollars)
  - 1992: ---
  - 1993: –849
  - 1994*: –1,396
  - 1995**: –1,335
- State budget balance (deficit –) (percent of GDP)
  - 1992: –30.4
  - 1993: –10.1
  - 1994*: –8.6
  - 1995**: –3.3
- Sources: Ukrainian authorities; and IMF staff estimates.
- *Estimated.
- **Program.

_International Monetary Fund — Press Release No. 95/19 (April 7, 1995)_

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9519_