IMF finishes a three-week mission in Ukraine

The IMF mission and the National Bank of Ukraine presented the result of the three-week work on March 27. A two-year program STAND BY with the budget of 14 to 18 billion dollars became the main achievement of the negotiations. In general, the International Monetary Fund considers the option of providing Ukraine with aid totaling up to 27 billion dollars.

However, the agreement is still to be approved by the leadership and Executive Board of the IMF. “It is expected that the Executive Board will consider it in April, after adopting a strong and comprehensive package of prior actions aiming to stabilize the economy and create conditions for sustained growth,” said IMF mission chief Mykola Heorhiiev.

The agreement with the IMF will open the path to loans from the US and the EU for Ukraine. Washington already declared its readiness to help (1 billion dollars), so did the EU (loans and grants for 15 billion dollars), and the World Bank (3 billion dollars). That is why Ukraine should adhere to the Fund’s guidelines, which it has been successfully doing so far. In particular, the government has finally reacted to the Fund’s urge to raise the gas price for the population. And on the eve of the announcement of the mission’s verdict, Naftohaz Ukrainy announced the increase of price by 50 percent as of May.

The program of the mission, which was presented by the IMF, stipulates reforms in the spheres of monetary, loan, and exchange rate policies and in the financial sector. Also, reforming will affect the fiscal policy, energy sector, management, and the transparency of business climate.

The monetary and loan policy will target domestic price stability while maintaining a flexible exchange rate. The mission thinks this would help eliminate external imbalances, improve competitiveness, etc. “The NBU is planning to introduce an inflation targeting framework over the next twelve months to firmly anchor inflation expectations,” reads the document.

In the financial sector, the program stipulates the provision of reliability and liquidity of banks, sufficiency of their capital, and improvement of the NBU system of regulation and supervision.

The program for 2015-16 in the sphere of fiscal policy involves gradual budget adjustment, primarily at the cost of changes in expenditure, aimed at the reduction of fiscal deficit to approximately 2.5 percent of GDP by 2016.

It is planned to reduce the pressure of the energy branch on the budget. “One of the key steps is the commitment to step by step energy reform to move retail gas and heating tariffs to full cost recovery, along with early action towards that goal,” reads the IMF statement.

Besides these measures, the IMF will prepare a comprehensive diagnostic study that will cover the anti-corruption and governance framework, the design and implementation of laws and regulations, the effectiveness of the judiciary, and tax administration.

COMMENTARY

Roman SHPEK, president of the Independent Association of Banks of Ukraine:

“At the moment, we have finished the first stage of agreements only. Then, the Ukrainian party will have to sign an official letter to the IMF on behalf of the government and head of the NBU. But in order for the Board of Governors to review the matter of approval of the appeal by creditors, certain steps must be taken by the government. And this relates to the adoption of the package of legislative acts on budget balancing, the projects of which have been submitted to the Verkhovna Rada.

“It is important to find the right words in an appeal to MPs, in order for this package of legislative initiative to be adopted. Of course, the decisions that are included in this package are not easy. But all these are forced steps, the atonement for not carrying out the reforms in the previous years and passing populist decisions. We must do it now.

“If we consider the prime minister’s statement that funds from the EU will be received in two months, it should be noted that the danger might be diverted by the unification of forces in the parliament. It will be hard for us during the first year, perhaps, during the second as well. But this is a chance for Ukraine to become strong. The economic growth will be restored.

“The state, its economy, social and political institutes are incredibly sick. And a sweet pill will not help here. Serious therapy with surgical procedure is required. Sometimes the economy will get worse because of the adopted package of reforms, but in this way we will be able to become healthy and protect our territory and country.”