IMF Approves $15.2 Billion Loan To Ukraine After Fiscal Adjustment Pledge

WASHINGTON, DC -- The International Monetary Fund approved a $15.2 billion, 2 1/2-year loan to Ukraine, which agreed to trim its budget deficit and raised natural gas prices to qualify for funding.


The Washington-based institution’s board of directors agreed to disburse $1.9 billion immediately, with subsequent payments subject to quarterly reviews.

“Ukraine is emerging from a difficult period during which the economy was severely hit by external shocks and exacerbated by domestic vulnerabilities,” John Lipsky, the fund’s first deputy managing director, said in a statement.

“Authorities are committed to addressing existing imbalances and putting the economy on a path of durable growth, through important fiscal, energy, and financial sector reforms.”

Ukraine got a two-year, $16.4 billion loan from the IMF in 2008 after the global recession cut demand for its exports. The nation has received $10.6 billion and payments were frozen in November as the government declined to cut spending ahead of presidential elections at the start of this year.

The Cabinet of Prime Minister Mykola Azarov, which was formed in March, failed to reach an accord with the IMF in May.

The government this month increased gas prices for households and heating companies. Under policies attached to the loan, the consolidated general government deficit has to reach 5.5 percent of gross domestic product this year and 3.5 percent next year.

‘Fiscal Adjustment’

“Fiscal adjustment will start in 2010 and deepen in 2011- 12 backed by robust structural reforms of the pension system, public administration, and the tax system,” Lipsky said.

“The financial position of the gas sector will be strengthened, including through domestic price hikes and broader reforms supported by other multilateral institutions, which will help eliminate energy subsidies and create a more modern and viable sector.”

Azarov initially aimed at a target of 5.3 percent of GDP plus 1 percent to cover funds for state-run energy company NAK Naftogaz Ukrainy.

Resumed cooperation with the IMF opens the way for a European Commission loan estimated at 610 million euros ($792 million) and for an $800 million loan from the World Bank, Deputy Prime Minister Serhiy Tigipko said on July 7.

Tigipko said in March Ukraine needs IMF support to boost its economy, which contracted 15.1 percent in 2009, the biggest drop since 1994. Gross domestic product expanded 4.9 percent in the first quarter, according to government figures.

Standard & Poor’s said on July 22 it may for a third time this year raise Ukraine’s credit rating, to B+, after the government reaches agreement with the IMF.

Source: Bloomberg

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