By Judith Ugwumadu | 27 March 2014
Ukraine is set to receive up to $18bn in financial support from the International Monetary Fund, after the lender agreed a package of fiscal and other economic reforms with the beleaguered country.
The IMF’s three-week mission to the Ukraine concluded on March 25 and an economic reform programme has been agreed. Mission chief Nikolay Gueorguiev said the goal of the programme was to restore economic stability and sound governance. It will focus on: monetary and exchange polices; the financial sector; fiscal policies; the energy sector; and governance, transparency, and the business climate.
‘The authorities’ economic reform programme is rightly focused on addressing the key economic challenges faced by Ukraine,’ said Gueorguiev.
‘Its success in achieving these important objectives will be steadfast implementation, which will enable these efforts to be supported by the international community.’
On fiscal policy, Gueorguiev said the reforms would ensure that public spending was better targeted as well as reducing spending over the medium-term. He noted that Ukraine’s 2013 deficit was 4.5% of gross domestic product and the government had accumulated substantial arrears.
‘The initial stabilisation in 2015 will be a mixture of revenue and expenditure measures. For 2015/16, the programme envisions a gradual expenditure-led fiscal adjustment, aiming to reduce the fiscal deficit to around 2.5% of GDP by 2016,’ he said.
The IMF funding is expected to unlock further financing from other international donors, taking the amount economic support sent to Ukraine to $27bn over the next two years, Gueorguiev added. He said the precise amount of IMF funding would be determined once all bilateral and multilateral aid had been accounted for.
Ukraine has been plagued by economic instability over the past year and has high levels of debt. The ongoing political crisis and its stand-off with Russia has created fears that Ukraine’s economic problems could deepen without international intervention.
Gueorguiev said measures implemented in February and March had helped to stabilise Ukraine’s financial markets and ensure critical budget payments were met. But he warned that the country’s economic outlook remained ‘difficult’ with the economy falling back into recession.
The IMF’s agreement with the Ukrainian authorities requires approval from the IMF’s management and executive board. The board is due to consider this next month.
