Ukraine May Need Measures to Offset Financing Risks, IMF Says

10:05, 09 September 2009
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Ukraine, at risk of...

Ukraine, at risk of a delay in getting more bailout help from the International Monetary Fund this year, may need to take further steps to offset a potential increase in its financing needs, the Washington-based lender said, according to Bloomberg.

The nation’s financing gap is $10 billion and is “fully met by fund resources,” though risks, including a pickup in capital outflows and investment lagging expectations, may “materialize,” the IMF said in a report dated July 23 and published yesterday. Should that happen, the “use of reserves buffers and additional policy adjustment would be needed,” the fund said.

The hryvnia’s slump, a shakeup of the banking system and the economic contraction forced Ukraine to turn to the IMF for a $16.4 billion loan in November 2008. The country has so far received $10.6 billion and seeks to get $3.8 billion as a next installment at the end of October or beginning of November.

Cooperation with the IMF is at risk as the country fails to meet some requirements, Oleksandr Shlapak, an aide to President Viktor Yushchenko, said yesterday.

The nation needs to adopt a number of laws, including strengthening central bank independence, raising gas prices for households, overhauling the tax and pension systems and avoiding social spending increases to unlock the next tranche, according to the IMF. So far, the country has delayed a gas price increase until October from Sept. 1, as initially agreed with the IMF, while the parliament was physically blocked by an opposition party that demands increases in salaries and pensions.


The IMF also requires Ukraine’s government to sort out two lenders, VAT Nadra Bank and TOV Ukrprombank, which ran out of cash. The government and the central bank are clashing over the strategy toward the banks.

“The IMF will not give us anything by year-end as we are not fulfilling our obligations,” Shlapak said. “My talks with the IMF’s head of the mission give me grounds to conclude that they are greatly disappointed with Ukraine’s behavior.”

The government used part of the IMF funds to help narrow the budget deficit, which the lender sees at 8.6 percent of gross domestic product, excluding bank restructuring costs, this year.

Without the next tranche, “we will not have funds to finance the state budget deficit,” Shlapak said.

The IMF and Ukraine’s cooperation was stalled earlier this year for three months while the government struggled to reach an agreement to cut the budget deficit.

Inflation will slow to 14 percent this year and 9 percent in 2010, according to the IMF. The inflation rate will be probably between 6 percent to 5 percent from 2011 through 2014, according to the lender.

The recovery will be driven by the weakening hryvnia, which will aid exporters, a rebound of steel prices and investment, it said. The economy, which may expand 2.7 percent next year, can revive even more if political stability returns after presidential elections in January 2010, the IMF said.

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