IMF officials have reached an agreement with Ukraine for a $5bn loan to shore up the public finances battered by the Covid-19 pandemic and a deep recession.
In an overnight statement, Ivanna Vladkova Hollar, the IMF’s mission chief for Ukraine, said the 18-month standby arrangement “aims to provide balance of payments and budget support to help the authorities address the effects of the Covid-19 shock, while consolidating achievements to date, and moving forward on important structural reforms to reduce key vulnerabilities.
“This will ensure that Ukraine is well-poised to return to growth and resume broader reform efforts when the crisis ends,” she said, noting that the staff-level agreement was subject to approval by the fund’s executive board in coming weeks.
The development came hours after Volodymyr Zelensky, Ukraine’s president, signed legislation that safeguards the clean-up of the banking sector. The IMF had demanded Kyiv pass the banking law before agreeing to a loan.
Kyiv had been dragging its feet on the legislation, which goes against the interests of Igor Kolomoisky, a powerful oligarch who backed Mr Zelensky’s presidential campaign last year.
Mr Kolomoisky has taken legal action to overturn the 2016 nationalisation of PrivatBank, which he and partners owned before Ukraine’s central bank found a $5.5bn balance sheet hole due to alleged fraudulent lending. Mr Kolomoisky denies wrongdoing.
The bank law is designed to prevent the previous owners of almost 100 lenders, which were liquidated or nationalised in the clean-up, from reclaiming ownership or obtaining compensation through Ukraine’s notoriously corrupt court system.
Agreement with the IMF, whose loans helped stabilise Ukraine’s economy following Russia’s annexation of Crimea in 2014 and orchestration of a separatist war in the east of the country, will unlock billions of dollars of additional funding from the EU, the World Bank and other international financial institutions.
“I would be surprised if the [Ukrainian] ministry of finance did not use the current improvement in credit conditions to tap global markets on the back of this news,” Tim Ash, a strategist at BlueBay Asset Management, said in a note to investors.
“We have seen a number of high yielding emerging markets successfully come to market in recent weeks, including Egypt and Bahrain,” he added, pointing to Ukraine’s $17bn budget financing needs and a deficit expected to hit 7-8 per of gross domestic product.
Ukraine has reported 20,148 Covid-19 cases and 588 fatalities since imposing a strict lockdown in mid-March. The government expects the economy to shrink 4.8 per cent this year as a result of the shutdown. Officials on Friday eased curbs for a second time this month, reopening municipal public transportation, hotels, kindergartens and schools.
“We initially expected all major final restrictions to be cancelled in the second half of June, but this is now likely to happen two to three weeks earlier,” Kyiv-based investment bank Dragon Capital said.
“With social distancing and strict sanitary requirements remaining intact, it is clear that recovery will not come quickly for local businesses, and the following weeks will shed more light on how the return to normalcy progresses,” the bank added.