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According to Deputy Governor of the National Bank Yuriy Geletiy, it is likely that the IMF will approve the next tranche this year. 

Ukraine has only received 2.1 billion dollars of the 5 billion dollars Stand-By Agreement loan previously agreed with the International Monetary Fund, IMF, due to lack of free economic market reforms in Ukraine. Since then, Ukraine and IMF have been in negotiations about resuming the loan without luck, but Yuriy Geletiy, Deputy Governor of the National Bank, now says that there is progress in the talks. 

“According to our positive expectations, in the next few weeks, we will be able to reach a staff-level agreement – this will be the text of the updated Memorandum. We are discussing this with the IMF. After reaching an agreement, we will say that this “happy” moment has come – the SLA has been reached. Next, we will have to take preliminary measures,” says Geletiy to FinClub

“Given the holidays in the IMF in the second half of the summer, the unconditional priority for us will be to implement preliminary measures by the end of June. I hope so,” he elaborated, “We will depend on the Verkhovna Rada for a number of bills. Work with our banking committee is quite constructive. I hope it will be the same with other committees, which will consider the legislative changes needed to continue cooperation with the IMF.”

IMF still want reforms

While Geletiy and the National Bank of Ukraine are optimistic about reaching a deal, the IMF has recently said that more reform work is expected before the next tranch can be released. Geletiy also acknowledges that the IMF still requires more reforms, including reforms of the National Bank of Ukraine. The bank came into focus back in 2020, when Yakiv Smoliy, the back then Head of the National Bank of Ukraine, resigned due to what he called political interference in his work. 

Since then, the IMF has called for reforms of the National Bank of Ukraine and guarantees that the bank will stay independent from political ambitions. Geletiy says that there are changes underway in the bank to provide the IMF with these guarantees. 

“First of all, it is Bill № 4367, which defines changes to the laws on banking and the National Bank. Unfortunately, there is some delay, but we will move with the banking committee. This is a comprehensive law that defines changes to the capital structure, improvement of corporate governance, licensing, significant participation, certain innovations in risk management – the introduction of a system for assessing the adequacy of domestic capital, liquidity,” he said.

“The second block is to improve the corporate governance of the National Bank, namely the relationship between the Council and the NBU Board. These are changes to the law “On the National Bank,” which are also currently being prepared by our legal team together with colleagues from the IMF,” Geletiy added.

Besides that, Geletiy also said that Ukraine is working on other reforms required by the IMF so that the next tranche can be released this year. 

“Among other issues, the main one is anti-corruption. This is a special focus for the IMF and other international partners. Also – amendments to the law on NABU, the High Council of Justice, and the NAPC. In the context of the relationship between the IMF and the Ministry of Finance – issues of fiscal policy, the Ministry of Economy – issues of privatization, structural reforms. In the energy sector, the issue of lifting restrictions on gas prices has been resolved, but there are issues in the electricity market. And we need to resolve all these issues in order to move towards a staff-level agreement and continue to take preliminary steps and get to the IMF Board of Directors for the first time,” Geletiy said and expressed hope to get it done in the next few weeks. 

IMF loan might soon come

Henrik Larsen is a Senior Researcher at the Center for Security Studies at the Swiss Federal Institute of Technology Zurich and previously served as a Political Adviser for the EU in Ukraine from 2014 to 2019. He recently wrote an analysis in the Atlantic Council, where he argued that any future support to Ukraine should be tied to progress. 

“Ukraine is the most important country in the ongoing confrontation between Russia and the West. This makes Ukraine’s domestic reform agenda a strategic priority for the entire Western world…,” Larsen wrote, “Despite some isolated examples of progress, today’s Ukraine has failed to make a radical break from the past and continues to struggle with many of the same corruption and mismanagement issues that helped fuel the 2013-14 Euromaidan Revolution.”

Larsen also wrote that reform work has stalled since 2017. Even the election of Volodymyr Zelensky as the new President in 2019 hasn’t changed that. 

“At present, Ukraine remains in need of external finance to cover debt repayments and to get through a severe Covid-19 recession. The US and Ukraine’s other international partners must look to leverage this need for ongoing support in order to revitalize Ukraine’s reform efforts…,” he wrote, “The IMF should make it clear that financing will be discontinued if Ukraine fails to meet its reform commitments. The IMF currently has Ukraine on pause and has held back USD 2.9 billion from the current agreement. This also freezes EUR 600 million in EU aid. The IMF should publicly state its unwillingness to disburse this money unless Ukraine demonstrates a convincing track record of convictions in high-level corruption cases.”

“As long as Ukraine refuses to deliver on these long-standing commitments, the government will be forced to go to the financial markets for loans with much higher interest rates. This does not mean that Ukraine will face immediate bankruptcy. But the need to balance the state budget could induce Ukrainian policymakers to withstand vested interests more than has been the case up to now.”