IMF board of directors signs off on Ukraine’s $3.9bn stand-by agreement

IMF board of directors signs off on Ukraine’s $3.9bn stand-by agreement
IMF signs off on Ukraine’s $3.9bn stand by agreement
By bne IntelliNews December 19, 2018

The board of Ukraine’s main donor, the International Monetary Fund (IMF), signed off on the badly needed $3.9bn Stand-By Arrangement (SBA) at a meeting on December 18.

The approval of the deal clears the way for the release of the next tranche of cash worth $1.4bn that Ukraine needs to clear its debt obligations for this year.

The agreement also means Ukraine will be able to face a two-year debt payment mountain of $17bn in 2019-2020 as the restructured debt deal expires in the next two years, according to a report from the National Bank of Ukraine (NBU) this week. There is some $3bn of debt to repay this year, rising to $6bn in 2019, and in 2020 $11bn of external sovereign debt comes due.

The new stand-by programme is a downgrade from the previous $17.5bn Extended Fund Facility deal that runs over several years. The new agreement is shorter term and comes with more strings and was imposed due to constant foot-dragging on crucial reforms by the government.

Kyiv welcomed the decision. “Such decisions that come from leading world financial institutions ensure stability of our progress and strengthen resilience of Ukraine against severe internal and external challenges,” Poroshenko said on Facebook as cited by Bloomberg. “Keep walking on with confidence!”

The new tranche will top up Ukraine’s foreign-currency reserves, which are currently $17.7bn, almost exactly three months of import cover – the minimum economists believe is needed to ensure the stability of the national currency.

The new IMF deal means that Ukraine will now be able to meet its 2019 financing needs comfortably, whereas without the IMF deal the country was facing a debt crisis.

The Ministry of Finance of Ukraine successfully placed $2bn of Eurobonds on October 21, which provided enough FX funds to repay external debt through May 2019.

The government has also said that it expects to tap the bond markets for up to $2bn in 2019, although this borrowing might not be necessary.

The IMF is expected to consider releasing the next tranches from the $3.4b facility in May and November, according to the country’s finance ministry.

The new IMF deal clears the way for other loans from the EU and World Bank among others that were tied to a successful conclusion in talks with the IMF.

The same day as the IMF deal was done the World Bank’s board of executive directors approved its $750mn Policy Based Guarantee (PBG) for Ukraine to support important reforms in banking, anti-corruption, agricultural land, pensions, utility subsidies, and healthcare. The guarantee is expected to help Ukraine raise about $1bn on the international capital markets to finance the country’s budget.

“The World Bank welcomes the government’s commitment to these historic reforms to bolster economic growth, safeguard fiscal sustainability, and improve the effectiveness of social services,” said Cyril Muller, World Bank vice president for Europe and Central Asia. “These reforms aim to create greater opportunities and improve living standards for the people of Ukraine.”

 

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