Press Release No. 99/20

The International Monetary Fund (IMF) has approved a request by Ukraine to increase by SDR 274.4 million (about US$366 million) the IMF’s financial support under the current three-year Extended Fund Facility (EFF), which was approved on September 4, 1998, in an amount of SDR 1,645.55 million (about US$2,205 million).¹ The augmentation, of which SDR 37.5 million (about US$50 million) is available immediately, is a response to the difficult external position arising from the impact of generally weak commodity prices for Ukraine’s exports, particularly metals, and depressed demand in the region due to the continuing difficulties in Russia. More recently, the Kosovo crisis has disrupted Ukraine’s trade routes along the Danube. The decision was made in conjunction with the completion of the second review of the economic and financial program supported by the EFF, and triggered a total release of SDR 134.7 million (about US$180 million).

Background

Adoption of prudent macroeconomic policies in the first quarter of 1999 enabled the authorities to liberalize the exchange system, without substantial pressure on the exchange rate, while accumulating official external reserves. Although progress in fiscal consolidation has been commendable, every effort must be made to maintain fiscal discipline in the coming months. Despite significant progress in a number of areas of structural reform, including in deregulation and privatization, banking sector and public administration reforms, the overall pace of structural reform needs to be accelerated to promote sustainable economic growth, particularly in the agricultural and energy sectors.

Ukraine’s financial situation remains very fragile. The authorities intend to implement the necessary policy changes to promote financial stability and economic growth. At the same time, however, in view of the country’s heavy debt service obligations, Ukraine’s economic recovery will require the continued involvement of private creditors. In that regard, a collaborative solution to Ukraine’s debt service problem must be found in line with Ukraine’s capacity to pay. The authorities’ recent efforts in this area are consistent with the steps envisaged under the IMF-supported program; progress in this area will be a key factor to be considered in the context of the financing review for the next drawing that is expected to be considered by the IMF’s Executive Board in June 1999.

Ukraine joined the IMF on September 3, 1992; its quota² is SDR 1,372.0 million (about US$1,838 million). Its outstanding use of IMF credit currently totals SDR 1,969 million (aboutUS$2,638 million).

Ukraine: Selected Economic Indicators, 1997–99 1997 1998 1999 Prel. Q1 Annual Actual Prel. Revised Est. Outlook GDP Nominal GDP (in millions of hryvnia)1 93,365 104,729 24,956 131,170 Nominal GDP (in millions of U.S. dollars)1 50,142 42,729 7,008 … Real GDP (percent change)2 -3 -2 -5 -3 Consumer prices Percent change, period average3 4 16 11 6 27 Percent change, end of period3 4 10 20 4 21 Public finance (in percent of GDP) Revenue 38.0 35.2 32.9 32.8 Expenditure 43.6 37.9 33.9 34.0 General government budget balance Commitment5 -5.2 -3.0 -3.2 0.6 Cash -5.6 -2.7 -1.0 -1.3 Primary -3.8 -0.4 4.0 1.4 Net domestic financing6 5.3 0.9 -0.1 0.7 Net external financing 0.3 1.8 1.2 0.5 Money and credit (percent change during period) Credit to nongovernment 29 17 10 28 NDA of the NBU 32 117 10 15 Base money 45 22 -1 16 Broad money 34 25 1 18 Balance of payments (in millions of U.S. dollars) Current account balance (excluding Black Sea Fleet transactions) -1,335 -821 -422 -676 (in percent of GDP) -2.7 -1.9 -6.0 -2.1 Gross useable reserves (end period) In weeks of current year imports of GNFS … 2.2 2.1 3.3 External liabilities (in percent of annual GDP) 23.8 26.9 35.5 38.6 Debt service ratio (in percent of exports of GNFS) 9.4 19.4 15.8 12.3 of which to the IMF 0.5 1.3 3.3 3.9 Interest payments (in percent of exports of GNFS) 3.2 4.9 8.5 4.3 Memorandum items: Exchange rate Hryvnia per dollar, end of period 1.9 3.4 3.9 … Hryvnia per dollar, period average 1.9 2.5 3.6 … Sources: Ukrainian authorities; and IMF staff estimates. 1For 1998 and the first quarter of 1999 the data are staff estimates based on preliminary data. 2For quarterly data, cumulative changes from the beginning of the year with respect to comparable period in the previous year. 3Changes from the previous period. 4Compared to the previous period, quarterly rates are not annualized. 5Balance adjusted for the net accumulation of arrears on wages, pensions, and benefits. 6Domestic financing includes purchases of treasury bills by nonresidents, and privatization proceeds. 1See Press Release No. 98/38. 2A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs. .