The IMF agrees a loan plan with Ukraine

Ukraine’s President Volodymyr Zelenskyy speaks during a joint news conference with Japan’s Prime Minister Fumio Kishida, in Ukraine, Tuesday, March 21, 2023. (AP Photo/Efrem Lukatsky)

FRANKFURT, Germany (AP) — Ukraine and the International Monetary Fund have agreed on a $15.6 billion loan to bolster government finances, severely strained by the Russian invasion, and rally more support by assuring allies that Ukraine will enforce tough economic policies. .

The program “will help mobilize financing from Ukraine’s international partners, as well as maintain macroeconomic stability and ensure the course of post-war reconstruction after Ukraine’s victory in the war against the aggressor,” the Ukrainian Ministry of Finance said on Wednesday.

The loan program will last four years. The first 12 to 18 months will focus on helping Ukraine close its huge budget deficit and easing pressure on financial spending through printed money at the central bank, the IMF said in a statement on Tuesday.

The rest of the program will focus on supporting Ukraine’s bid to join the European Union and on post-war reconstruction.

The IMF deal is expected to bring even more funding to Ukraine because it offers proof to potential donor governments, such as the Group of the World’s Seven Largest Democracies and the European Union, that the Ukrainian government is taking sound economic action.

The agreement, which still requires IMF board approval, is expected to “help mobilize large-scale financing grants from Ukraine’s international donors and partners for the duration of the program,” Gavin Gray said in a statement. head of the IMF mission in Ukraine.

The IMF noted that the Ukrainian authorities had demonstrated their commitment to a sound economic strategy and met all the targets agreed in preliminary consultations. The loan program departs from the IMF’s past practice in lending to a country at war, under new rules that allow assistance in circumstances of “extremely high uncertainty.”

Ukraine last year boosted its military spending as the economy contracted 30%, hurting tax revenues.

The result was a huge budget deficit that has been covered with foreign financing from the United States, the European Union and other allies. The aid has freed the country from relying on money printed by the central bank and loaned to the government, an emergency measure considered necessary at the start of the war but one that could trigger inflation and destabilize the country’s currency if it continues.

Before the war, Ukraine had made progress in reforming its banking system and making the government contracting system more transparent. But it was still ranked 122 of the 180 countries analyzed by the Transparency International corruption index. Its prewar economy was characterized by political intervention by wealthy individuals, known as oligarchs, and slow progress in improving a legal system perceived as too exposed to political influence.

However, the IMF said after preliminary consultations that the government “has made progress on reforms to strengthen governance, the fight against corruption and the rule of law, and lays the foundation for postwar growth, although pending reforms in these fields continue to remain significant”.

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