Ukraine may try to refuse cooperation with the International Monetary Fund (IMF) during the electoral cycle 2023-2024, analysts at Bank of America (BofA) believe.
According to the BofA Global Research report, which is owned by Interfax-Ukraine, analysts believe that it may be extended to 2022 “given limited progress.”
“However, we also think that the Ukrainian authorities may try to ‘graduate’ from reliance on IMF financing during the next electoral cycle in the second half of 2023 – the first quarter of 2024,” the analysts said in the report.
According to the report, the authorities may be open to the idea of a new program after the elections as part of broader cooperation with the West, but may prefer not to be bound by IMF conditionality and the usual implementation problems during the electoral campaign.
According to BofA, this may lead to a period without an active IMF program, although some form of cooperation will likely remain in place in any scenario.
The next Verkhovna Rada elections are planned for October 2023, followed by presidential elections in March 2024. This leaves 2022 as the remaining window for continued close cooperation with the IMF, BofA believes.
“We think the extension of the current SBA program [under the stand-by arrangements] for another year or so is the most likely scenario. The extension may allow Ukraine to roll over at least part of its nearly $3 billion in maturities to the IMF in 2021-2022,” BofA said in the report.
Ukraine’s ability to withhold official funding is likely to directly depend on fiscal consolidation in 2022-2023.
At the same time, as noted by BofA, a flexible approach to fiscal policy is likely to mean the need for IMF financing even during the electoral cycle.
Although Ukraine must fulfill a number of conditions in the current program of the Fund, analysts still believe that Ukraine will be able to pass the first test and receive the first tranche in July-September 2021.
Ukraine, in proportion to its quota in the International Monetary Fund (IMF), could receive more than $2.7 billion in U.S. dollar terms as part of the IMF new initiative on the additional allocation of special drawing rights (SDRs), Governor of the NBU Kyrylo Shevchenko has said.
“We hope that Ukraine will be able to receive additional funding under this initiative… The last time the IMF did a similar allocation in 2009. It was a reaction to the crisis. The IMF initiative for Ukraine could be a positive factor,” he said in an exclusive interview with Interfax-Ukraine.
According to him, a more accurate figure will depend on the exchange rate of the currencies included in the SDR basket.
Shevchenko said that the goal of this new initiative, announced by the IMF, is to provide additional liquidity to the global economic system by supplementing the reserve assets of the Fund’s 190 member countries, and its announced total volume is $650 billion.
The governor of the National Bank said that this allocation will be discussed at the beginning of the spring meeting, however, for the implementation of this initiative, approval is required first by the IMF Executive Board, and then by the Board of Governors.
The deficit of the national budget of Ukraine should fiscal deficit will need to return to pre-pandemic levels as soon as the economy recovers and the pandemic dissipates, IMF Resident Representative in Ukraine Goesta Ljungman told Interfax-Ukraine.
“Once the pandemic dissipates and the economy recovers, the fiscal deficit will need to return to pre-pandemic levels. This is important to instill confidence in Ukraine’s economy and reduce Ukraine’s borrowing needs,” he said.
Ljungman said that a strong fiscal position also gives Ukraine room to provide fiscal stimulus in the case of a future downturn.
“So the question should not be if Ukraine should reduce the fiscal deficit, but when. And in order to do so, there needs to be already a good plan for how that would happen, including through well-designed tax measures,” Ljungman said.
The mission of the International Monetary Fund (IMF) may resume work in Ukraine in April immediately after the maximum price for gas for the population set by the government loses force, said head of the Servant of the People party Oleksandr Korniyenko.
“The IMF mission has completed its interim work: they pointed out the aspects in our joint work that concerns them about the implementation of the agreements. They said they would return soon, in particular after our story with gas ends. It continues until April 1,” Korniyenko told the Internet publication Suspilne on Thursday.
Korniyenko noted that manual regulation of gas prices is not the only remark made by the IMF. According to him, “they are also worried about judicial reform and anti-corruption legislation.”
Earlier, Prime Minister of Ukraine Denys Shmyhal announced five key issues in negotiations with the IMF and expects a staff level agreement for the second tranche until June.
Ukraine expects to receive some $2.9 billion in financing from the International Monetary Fund (IMF) in 2021, for which the parliament is supposed to pass legislative amendments on reforming the judicial system, presidential economic advisor Oleh Ustenko said.
“We expect to receive an IMF tranche this year. Our program envisions $5 billion, and we have already received $2.1 billion,” Ustenko said on Ukrainian television on Monday.
“Ukraine’s cooperation with the International Monetary Fund is continuing,” he said.
“The Verkhovna Rada is supposed to pass legislative amendments essential for receiving the next tranche. I am talking about the need for judicial reform and [legislation] ensuring the functioning of anti-corruption infrastructure,” he said.
He said “the requirements of the program of cooperation with the IMF coincide with the program of the President of Ukraine, on which the head of state has repeatedly said.”
Ustenko also said, in order to amend the Ukrainian legislation in terms of the judicial system, the president held many meetings, communicated with Ukrainian and foreign experts and persuaded the MPs of the Verkhovna Rada.
“The program is taking place. As soon as the relevant legislative initiatives of the president are voted in the Verkhovna Rada, we can say that on our part we have fulfilled what we promised. We promised to fulfill not only the IMF, we do not do it for someone, we do it for Ukrainian people,” the advisor to the head of state said.
Ustenko said that successful cooperation with the IMF will give Ukraine the opportunity to make more profitable borrowings on the international market and is a good signal for foreign investors.
He also added that 2020 was a difficult year in terms of attracting investment, but the Ukrainian economy could receive about $3 billion in foreign direct investment in 2021.
President of Ukraine Volodymyr Zelensky, in a telephone conversation with Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva, discussed the progress towards the adoption of the state budget of Ukraine for 2021, the preservation of the anti-corruption agenda and macroeconomic stability in the country.
“Our teams enjoy strong trust & work closely to welcome the IMF mission ASAP,” he wrote on Twitter on Tuesday night.
