Ukraine to Receive Extended Aid from the IMF Totaling $17.5B

The International Monetary Fund has concluded its negotiations with representatives of the Ukrainian government in Berlin today with the IMF

imf_logoThe International Monetary Fund has concluded its negotiations with representatives of the Ukrainian government in Berlin today with the IMF Executive Board approving an Extended Arrangement under the Extended Fund Facility (EFF), totaling to about $17.5 billion (€15.5 billion).

The new program is a change from the previous stand-by arrangement between the IMF and Ukraine. The country’s position and currency should stabilize somewhat as the government has committed to continuing reforms.

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Ukraine should benefit from the new arrangement as its a longer-term solution for the country which has been on the brink of default ever since the dawn of the Great Financial Crisis of 2008. The country’s economy has been facing a number of challenges including large trade deficits, an ailing currency and a consequently rampant inflation rate above 30%.

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An extended arrangement with the IMF will provide Ukraine with more funding, more time to repay the debt, more flexibility and better financing terms.

The IMF’s managing director, Christine Lagarde, said, “Other bilateral and multilateral financing is also being made available to support the reforms. In addition, the Ukrainian government has taken actions toward consultations with the holders of their public sector debt with a view to improving medium-term sustainability.”

“The Ukrainian authorities continue to demonstrate a strong commitment to reform. They have maintained fiscal discipline in very difficult conditions; allowed the exchange rate to adjust; and have increased retail end-user prices for gas. Many key measures are front-loaded under the new program—including further sizable energy tariff increases; bank restructuring; governance reforms of state-owned enterprises; and legal changes aimed at combating corruption and strengthening the rule of law,” she added.

The main risks to the outlook for the country’s economy continues to be the ongoing tension in Eastern Ukraine. The approval of the extended arrangement will result in an immediate disbursement of $5 billion, from which about $2.7 billion will be allocated to budget support. Further disbursements will be based on IMF’s standard practice of quarterly reviews and meeting of performance criteria.

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