IMF Approves $3.9 Billion Ukraine Loan as Debt Pinch Looms

(Bloomberg) -

The International Monetary Fund approved a new $3.9 billion bailout program for Ukraine to stabilize the economy and help the government pay back its debts.

The board of the Washington-based lender agreed Tuesday to provide the eastern European country with the first $1.4 billion disbursement. It’s part of the 14-month stand-by program, which replaces a bailout that suffered long delays as the government failed to implement the reforms necessary to release the cash.

The program “focuses on maintaining macro-economic stability, notably through continued fiscal consolidation and inflation reduction,” David Lipton, the IMF’s first deputy managing director, said in a statement. “This will be accompanied by targeted reforms to strengthen tax administration, governance, and the financial and energy sectors” and fighting corruption.

The IMF’s decision will help reassure investors in a year in which other emerging markets have been hammered and Ukraine itself has been repeatedly cited as among the most vulnerable. Ukraine is due to pay almost $5 billion to foreign creditors in 2019. The tranche was approved despite Ukraine’s decision in November to impose martial law in some regions after Russia seized three ships and their crews in the Azov Sea.

“We’re on track to deliver on the reforms that will be in the 14-month program,” Ukrainian Finance Minister Oksana Markarova told Bloomberg TV on Wednesday in an interview. “Reform of the fiscal service is one of the key areas in this program. It’s going to be difficult, of course, as any reform or any change, but this is the priority for the president and our government.”

The funds will replenish Ukraine’s foreign-currency reserves. Should the conditions be met, another two tranches will follow next year, when presidential and parliamentary elections are scheduled. Renewed cooperation with the IMF may boost appetite for Ukrainian debt on international markets. The government raised $2 billion in an October bond issue.

“It will be important to resist pressures to increase spending or lower taxes, while renewing efforts to improve public financial management and revenue administration,” Lipton said. “The full and timely implementation of the program will be critical for its success in light of the difficult challenges.”

The IMF is expected to consider releasing the next tranches in May and November, according to the Finance Ministry.

The World Bank also approved on Tuesday a $750 million “policy-based guarantee” for Ukraine “to support important reforms in banking, anti-corruption, agricultural land, pensions, utility subsidies and healthcare.” The guarantee is expected to help Ukraine raise $1 billion on international markets, the lender said.

“Such decisions from leading world financial institutions ensure the stability of our progress and strengthen the resilience of Ukraine against severe internal and external challenges,” President Petro Poroshenko said on Facebook.