Reuters: The main economic adviser to President Volodymyr Zelensky said that a new $5 billion loan from the IMF will show Ukraine’s other creditors that the country’s economy is under control.
The expert said that fresh IMF financing for 18 months might anchor a $15 billion-$20 billion package to assist Ukraine weather the economic catastrophe precipitated by Russia’s incursion.
He said Ukrainian authorities were in touch with the global lender about the anticipated request and to respond fast.
The IMF remained silent.
Ustenko’s comments came two weeks after Ukraine’s central bank governor, Kyrylo Shevchenko, told Reuters he wanted $20 billion from the IMF over two or three years. That figure would have pushed Ukraine well above the fund’s “exceptional access ceiling” for financing.
The IMF debated the request’s magnitude since it raised worries about Ukraine’s debt sustainability.
The new strategy would be based on https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr15107 After Russia took over Crimea, Ukraine, in 2014, a 2015 agreement gave the IMF $17.5 billion and helped bring in another $40 billion.
“A $5 billion IMF program would be in line with past financing levels and would be a stimulus for investment from other sources,” Ustenko told Reuters.
In the first few weeks after Russia invaded, the IMF gave Ukraine $1.4 billion in emergency loans with few conditions. This was done by canceling Ukraine’s $5 billion credit agreement.
When conditions allow, Ukrainian authorities committed to cooperating with the Fund to establish a “rehabilitation and growth” economic program when conditions allow.
As winter approaches, Ukraine scrambles to deal with electricity shortages, soaring prices, and a deteriorating humanitarian situation after Russia’s invasion on Feb. 24.
Only a third of $29 billion in Western assistance commitments have materialized so far, experts say.
This week, Ukraine’s foreign creditors agreed to its request for a two-year break from making payments on more than $20 billion in international bonds. However, starting in mid-September, Ukraine will still have to pay back $635 million in IMF loan principal payments.
Ustenko said that Ukraine planned to move quickly in its talks with the IMF to get a preliminary deal in place before deadlines.
PRECEDENTS, RISKS
Proponents of the new program say Ukraine made significant progress on deficits and corruption before the conflict, and the additional loans will stabilize the economy. Critics argue a significant new loan might put the fund at risk since Russia could win the conflict and not pay Ukraine’s debts.
Mark Sobel, former Treasury official and US chair of the OMFIF financial policy think tank, said the Fund should help Ukraine pay pensions and other obligations.
Martin Muehleisen, a former IMF strategy officer who now works for the Atlantic Council, said that even a $5 billion loan would make it hard to pay back the debt during a war and would set a bad example. This would make it a lower priority for the West.
“The U.S. and its allies exploited the IMF for Cold War strategy. Tying the fund closer to the West’s political goals may be needed, but it would contradict with the IMF’s desire to be genuinely global. “Muehleisen.”
