The European Commission’s economy boss, Valdis Dombrovskis, and Ukrainian Prime Minister Denys Shmyhal signed on Thursday (23 July) a large loan package supposed to stabilise the ex-Soviet country’s ailing finances amid international concern that its leadership is backtracking on reforms.
The €1.2 billion macro-financial assistance package comes as a complement to the International Monetary Fund’s (IMF) support and will be given in the form of highly favourable loans designed to improve Ukraine’s macroeconomic stability and free up national resources to mitigate the socio-economic consequences of COVID-19.
Shmyhal, a 44-year-old former regional governor, was appointed early in the spring amid the escalating coronavirus crisis, after briefly serving as regional development minister in the team of his predecessor, Oleksiy Honcharuk.
Dombrovskis said it is “symbolic” that Shmyhal’s first foreign visit was to Brussels, emphasising the €190 million in grants that the bloc has sent to Kyiv to mitigate the immediate fallout of the pandemic.
However, Dombrovskis emphasised the importance of reforms and said the EU wants to “ensure a clear commitment of Ukraine to the central bank’s independence, including independent bank supervision,” adding though that the signals were “reassuring.”
Internationally lauded central bank governor Yakiv Smolii resigned earlier this month citing “systematic political pressure”, in a move that prompted worried responses from Western partners and cast a shadow on the fate of the country’s badly-needed new IMF loan programme.
The Commission then said that the EU loan programme for Ukraine “could be jeopardised” should the IMF consider its programme with Kyiv “off-track,” a point the European executive emphasised again on Wednesday.
The first $2.1 billion tranche of the new 1.5-year $5 billion IMF “stand-by arrangement” loan, needed to prop up Ukraine’s developing economy amid the coronavirus storm, was disbursed last month but future instalments will be subject to reviews, the first of which may come in September, an IMF spokesperson said last month.
IMF chief Kristalina Georgieva expressed concern about the central bank’s independence during her phone call with Ukrainian President Volodymyr Zelensky.
“It is in the interest of Ukraine to preserve the independence of NBU and it is also a requirement under the current IMF-supported program,” the international lender’s boss said.
Shmyhal sought to downplay the concerns in Brussels, saying that the appointment of the new governor is “is the continuation of banking reform in which the independence of the national bank is a must.”
The Ukrainian parliament confirmed Ukrgasbank chairman Kyrylo Shevchenko as the new head of the national bank (NBU) last week.
Since his appointment, Shevchenko, who accompanied Shmyhal to Brussels, has sought to assuage international partners that the NBU will continue being an independent institution and making apolitical decisions.
[Edited by Zoran Radosavljevic]