The IMF’s executive board announced yesterday that $3.2bn was ready for immediate disbursement to deal with Ukraine’s financial crisis, of which $2bn was being allocated for budget support.
Ukraine is grappling with an unaffordable fiscal deficit and high levels of debt. Its economic woes are being exacerbated by political shocks, which followed the toppling of Viktor Yanukovych’s pro-Russian government earlier this year.
The IMF said the funds were aimed at restoring stability, governance and transparency in the country’s public finances, while protecting the country’s most vulnerable citizens.
In return for continued aid disbursements, the IMF said it would regularly check up on the performance of Ukraine’s economic reform measures, which have been designed to address structural weaknesses and lay a firm foundation for high and sustainable growth.
IMF head Christine Lagarde said: ‘A strong and comprehensive structural reform package is critical to reduce corruption, improve the business climate, and achieve high and sustainable growt.
‘The authorities have already enacted a new public procurement law, reducing room for misuse of public resources. They have begun addressing governance issues in state-owned companies and are seeking recovery of stolen assets.
‘They are also planning to build capacity to more effectively conduct enforcement of anti-money laundering and anti-corruption legislation, as well as enhance the effectiveness of the judiciary and tax administration.’
But she warned that risks to the programme remained high. In particular, further escalation of tensions with Russia and unrest in the east of the country presented a major threat to Ukraine’s economic outlook.
What is needed was steady and rigorous implementation of policy measures, while maintaining broad public support, Lagarde advised.
She said this would be critical for the programme’s success and would unlock both sizable international official assistance and private capital inflows.
The IMF said it also expected the Ukrainian economy to contract by about 5% in 2014 amid weak investor and consumer confidence. Inflation is expected to spike temporarily in response to the exchange rate depreciation and gas and heating tariff increases, reaching 16% at the end of the year. The IMF said it expected the country’s current deficit to fall to about 4.5% of gross domestic product on the back of the exchange rate adjustment and subdued domestic demand.
