## Press Release: IMF Approves a Stand-By Credit for Ukraine

_IMF News, May 10, 1996_

## Source details

**Canonical URL:** [Press Release: IMF Approves a Stand-By Credit for Ukraine](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9624)

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## Bibliographic details
- Published: May 10, 1996

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### Program approval and purpose
- The International Monetary Fund approved a nine-month stand-by credit for Ukraine equivalent to SDR 598.2 million (about $867 million).
- Purpose: to support the Government's 1996 economic reform program.

### Background and recent performance
- October 1994–early 1995 reforms: unification of the exchange rate; liberalization of many features of the exchange system; abolition of price controls; increase in interest rates to positive levels in real terms.
- Early 1995 outcomes: lower-than-expected inflation, nominal exchange rate stability, capital inflows, strong export performance, and expanded private sector activity.
- Second half of 1995 slippages: credit overruns relative to program targets; renewal of budgetary subsidies to the enterprise sector; delays in privatization and export liberalization.
- Consequences of 1995 slippages: weakening of the karbovanets on the exchange market, surge in inflation, erosion of confidence, and virtual cessation of foreign financing in support of the program.
- Late 1995–early 1996 corrective measures helped stabilize the financial situation, halt depreciation of the karbovanets, and reduce inflationary pressures.

### The 1996 program: objectives and fiscal/monetary measures
- Key policy objectives:
  - Reduce inflation to about 1-2 percent per month by the end of the year.
  - Limit the decline of output.
  - Realize the country's economic potential.
- Fiscal targets and measures:
  - Target: reduce the consolidated budget deficit to 3.5 percent of GDP in 1996 from 5 percent of GDP in 1995.
  - Following 1995 tax reform, most ad hoc tax exemptions will be removed; new taxes will be levied to support restructuring of the energy sector.
  - Expenditure-side measures: regulate budgetary wage increases so they do not exceed 80 percent of inflation; reduce subsidies; adjust or postpone several other programs to meet financial targets.
  - Parliament adopted a budget deficit of 4 percent of GDP, but authorities are confident they can contain public expenditure to achieve the program's deficit target.
  - A new treasury management system will centralize paying agents' funds, help project cash flows, and manage liquid resources to facilitate control over expenditure commitments.
- Monetary policy:
  - Will be consistent with objectives of lowering inflation and replenishing net international reserves.
- External financing:
  - Ukraine's 1996 program is expected to be supported by official external financing of about $2 billion from multilateral and bilateral creditors.

### Structural reforms
- Privatization:
  - Goal by end-1996: privatize at least 70 percent of the shares in a total of 5,000 medium and large enterprises.
  - Measures: streamline preparation procedures for privatization; circulate new privatization certificates to boost demand at auctions; no official intervention in price setting at auctions.
- Price liberalization:
  - Halve the number of goods requiring advanced declarations of price increases to the Government.
- Competition and land reform:
  - Strengthen competition policies for government procurement orders.
  - A land reform is expected to take place, including introduction of a title registration system.

### Social protection and pension measures
- Improve targeting of social protection policies in 1996 by improving the household budget survey to better identify population segments in greatest need.
- Improve efficiency of income-based housing subsidy scheme limited to households where housing and energy costs exceed 15 percent of total income.
- Strengthen the pension system to make it sustainable, affordable, and more effective in providing benefits to the large number of pensioners.

### Challenges and outlook
- The 1996 program aims to set the stage for future recovery, but many tasks remain to transform the economy into a market-oriented one and achieve sustained growth.
- Chief challenge: widening and deepening structural reforms.

### Institutional and IMF position
- Ukraine joined the IMF on September 3, 1992.
- Ukraine's quota is SDR 997.3 million (about $1,446 million).
- Ukraine's outstanding use of IMF credit currently totals SDR 1,037 million (about $1,503 million).

### Ukraine: Selected Economic Indicators (as presented)
- Real GDP (percent change): 1992 -17; 1993 -14; 1994 -23; 1995* -12; 1996** -2
- Consumer prices (percent change, within period): 1992 2,000; 1993 10,155; 1994 401; 1995* 182; 1996** 42
- Overall fiscal balance (deficit –) (percent of GDP): 1993 -8.2; 1994 -5.0; 1996** -3.5
- External current account balance (deficit –) (percent of GDP): 1992 -4.4; 1993 -3.2

*Estimate
**Program

*Press Release No. 96/24 — May 10, 1996. International Monetary Fund*

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## References

- [Ukraine and the IMF](http://www.imf.org/external/country/UKR/index.htm)
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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9624_