Ukraine seeks IMF Extended Loan Facility, potential debt restructuring

By bne IntelliNews January 22, 2015

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Ukraine has asked the International Monetary Fund for an Extended Fund Facility - a larger and longer-term bailout programme than its existing Stand-By Facility - in view of its worsening economic and financial crisis.  It is also set to start talks with holders of sovereign debt, suggesting debt restructuring is being considered.

Christine Lagarde, IMF managing director, met with Ukraine's President Petro Poroshenko at the World Economic Summit in Davos, on January 21. After the meeting she said that Poroshenko had requested a “multi-year arrangement with the fund, supported by the Extended Fund Facility”.

Media had previously reported that the IMF has identified a $15bn gap in Ukraine’s finances for 2015, after agreeing in 2014 a $17bn Stand-By Agreement, augmented by $10bn from other donors.

An Extended Fund Facility is a longer term program intended to run over three-four years and support deep-rooted structural reform measures, while having a longer payback term.  It is reserved for cases of severe macro-economic distress requiring extensive political efforts to tackle.                  

Lagarde said she would submit Kiev’s request to the IMF’s executive board, which would “convene as soon as possible. I will propose to support it,” she said, as quoted by the Financial Times.

"We will consult with the council of directors of the IMF about the country's [Ukraine's] request," the IMF's permanent representative in Kyiv subsequently said in a press release late on January 21, adding: "After receiving approval from the council of directors of continuing to work in this direction, the mission of the fund currently in Kyiv will start considering an economic programme to back up the request. Discussion are currently being held on securing official financial support from Ukraine's international partners."

Ukraine’s finance minister Natalie Jaresko was later quoted by newswires as saying that Ukraine would start talks with sovereign bondholders “with a view to improving medium-term debt sustainability,” language usually implying a pending restructuring of sovereign debt. Jaresko added that the IMF request would “provide the financial support Ukraine requires to jump-start its economic recovery while yielding acceptable outcomes for all of our stakeholders”.

“The IMF and western bilateral creditors probably were not able to bring enough new money to the table, hence the move to try and talk to private sector creditors about ‘reprofiling’, and sharing the burden a bit,” said Tim Ash, economist at Standard Bank, in a note. 

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