Front Matter Page
IMF Country Report No. 15/218
UKRAINE
FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR UKRAINE
August 2015
In the context of the first review under the Extended Arrangement, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 31, 2015, following discussions that ended on May 29, 2015, with the officials of Ukraine on economic developments and policies underpinning the IMF arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on July 22, 2015.
A Staff Supplement updating information on recent developments.
A Statement by the Executive Director for Ukraine.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Ukraine*
Memorandum of Economic and Financial Policies by the authorities of Ukraine*
Technical Memorandum of Understanding*
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2015 International Monetary Fund
Front Matter Page
UKRAINE
FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT
July 22, 2015
Executive Summary
The economy is still fragile, but signs of stabilization are emerging. The escalation of the conflict in the East and the sharp depreciation of the hryvnia in early 2015 deepened the recession in 2015:Q1, raised inflation, and eroded further bank balance sheets. In recent months, however, signs of stabilization have been emerging. The balance of payments is in line with the program and the exchange rate has stabilized, retail hryvnia deposits are gradually increasing, the budget deficit is very low, and the pace of economic decline is moderating.
The authorities have made a strong start in implementing the program. All performance criteria (PCs) for end-March 2015 and, based on preliminary information, all PCs for end-June were met. Eight benchmarks were completed, albeit four of them with a delay and two were converted into prior actions for this review.
Discussions with creditors have made progress towards a debt operation that would restore fiscal sustainability. The engagement has intensified recently with direct negotiations with the ad hoc creditor committee on the authorities’ restructuring proposal. The two sides reported further steps forward in their discussions and reiterated their common objective to finalize the terms of the debt operation as soon as possible.
Policy discussions focused on strengthening macroeconomic stability and sustaining progress in structural reforms. Supporting policies in the period ahead aim to: (i) continue the current prudent monetary policy, maintain exchange rate flexibility, and improve banks’ financial health; (ii) strengthen public finances, via fiscal consolidation and Naftogaz’s reform, while revamping the social safety net; and (iii) advance structural reforms, specifically the anti-corruption framework and judicial system, overhaul the State-Owned Enterprise (SOE) sector, and improve business climate.
In view of the authorities’ performance under the program, their policy commitments for the period ahead, and progress toward a debt operation in line with its stated objectives, staff recommends the completion of the first review. The purchase released upon completion of the review would be in the amount equivalent to SDR 1,182.1 million.
Approved By
Thanos Arvanitis and Mark Flanagan
Discussions were held in Kyiv during May 12–29, 2015. The IMF team comprised Nikolay Gueorguiev (head), Anita Tuladhar, Etienne Yehoue, Pamela Madrid, Beata Jajko, Linda Kaltani, Ricardo Llaudes, Brett Rayner, Almira Buzaushina (EUR); Olga Stankova (COM); David Amaglobeli (FAD); Emmanuel Mathias, Sebastiaan Pompe (LEG); Luis Cortavarría-Checkley, Annamaria Kokenyne Ivanics, Johannes Forss Sandahl (MCM); Cesar Serra (SPR); Jerome Vacher and Wim Fonteyne (Resident Representative office). Thanos Arvanitis (Deputy Director, EUR) and Oleksandr Petryk (Alternate ED) participated in discussions. Nikita Kannekanti and Christine Rubio (both EUR) provided support from headquarters.
Contents
INTRODUCTION
RECENT ECONOMIC DEVELOPMENTS
DEBT OPERATION
MACROECONOMIC FRAMEWORK AND RISKS
MONETARY AND EXCHANGE RATE POLICY
A. Background
B. Policies
BANKING SECTOR
A. Background
B. Policies
FISCAL POLICY
A. Background
B. Policies
ENERGY POLICY
A. Background
B. Policies
STRUCTURAL REFORMS
A. Background
B. Policies
PROGRAM FINANCING AND MODALITIES
A. Program Monitoring
B. Financing Assurances
C. Capacity to Repay the Fund and Risks to the Program
STAFF APPRAISAL
BOXES
1. Impact of Social Assistance on Household Utility Cost
2. The State-Owned Enterprise Sector in Ukraine
3. Exceptional Access Criteria
FIGURES
1. Real Sector Indicators, 2013–15
2. Inflation, Monetary, and Exchange Rate Developments, 2013–15
3. External Sector Developments, 2013–15
4. Debt and Rollover of Debt, 2013–16
5. Banking Sector Deposits and Credit, 2014–15
6. Financial Sector Indicators, 2013–15
7. Structural Reforms
TABLES
1. Program Scenario—Selected Economic and Social Indicators, 2014–20
2. Program Scenario—General Government Finances, 2014–20 (billions of Ukrainian hryvnias)
2. Program Scenario—General Government Finances, 2014–20 (percent of GDP)
3. Program Scenario—Balance of Payments, 2014–20
4. Program Scenario—Gross External Financing Requirements, 2014–20
5. Program Scenario—Monetary Accounts, 2014–20
6. Financial Soundness Indicators for the Banking Sector, 2014–15
7. Indicators of Fund Credit, 2014–25
8. Proposed Schedule of Purchases Under the Extended Arrangement
ANNEX
Debt Sustainability Analysis
APPENDIX
Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
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UKRAINE
FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT—SUPPLEMENTARY INFORMATION
July 29, 2015
Approved By
Thanos Arvanitis and Mark Flanagan
Prepared By the European Department
Front Matter Page
Press Release No. 15/364
FOR IMMEDIATE RELEASE
July 31, 2015
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