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© 2009 International Monetary Fund
September 2009
IMF Country Report No. 09/270
Ukraine: Second Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria—Staff Report; Press Release on the Executive Board Discussion
In the context of Second Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria, the following documents have been released and are included in this package:
The staff report for Second Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria, prepared by a staff team of the IMF, following discussions that ended on July 3, 2009, with the officials of Ukraine on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 23, 2009. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A Press Release summarizing the views of the Executive Board as expressed during its July 28, 2009 discussion of the staff report that completed the review.
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
Front Matter Page
INTERNATIONAL MONETARY FUND
UKRAINE
Second Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria
Prepared by the European Department in Consultation with Other Departments
Approved by Poul M. Thomsen and Lorenzo Giorgianni
July 23, 2009
Executive Summary
Stand-By Arrangement: A two-year SDR 11 billion SBA involving exceptional access (802 percent of quota) was approved by the Executive Board (Country Report No. 08/384) on November 5, 2008. A first purchase of SDR 3 billion was made following the Board meeting. A second purchase of SDR 1.9 billion was made following the completion of the first review on May 8, 2009. The program foresees a disbursement of SDR 2.1 billion following the completion of the second review.
Program status: Since the first review, policy implementation has been broadly in line with the program, and all end-May quantitative performance criteria were observed. However, the sharper economic contraction and the imbalances of Naftogaz′ finances put additional stress on public finances. The deficit target has been increased to cushion the economic contraction and budget transfers to Naftogaz. To reduce fiscal risks and avoid crowding out of private sector activity, the authorities reduced non-priority expenditures, increased domestic gas prices, adopted a restructuring strategy for Naftogaz, and made progress in the preparation of structural reforms. The current monetary policy stance is broadly appropriate considering the potential build up of a large monetary overhang against the backdrop of subsiding inflation and exchange rate pressures. The central bank has amended recent regulations that limited progress towards a more flexible exchange rate policy. The authorities have made progress towards resolving systemic problem banks and will shortly enact legislative amendments for the effective resolution of nonsystemic insolvent banks.
Discussions were held in Kyiv during June 24-July 10. The mission met with President Yushchenko; Prime Minister Tymoshenko; NBU Governor Stelmakh; Minister of Economy Danylyshyn; Acting Minister of Finance Umanskiy; and the Presidential Administration. The mission also met with the Party of Regions and other senior representatives and officials. The staff team comprised Ms. Pazarbasioglu (head); Messrs. Hofman and Moulin, and Ms. Yang (all EUR), Mr. Arslanalp (FAD), Mr. Duenwald (SPR), and Mr. Olafsson (MCM). Mr. Alier (resident representative) assisted the mission.
Publication: The Ukrainian authorities intend to allow the publication of the staff report.
Contents
I. Introduction and Summary
II. Recent Developments and Outlook
III. Policy Discussions
A. Macroeconomic Framework
B. Fiscal Policy
C. Monetary and Exchange Rate Policy
D. Financial Sector Policy
IV. Program Modalities and Capacity to Repay
V. Staff Appraisal
Boxes
1. Financial Situation of Naftogaz
Figures
1. Real Sector Indicators, 2004-09
2. Indicators of Inflations, 2003-09
3. External Trade Developments, 2004-09
4. Fiscal Indicators, 2001-09
5. Banking System Indicators, 2007-09
6. Monetary and Financial Indicators, 2005-09
7. Public Debt Sustainability: Bound Tests
8. External Debt Sustainability: Bound Tests
Tables
1. Selected Economic and Social Indicators, 2006-10
2. Selected Vulnerability Indicators, 2004-09
3. Medium-Term Balance of Payments, 2007-14
4. General Government Finance, 2008-10
5. Monetary Accounts, 2005-10
6. Financial Soundness Indicators for the Banking Sector, 2007-09
7. Medium-Term Macroeconomic Framework, 2005-14
8. Public Sector Debt Sustainability Framework, 2004-14
9. External Debt Sustainability Framework, 2004-14
10. Indicators of Fund Credit, 2006-14
11. Road Map for Structural Fiscal Reforms
Appendix
1. Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding
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INTERNATIONAL MONETARY FUND
UKRAINE
Second Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria—Informational Annex
Prepared by the European Department in Consultation with Other Departments
Approved by Poul M. Thomsen and Lorenzo Giorgianni
July 23, 2009
Contents
Appendix
I. Fund Relations
Front Matter Page
Press Release No. 09/271
FOR IMMEDIATE RELEASE
July 28, 2009
INTERNATIONAL MONETARY FUND
International Monetary Fund
Washington, D.C. 20431 USA
