IMF delays new $1bn tranche to Ukraine due to Donbas blockade

By bne IntelliNews March 20, 2017

Ukraine's main donor, the International Monetary Fund (IMF), has cancelled a board meeting scheduled for March 20 that was expected to see the release of a $1bn tranche to Ukraine, while demanding that the government in Kyiv correctly assess the economic cost of its blockade of all trade with the country’s separatist eastern regions.

According to a Ukrainian finance ministry statement published on March 19, the meeting was postponed “solely” due to the need to assess economic implications cased by the blockade, the seizure of Ukrainian enterprises in rebel-controlled territories of the Donbas industrial region, as well as Russia’s recognition of documents issued in these territories.

“These calculations are important for both sides to ensure the maximal efficiency of the programme. Relevant consultations have already been kicked off. We plan to complete them as soon as possible,” Finance Minister Oleksandr Danylyuk said in the statement.

Earlier, the Ukrainian authorities had expected to obtain by March 25 a new tranche under the IMF’s $17.5bn support programme agreed in 2015. On March 4, the Fund said that it had agreed with Ukrainian authorities an updated memorandum on economic and financial policies.

The completion of the review will enable the disbursement of about $1bn, which would bring the total money transferred under the arrangement to $8.32bn. The IMF’s last tranche of $1bn arrived in September 2016 after almost a year of delays due to the chaotic reformation of Ukraine’s ruling coalition following a change of government.

On March 15, Ukrainian President Petro Poroshenko instructed the National Security and Defence Council (NSDC) to suspend transport communications with rebel-held areas in the eastern Donbas region. The move followed weeks of the unofficial blockade imposed by a group of far-right Ukrainian nationalists and pro-government veterans of the Donbas conflict.

The National Bank of Ukraine (NBU) said in a separate statement e-mailed to bne IntelliNews that recent developments in the country require “further studying of their potential impact on the economy and taking it into consideration in macroeconomic forecasts of the [IMF] programme”.

The NBU plans to update macroeconomic forecasts with regard to the effect of the trade blockade of rebel-held territories of the Donetsk and Luhansk regions. For this purpose an ad hoc meeting of the NBU’s monetary policy committee will be held on March 20.

“Updated macroeconomic forecasts are to be provided to the IMF,” the central bank underlined. “Dialogue and technical consultations with the IMF are continuing.”

The finance ministry previously said in an initial estimate that Ukraine’s economic growth will lose 1.25-1.3 percentage points (pp) in 2017 due to a blockade of the Donbas imposed by the Kyiv authorities, Danylyuk told journalists on March 16.

Earlier in the month, NBU Governor Valeriya Gontareva said that under the most pessimistic scenario the country's economy in 2017 will fall 1.3 percentage points to 1.5% year-on-year if the initial Donbas protest blockade lasted until the end of this year.

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