22 March 2023

IMF and Ukraine agree £13bn loan package

22 March 2023

Ukraine and the International Monetary Fund (IMF) have agreed on a 15.6 billion US dollars (£12.7 billion) loan package aimed at shoring up government finances severely strained by Russia’s invasion.

Ukraine’s finance ministry said the programme would “help to mobilise financing from Ukraine’s international partners, as well as to maintain macrofinancial stability and ensure the path to post-war reconstruction after Ukrainian victory in the war against the aggressor”.

The loan programme – which was also aimed at leveraging more support by reassuring allies that Ukraine was pursuing strong economic policies – would run for four years.

The first 12 to 18 months would focus on helping Ukraine close its budget deficit and alleviate pressure to finance spending through printing money at the central bank, the IMF said in a statement.

(The agreement) is expected to help mobilise large-scale concessional financing from Ukraine's international donors and partners over the duration of the programme

The remainder of the programme would focus on supporting Ukraine’s bid for European Union membership and post-war reconstruction.

The IMF deal is expected to leverage more money for Ukraine as it provides evidence to potential donor governments, including in the G7 democracies and the EU, that Ukraine’s government is following sound economic policies.

The agreement, which still needs approval from the IMF’s executive board, “is expected to help mobilise large-scale concessional financing from Ukraine’s international donors and partners over the duration of the programme,” Gavin Gray, the IMF’s mission chief for Ukraine, said in a statement.

The IMF said that the Ukrainian authorities demonstrated their commitment to healthy economic policy and met all agreed-upon goals during a preliminary consultation.

The loan programme goes beyond previous IMF practice by lending to a country that is at war, under new rules that permitted assistance under circumstances of “exceptionally high uncertainty”.

Ukraine increased military spending while the economy shrank by around 30% in 2022, hitting tax revenues.

The result was a budget deficit that has been covered by outside financing from the US, the EU and other allies. The external assistance has helped the country end its reliance on money printed by the central bank and loaned to the government, an emergency step considered necessary early in the war, but which could fuel inflation and destabilise the country’s currency if prolonged.

Before the war, Ukraine had made progress in reforming its banking system and making government contracting more transparent. But Ukraine still ranked 122 out of 180 countries on Transparency International’s corruption perceptions index.

Its pre-war economy was characterised by political involvement from wealthy individuals known as oligarchs and by slow progress on improving the legal system perceived as too open to political influence.

But the IMF said after the preliminary consultations that the government had “made progress in reforms to strengthen governance, anti-corruption and rule of law, and lay the foundations for post-war growth, although the agenda of reforms in these areas remains significant”.

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