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

_IMF News, August 25, 1997_

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**Canonical URL:** [Press Release: IMF Approves Stand-By for Ukraine](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9739)

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## Bibliographic details
- Published: August 25, 1997

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### 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*

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## References

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9739_