The motherland monument in Ukraine

Ukraine Politics January 2018

Ukraine: Reform standstill threatens new IMF funds

A lack of progress on economic reforms and measures to combat corruption is throwing Ukraine’s IMF USD 17.5 billion bailout program into question. In early December, Ukrainian lawmakers dismissed Yehor Soboliev, head of the parliament’s anti-corruption committee and a key player in the country’s fight against corruption, who had helped push through creditor demands. The move was widely seen as backtracking on efforts to stem rampant corruption in Ukraine and led to fierce criticism from the IMF. Stepping up the fight against corruption is a crucial requirement for receiving additional IMF funds; however, there is a lack of political willpower to pass tough measures. Ukraine has also delayed complying with other bailout demands, including a hike in gas prices and ending a moratorium on agricultural land sales. On top of this, the creation of an anti-corruption court is being dragged out in parliament.

Ukraine’s bailout program has been virtually frozen, and a long-overdue tranche of funding is likely to be delayed until significant progress is made. However, reforms will likely become harder to pass in parliament ahead of the 2019 elections. Moreover, the country’s slow recovery is unlikely to strengthen without greater progress on reforms to raise potential growth, while uncertainty over the country’s relationship with the IMF could dent business confidence and investment if it persists. Faster growth is especially vital to help shore up government revenues, ahead of a high burden of debt repayments in 2019. Commenting on Oxford Economics’ outlook for the bailout program, Senior Economist Evghenia Sleptsova stated:

“The next tranche is [..] now likely to be delayed until at least Q3 2018, putting further pressure on UAH in the meantime. And continued sluggish growth means that Ukraine may struggle with repayment of US$7.7bn in FX-denominated debt that falls due in 2019 (about half of which is restructured eurobonds) and it may thus need another debt restructuring.”

Elaborating on Alfa-Bank Ukraine’s view, Chief Economist Oleksiy Blinov adds:

“The best chance for Ukraine to get the next IMF tranche is the second quarter of 2018, Our base case scenario rests on less than USD 2 bln from the IMF in 2018, and we see significant downside risks here. As for our growth outlook, we have significantly cut our 2019-2020 forecast to 3% per annum as we see little viable acceleration drivers on the horizon.”

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