The Executive Board of the International Monetary Fund (IMF) today completed the second review of Ukraine’s economic program supported by an arrangement under the Extended Fund Facility (EFF). The completion of this review enables the disbursement of SDR 716.11 million (about US$ 1 billion), which would bring total disbursements under the arrangement to SDR 5,444.21 million (about US$7.62 billion). In completing the review, the Executive Board approved waivers for the nonobservance of performance criteria related to net international reserves, non-accumulation of external payments arrears and non-introduction of new exchange restrictions.
Ukraine’s four-year, SDR 12.348 billion arrangement (about US$17.5 billion at the time of approval of the arrangement) was approved on March 11, 2015 (see
The Executive Board also discussed the ex-post evaluation of the Stand-By Arrangement (SBA) with Ukraine that was approved in April 2014 (see
Following the Executive Board’s discussion, Ms. Christine Lagarde, Managing Director and Chair, said:
“Ukraine is showing welcome signs of recovery, notwithstanding a difficult external environment and a severe economic crisis. Activity is picking up, inflation has receded quickly, and confidence is improving. Gross international reserves and bank deposits have risen. While the social and economic cost of the crisis has been high, growth is expected to be higher in the period ahead. This progress owes much to the authorities’ program implementation, including sound macroeconomic policies, bold steps to bring energy tariffs to cost-recovery levels, and measures to rehabilitate the banking system. Determined policy implementation, however, remains critical to achieve program objectives, given the significant challenges ahead.
“Further progress in fiscal reforms is key to ensure medium-term sustainability. The authorities need to avoid tax policy changes that lead to higher deficits. The focus should be on improving tax and customs administrations. Moreover, parametric pension reform is crucial to reduce the pension fund’s large structural deficit, help reduce fiscal deficits and public debt, and create room to bring pensions to sustainable levels over time.
“Monetary policy has been skillfully managed and financial sector reforms have started to yield results. Priority should continue to be given to reducing inflation and rebuilding international reserves, also to make room for the gradual removal of remaining administrative measures. The authorities need to further strengthen the banking system through recapitalization, unwinding of related-party lending, and resolution of impaired assets.
“A sustainable recovery requires completing the structural transformation of the economy, where much remains to be done, including combating corruption and improving governance. Creating a level-playing field and ensuring equal application of the rule of law is essential to raise investment. A decisive start needs to be made with the restructuring and divestiture of state-owned enterprises, and prosecuting high-level corruption cases.
“Ukraine’s international partners have contributed to efforts to strengthen the economy with considerable financial and technical support. These remain important for the success of the program. The completion of the restructuring of sovereign debt held by private bondholders was an important step to put debt back on a sustainable path. It is important that the resolution of remaining sovereign arrears proceeds promptly.
“The ex-post evaluation of exceptional access under the 2014–15 Stand-By Arrangement notes that while the program faced substantial risks from the outset and did not achieve many of its goals, it served as an important policy anchor in an uncertain environment.”