Exclusive: Key Ukrainian adviser says new, $5 billion IMF loan would reassure other creditors

A participant stands close to a brand of IMF on the Worldwide Financial Fund – World Financial institution Annual Assembly 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo

KYIV, Aug 12 (Reuters) – Securing a brand new $5 billion mortgage from the IMF would assist reassure Ukraine’s different collectors that the war-torn nation’s macroeconomic scenario was underneath management, President Volodymyr Zelenskiy’s chief financial adviser informed Reuters on Friday.

Contemporary financing from the Worldwide Financial Fund for round 18 months might function the anchor for a bigger package deal of $15 billion-$20 billion to assist Ukraine climate the financial disaster attributable to Russia’s invasion, the adviser, Oleg Ustenko, mentioned.

He mentioned Ukrainian officers had been in contact with the worldwide lender concerning the potential request, including that the objective needs to be to maneuver ahead as shortly as potential.

The IMF declined to remark.

Ustenko’s feedback got here simply over two weeks after Ukraine’s central financial institution governor, Kyrylo Shevchenko, informed Reuters that he was searching for as a lot as $20 billion from the IMF over two or three years – an quantity that will have put Ukraine properly over the fund’s “distinctive entry restrict” for lending. learn extra

The massive dimension of that request had triggered intense debate throughout the IMF as a result of it could have additionally raised questions concerning the sustainability of Ukraine’s debt.

The revised plan could be modeled on a financing package agreed in 2015, after Russia’s invasion of the Crimea area of Ukraine, that included $17.5 billion in IMF funding however helped leverage whole funding of $40 billion.

“An IMF program of $5 billion could be in keeping with earlier funding ranges and is likely to be a catalyst for funding from different sources, together with the EU, (the U.S.) Treasury and different particular person nations,” Ustenko informed Reuters.

Ukraine’s earlier $5 billion mortgage program was canceled in March because the IMF permitted $1.4 billion in emergency financing with few situations within the early weeks of Russia’s invasion.

Ukrainian authorities pledged to work with the Fund to design a brand new financial program “geared toward rehabilitation and development, when situations allow.” learn extra

Ukraine, grappling with the interior displacement of some 7 million folks by Russia’s invasion on Feb. 24, is scrambling to marshal sources to cope with power shortages, rising inflation, and a worsening humanitarian disaster as winter approaches.

It faces a 35%-45% financial contraction in 2022 and a month-to-month fiscal shortfall of $5 billion, with solely a 3rd of some $29 billion in Western support pledges having materialized up to now, economists say.

This week, Ukraine’s abroad collectors backed its request for a two-year freeze on funds on virtually $20 billion in worldwide bonds, however Ukraine should nonetheless make $635 million in principal funds on prior IMF loans starting in mid-September. learn extra

Ustenko mentioned Ukraine hoped to maneuver ahead shortly with negotiations with the IMF with a watch to reaching a preliminary settlement earlier than these funds had been due.

RISKS, PRECEDENTS

Proponents of the brand new program argue that Ukraine had made good progress on tackling deficits and addressing corruption earlier than the struggle, and the brand new lending would permit it to stabilize the economic system. However critics say a big new mortgage might put the Fund in danger, as Russia might nonetheless win the struggle and refuse to make good on Ukraine’s money owed.

Mark Sobel, U.S. chair of the OMFIF monetary coverage suppose tank and a former senior Treasury official, mentioned the Fund was set as much as be a “first responder to extreme systemic world financial crises” and it ought to act to assist Ukraine pay pensions and different obligations.

Martin Muehleisen, a former IMF technique chief now affiliated with the Atlantic Council, mentioned even a mortgage of $5 billion would elevate debt sustainability questions within the midst of a struggle and set worrisome precedents, shifting it clearly to Western priorities.

“The IMF was utilized by the U.S. and its allies for strategic functions through the Chilly Warfare. Tying the fund nearer to the West’s political aims could once more be known as for, however it could battle with the IMF’s aspiration to be a very world group,” Muehleisen mentioned.

Reporting by Andrea Shalal; Further reporting by David Lawder; Enhancing by Leslie Adler and Marguerita Choy

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