adminWASHINGTON — The International Monetary Fund (IMF) said on Wednesday that its board has approved a two-year financial aid programme totalling $17 billion for Ukraine to support its economy. The IMF program, which is aimed at helping the country to restore macro-economic stability and sustainable growth, is expected to unlock additional international assistance of about $15 billion over the same two-year period.
The decision of the IMF executive board enabled the first tranche of loan of about $3,19 bilion dollars to Ukraine’s government. And about $2 billion of the disbursement was allocated to support the budget.
The IMF noted the second and third disbursements will be based on “bi-monthly reviews and performance criteria” and the remainder of the programme will be subject to “standard quarterly reviews and performance criteria.”
“Deep-seated vulnerabilities together with political shocks have led to a major crisis in Ukraine. The economy is in recession, fiscal balances have deteriorated, and the financial sector is under significant stress,” Christine Lagarde, managing director of IMF said after the meeting.
IMF’s programme focuses on maintaining a flexible exchange rate to restore competitiveness, stabilising the financial system, gradually reducing the unaffordable fiscal deficit, eliminating losses in the energy sector, while enhancing social safety nets and decisively breaking with problematic past governance practices.
“The authorities are committed to maintaining a flexible exchange rate regime and focusing monetary policy on domestic price stability. With Fund technical assistance, they plan to adopt inflation targeting by mid-2015,” Lagarde said.
The authorities also target a structural fiscal adjustment of two percent of gross domestic product, which will appropriately balance the need to keep public debt on a sustainable path while minimising the adjustment costs to the economy.
“A strong and comprehensive structural reform package is critical to reduce corruption, improve the business climate, and achieve high and sustainable growth,” she said.
She also warned that risks to the program are high. Further escalation of tensions with Russia and unrest in the east of the country pose a substantial risk to the economic outlook. Steady and rigorous implementation of policy measures, while maintaining broad public support, will be critical for the program’s success, she said.
IMF estimated Ukraine’s real GDP to contract by about five percent in 2014 amid weak investor and consumer confidence. The GDP growth is expected to rebound to 2 percent in 2015, rising to 4.5 percent in the medium term.
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