The executive board of the International Monetary Fund approved Friday giving Ukraine immediate access to $2.8 billion in credit from its stand-by arrangement, Dow Jones reported.

The second disbursement from the $16.4 billion rescue facility the country obtained last fall had been delayed for several weeks, until the IMF reached an agreement last month with Ukraine`s government on tightening fiscal policy and shoring up the banking system.

John Lipsky, the IMF`s first deputy managing director and acting chairman of the board, said in a statement that the protracted global economic slump had led to a sharp decline in Ukraine`s fiscal revenues and put additional strain on the country`s fragile banking system.

"These developments have called for significant policy adjustments," he said. "The authorities` revised economic program, supported by a stand-by arrangement with the fund, seeks to mitigate the effects of the global crisis, restore confidence in the banking system, and preserve fiscal sustainability while protecting the most vulnerable segments of the population."

Ceyla Pazarbasioglu, IMF mission chief to Ukraine, said on a conference call that while the country still faces difficult challenges, conditions have stabilized in the last few weeks and there`s political consensus among policy makers.

In a separate interview published on the fund`s site, she said the economy will likely contract by more than the 8% decline projected last month for 2009, and that further downward revisions may be needed if external conditions continue to deteriorate.

Pazarbasioglu also expressed hope that the approval of the additional disbursement will help the country attract external financing from other sources.

In Friday`s decision, the board granted some waivers for nonobservance in a number of areas, including the cash deficit and budget, as well as exchange rate and import restrictions.

Most of the currency restrictions have already been lifted, said Pazarbasioglu, with the National Bank of Ukraine reaffirming a commitment to implementing a flexible exchange rate policy. The government also agreed to remove any restrictions on imports.

In revising the IMF-supported program, the government agreed to a budget deficit target of 4% of gross domestic product this year instead of a balanced budget, which Pazarbasioglu said was "economically justifiable given the contraction."

The next review will focus on maintaining a prudent fiscal policy and making progress on bank restructuring, she said. Following a diagnostic study by the central bank, seven banks are being recapitalized.

"The financial system has stabilized," said Pazarbasioglu, praising Ukrainian officials for restoring confidence to the system.

The second tranche was increased from below $1.9 billion, bringing the total amount disbursed to $7.3 billion. The board also approved raising the amount of the third disbursement, which would be available once the next program review is completed in mid-June, to about $3 billion given the delays.

Dow Jones via The Wall Street Journal