The IMF has, after long consideration, decided to continue the payments of the 18-month Stand-By Arrangement, which was signed in June 2020.
Relations between the International Monetary Fund, IMF, and Ukraine have not always been good, but there seem to be improvements on the way. Yesterday, IMF agreed to continue payments under the 18-month Stand-By Arrangement, signed in June 2020, and it is a big deal.
For more than a year, IMF has halted payments due to concerns over the independence of the National Bank of Ukraine and the lack of progress in reforms in Ukraine. However, after a recent review, the IMF has decided to provide Ukraine with $699 million of the total $5 billion loans.
“Ukraine’s IMF supported economic program aims to help the authorities address the effects of the COVID-19 shock, sustain the economic recovery, and move ahead on important structural reforms to reduce key vulnerabilities,” writes IMF.
IMF adds that Ukraine commits to return to “fiscal policies to settings consistent with medium-term debt sustainability, while protecting the socially vulnerable, strengthening revenue administration, and reducing fiscal risks from quasi-fiscal operations, including in the energy sector.” Furthermore, the IMF expects that Ukraine safeguards the independence of the National Bank of Ukraine, to fight the growing inflation, to tackle corruption, and to reduce the state’s stake in the economy.
Lots of problems before
Ukraine received the first tranche of $2.1 billion in June 2020 and was expected to receive the remaining share of the $5 billion loans over the next 18 months. However, the relationship between IMF and the Ukrainian leadership then hit rocky ground. After initially adopting a banking reform and a land reform, which the IMF required, Ukraine suddenly changed its course, and the loan payments stopped.
Soon after, the back-then governor of the National Bank of Ukraine, Yakiv Smolii, decided to resign due to political pressure from the office of President Volodymyr Zelensky. The resignation resulted in a quick response from the IMF because Ukraine had promised not to interfere.
The relationship between the IMF and Ukraine was also affected by other issues such as the lack of reforms introduced after June 2020. Furthermore, Ukraine also suddenly wanted a stronger price control over utilities such as gas and electricity, which was against the promises provided to the IMF.
Despite the problems, the IMF concerns gradually diminished, which is good news for Ukraine as the country depends on the payments for its financial stability.
Zelensky: Some will be used on Covid-19
After the approval by the IMF, Ukrainian President Volodymyr Zelensky went on Twitter to thank the IMF for their decision to continue the loan program.
“Grateful to the IMF (Executive) Board of Governors for the decision to complete the review of the stand-by program on the allocation of a tranche of about $ 700 million. We’ll use these funds to support the financial system & combat #COVID19 consequences. The IMF program will be continued,” he wrote.
Grateful to @IMFNews Board of Governors for the decision to complete the review of the stand-by program on the allocation of a tranche of about $ 700 million. We'll use these funds to support the financial system & combat #COVID19 consequences. The IMF program will be continued.
— Володимир Зеленський (@ZelenskyyUa) November 22, 2021
Prime Minister Denys Shmyhal also commented on the news. He said that the IMF approval means that Ukraine is a reliable financial partner.
“With the measures taken by Ukraine in terms of reforming the judiciary, continuing reform in the financial sector, we have confirmed Ukraine’s status as a reliable and responsible partner. The IMF funds will be used to maintain the stability of the financial system and combat the consequences of COVID-19,” Shmyhal said, according to the Ukrainian news site Ukrinform.
The Governor of the National Bank of Ukraine, Kyrylo Shevchenko, promised on Facebook that the relationship with the IMF will be the bank’s main priority.
“Going forward, we will continue to focus on areas important for Ukraine within the framework of this cooperation,” Shevchenko wrote, “That includes strengthening the central bank’s independence by further improving its corporate governance system, pursuing a monetary policy designed to return inflation to its 5% target, maintaining a floating exchange rate regime, continuing gradual currency liberalization, and strengthening the prudential supervision of banks to maintain a highly liquid and capitalized banking system.”