The International Monetary Fund has decided to release the next $1 billion loan payment to Ukraine, which had been postponed following the blockade imposed on the separatist east of the country, the Ukrainian president said yesterday (3 April).
“The IMF board took the decision to grant Ukraine one billion dollars,” Petro Poroshenko wrote on his Facebook page, seeing it as “another sign of the reforms under way in Ukraine”.
Cash-starved Ukraine has been desperately waiting for the next instalment of a $17.5bn rescue programme that has been held up repeatedly since it was agreed in 2015 over delays by Kyiv in carrying out reforms.
Monday’s announcement brought total funds disbursed under the arrangement so far to about $8.4bn.
The IMF had delayed its decision on the next loan instalment, originally scheduled for 20 March, saying it needed to reassess the “implications of recent developments for the programme”.
The postponement came after Kyiv’s pro-Western leadership in March imposed a trade blockade on Russian-backed rebel-held eastern regions. Kyiv took the drastic step after rebels seized dozens of Ukrainian-owned businesses on their territory in response to a trade blockade by nationalist protesters.
The IMF programme is intended to help stabilise the country after the 2014 ousting of pro-Russian President Viktor Yanukovych.
The head of Ukraine’s Independent Association of Banks in Ukraine Roman Shpek has said that nearly all the money would go into refinancing the former Soviet republic’s outstanding debt to the IMF.
David Lipton, acting chair of the IMF’s board and first deputy managing director, praised what he said had been “decisive” action by Kyiv on economic policy, adding that the country was showing welcome signs of recovery.
However, Lipton said Ukraine still needed to speed up structural reforms – such as privatisation and creating a market for farmland – to attract investment.
“Corruption needs to be tackled decisively. Despite the creation of new anticorruption institutions, concrete results have yet to be achieved,” Lipton said in a statement announcing the release of the funds.
“Notwithstanding the large fiscal adjustment, public debt remains high.”
While the national bank had skillfully overseen monetary policy during “a very challenging period”, Lipton said, its independence had to be safeguarded to contain inflation and build foreign reserves with flexible exchange rates.
Vote of confidence
Valeria Gontareva, governor of the National Bank of Ukraine, called Monday’s decision “a real vote of confidence.”
Ukraine suffered a deep decline after the outbreak of war in 2014, with the economy contracting nearly 15% in 2014 and 2015.
The economy expanded by 1.8% in 2016 and is forecast to grow at 1.9% this year, according to the central bank.
But the central bank cut its 2017 growth forecast by nearly a full percentage point as a result of the trade blockade, saying it could depress metal exports from the eastern regions and expand the current account deficit by more than 25% to $4.3bn.
The blockade has also hit key industries, including coal production, requiring coal imports and increasing the risk of power cuts.
However, in a statement on Monday, the central bank said IMF experts had concluded the blockade would have a “relatively moderate impact” on growth and the balance of payments while not putting the bank’s inflation target at risk.
Per capita GDP in Ukraine is only 20% of the European Union average, according to the IMF.