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Ukraine agrees $5.5bn loan with IMF

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Via Financial Times

The IMF has agreed a new $5.5bn three-year loan programme with Ukraine, a boost for Ukrainian president Volodymyr Zelensky as he prepares to meet Russian counterpart Vladimir Putin for the first time on Monday for peace talks.

The announcement of the deal, the third IMF package for Ukraine since Russia’s 2014 annexation of Crimea, followed a phone call on Saturday between Mr Zelensky and IMF managing director Kristalina Georgieva.

The news broke hours before French president Emmanuel Macron hosts a summit of the so-called Normandy Four group in Paris with the two leaders, along with Germany’s chancellor Angela Merkel aimed at kick-starting the stalled 2015 Minsk peace agreement.

These talks have so far failed to stop fighting between Ukrainian government forces and Russian-backed separatists in the breakaway Donbass region. The IMF’s decision and its timing is “politically driven — to get agreement for Ukraine before the Normandy talks”, said Bluebay Asset Management analyst Timothy Ash.

In recent years, Ukraine has recorded annual growth of 2-3 per cent, an improvement on the 16.4 per cent plunge in gross domestic product seen in the immediate aftermath of the Russian annexation.

Ms Georgieva said she had commended the president for progress in reforms and economic policies. “I assured the president of the IMF’s readiness to support the authorities’ policy agenda to maintain macroeconomic stability and lift the economy to a path of higher, sustainable and inclusive growth,” she said.

Negotiations with the fund have stalled because of a dispute over the IMF-backed nationalisation of commercial lender PrivatBank. The announcement did not explicitly refer to PrivatBank, whose 2016 nationalisation is being challenged in courts by Igor Kolomoisky, the oligarch who backed Mr Zelensky’s presidential campaign this spring.

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“The IMF announcement is a critically important signal to investors and the business community demonstrating its seal of approval on Ukraine’s government’s reform process,” said Andy Hunder, president of the American Chamber of Commerce in Ukraine.

“Macroeconomic stability, an independent central bank and continued IMF co-operation are essential in accelerating Ukraine’s economic growth.”

Mykhaylo Demkiv, financial analyst at Kyiv-based investment bank ICU, said that while the staff-level agreement reached this weekend still needed to be approved by the IMF’s board and was contingent on meeting conditions including the recovery of bad loans in state banks, it was certainly positive for investors.

“I believe this increases the probability of achieving a long-lasting armistice in Donbass,” he said referring to Ukraine’s war-torn industrial heartland.

Ms Georgieva said she and Mr Zelensky agreed that “Ukraine’s economic success depends crucially on strengthening the rule of law, enhancing the integrity of the judiciary, and reducing the role of vested interests in the economy, and that it is paramount to safeguard the gains made in cleaning up the banking system and recover the large costs to the taxpayers from bank resolutions”.

“Effectiveness of the arrangement will be conditional on the implementation of a set of prior actions,” she added.

Welcoming the news and describing his talks with Ms Georgieva as “very constructive,” Mr Zelensky said the new IMF package would help his country “accelerate economic growth, actively eradicate corruption and improve wellbeing of every Ukrainian”.

“We are not satisfied with the current rate of economic growth, therefore, in order to accelerate economic growth, we, together with our international partners, will continue reforms to catch up with our neighbours in terms of economic development and prosperity,” he said in a statement.

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