{
  "title": "The Case for Supporting Ukrainian Economic Reforms, Remarks by David Lipton, IMF First Deputy Managing Director, delivered at Peterson Institute, April 7, 2015",
  "publication": "IMF News, April 7, 2015",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/sp040715",
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  "summary": "Ukraine’s post-independence trajectory marked by “lost opportunities,” with economic mismanagement, corruption, oligarchy, and half-hearted reforms obstructing growth.",
  "publishDate": "2015-04-07",
  "sections": [
    {
      "heading": "Ukraine — The Past: diagnosis and context",
      "content": "- Ukraine’s post-independence trajectory marked by “lost opportunities,” with economic mismanagement, corruption, oligarchy, and half-hearted reforms obstructing growth.\n- Key historical and comparative points:\n  - Independence in 1991; per capita income at independence was higher than Poland’s, but by 2013 Ukraine’s standard of living had fallen “more than 60 percent behind Poland.”\n  - Since 1991, Ukraine entered into eight IMF programs, “none of which achieved the objective of prompting sustained reform.”\n- Macroeconomic deterioration before the 2014–15 crisis:\n  - After the 2009/10 program ended unsuccessfully, wages and costs rose while productivity did not, eroding competitiveness; GDP stopped rising and exports stagnated.\n  - In early 2013, warnings were given that inaction risked crisis.\n- Crisis drivers and 2014 outcomes:\n  - Loss of Crimea and conflict in Donbass caused sharp output declines; industrial production, construction, retail sales, and household income fell.\n  - Fourth quarter of 2014: “GDP contracted 14.8 percent from a year earlier.”\n  - Unemployment approaching double digits.\n  - Banking system stress: “deposits fell by 28 percent by end March of this year” and “nonperforming loans soared to nearly 20 percent of all loans at the end of 2014.”\n  - Hryvnia depreciation: “lost two-thirds of its value in the past 15 months.”\n  - Inflation “spiked above 40 percent.”\n  - Energy sector fiscal drain: energy subsidies and Naftogaz support “equal to more than 7 percent of GDP.”"
    },
    {
      "heading": "Ukraine — The Present: IMF program, financing, and stabilization measures",
      "content": "- IMF support and program framing:\n  - IMF approved “$17.5 billion of financing to Ukraine as part of a four-year program under our Extended Fund Facility.”\n  - Program goals: “to stabilize Ukraine's deeply destabilized finances; to restore growth; and to support the long-overdue modernization.”\n- Financing need and external support:\n  - Ukraine’s external financing needs estimated at “about $40 billion over the next four years.”\n  - This sum equals “nearly one-third of estimated 2014 GDP.”\n  - Most financing is “already pledged by the international community,” with the remainder to be addressed via a debt operation under discussion.\n- Reserve targets and sequencing:\n  - Program aims to “triple Ukraine’s official reserves to about $18 billion at the end of this year from just $5.6 billion before agreement was reached with the Fund.”\n  - Reserves projected to reach “$35 billion by end-2018—slightly more than 100 percent of the Fund’s reserve adequacy metric.”\n  - Reserve import cover likely to reach “three months by June compared with less than one month’s cover before the IMF agreement,” aided by front-loaded Fund disbursements and bilateral loans and swaps.\n- Stabilization policy mix and outcomes sought:\n  - Restore stability to the foreign exchange market through “appropriately tight monetary targets and temporary administrative measures”; recent stabilization and reversal of reserve drain noted.\n  - Inflation objective: “help inflation recede toward single digits by end 2016” once one-off effects fade.\n  - Debt sustainability and restructuring:\n    - “Public and publicly guaranteed debt is projected to peak at 94 percent of GDP in 2015.”\n    - Restructuring aims to “secure $15 billion in additional financing over 2015-18 to bring debt below 71 percent of GDP by 2020,” and to avoid repayment bunching post-program."
    },
    {
      "heading": "Ukraine — The Future: restoring growth and structural reform agenda",
      "content": "- Core growth challenges and policy directions:\n  - Restore competitiveness undermined by prior exchange rate overvaluation — achieved through exchange rate depreciation and flexibility at the new level.\n  - Fiscal and quasi-fiscal restraint to reduce crowding out, including addressing Naftogaz’s quasi-fiscal deficit.\n- Energy sector reforms:\n  - Significant household gas price and heating tariff increases implemented.\n  - Prior gas prices “stood at or below 20 percent of cost recovery”; the “remaining 80 percent of costs has added to the broad public sector deficit.”\n  - Measures to protect vulnerable populations: “new and strengthened targeted programs” being put in place.\n- Banking sector repair:\n  - Actions include resolving insolvent banks via recapitalization and liquidation; recapitalization needs included in program architecture.\n  - Future requirement that large financial institutions “are kept well capitalized by their owners” to reopen sustainable credit flows.\n- Broader structural reforms to attract investment and sustain growth:\n  - Address banking ownership structures that “too often funnels excessive lending to insiders.”\n  - Strengthen regulatory and supervisory frameworks to align with international best practices.\n  - Improve business climate via deregulation, tax administration reform, transparency, and state-owned enterprise reforms.\n  - Specific Naftogaz measures: “an independent audit of Naftogaz’s receivables, and a restructuring of the company to separate its transmission and distribution arms.”\n  - Anti-corruption priorities: strengthened anti-corruption legislation, measures to enhance judicial effectiveness, and steps to curb oligarchic influence.\n- Social protection and equity measures:\n  - “Total spending on social assistance programs will reach 4.1 percent of GDP this year, an increase of 30 percent from 2014.”\n  - Energy bill assistance “will in fact quadruple from 6 billion hryvnia in 2014 to 24 billion hryvnia in 2015.”\n  - “Unemployment benefits will rise 15 percent.”\n- Risks and contingency considerations:\n  - Principal downside risk: renewed intensification of the conflict in the East could undermine recovery and program sustainability.\n  - Political risk: maintaining public support for difficult reforms, particularly among those hardest hit by the crisis.\n- IMF stance and conditionality summary:\n  - IMF support contingent on Ukraine pursuing the reform path and demonstrating results; the Fund’s role is “to support members in crisis provided they are trying to put themselves right.”\n  - Program combines stabilization, debt-restructuring efforts, bank-sector repair, energy pricing reform with targeted social protection, and broad governance and structural reforms.\n\nSource: The Case for Supporting Ukrainian Economic Reforms, Remarks by David Lipton, IMF First Deputy Managing Director, delivered at Peterson Institute, April 7, 2015\n\n---\n\n\n References\n\n- Russian Federation and the IMF\n- Ukraine and the IMF\n- Republic of Poland and the IMF\n- The IMF and Good Governance -- A Factsheet\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp040715"
    }
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    "Published: April 7, 2015",
    "Ukraine’s post-independence trajectory marked by “lost opportunities,” with economic mismanagement, corruption, oligarchy, and half-hearted reforms obstructing growth.",
    "Key historical and comparative points:",
    "Macroeconomic deterioration before the 2014–15 crisis:",
    "Crisis drivers and 2014 outcomes:",
    "IMF support and program framing:",
    "Financing need and external support:",
    "Reserve targets and sequencing:",
    "Stabilization policy mix and outcomes sought:",
    "Core growth challenges and policy directions:",
    "Energy sector reforms:",
    "Banking sector repair:",
    "Broader structural reforms to attract investment and sustain growth:",
    "Social protection and equity measures:",
    "Risks and contingency considerations:",
    "IMF stance and conditionality summary:",
    "[Russian Federation and the IMF](http://www.imf.org/external/country/RUS/index.htm)",
    "[Ukraine and the IMF](http://www.imf.org/external/country/UKR/index.htm)",
    "[Republic of Poland and the IMF](http://www.imf.org/external/country/POL/index.htm)",
    "[The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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