News
24.12.2009
IMF Mission to Return to Ukraine After New Year
The International Monetary Fund will send a mission to Ukraine after the New Year to review the country’s economic program and decide whether to resume disbursement of a $16.4 billion loan.
“Unfortunately, we have stepped back from the conditions of the IMF cooperation,” Ukraine’s acting Finance Minister Ihor Umanskyi told reporters today in Kiev. “It is impossible to review the program this year as there is no consensus between key political institutions.”
Ukraine was due to receive a $3.4 billion tranche in November, though that installment was delayed after the country’s authorities failed to meet IMF budget demands, including spending cuts. Ukraine is relying on the IMF cash to stay afloat and pay Russia for natural gas on time after the credit crisis undermined demand for its exports such as steel and crippled its financial sector.
“The IMF is continuing discussions with the authorities on outstanding issues, in particular the budget for 2010,” said Simonetta Nardin, a spokeswoman for the lender, in an e-mail. “Once there is agreement with the government on such policies and we have sufficient assurances about broader political support, we can go forward.”
The government’s draft budget for next year must be approved by parliament in three readings. Lawmakers rejected the Cabinet’s 2010 draft budget in a first reading, forcing Prime Minister Yulia Timoshenko to approve an “operational budget” until lawmakers approve the official budget.
Budget Is Key
“Ukraine will get the fourth tranche from the IMF when we approve the state budget,” Timoshenko said today at a press conference in the capital.
Ukraine’s delegation to the IMF’s Washington office last week reached an agreement with the lender over terms of the review, Umanskyi said today.
“There is an understanding with the IMF staff over what actions and changes are needed to the memorandum to make the next review,” Umanskyi said, adding that Ukraine expects an IMF statement on the matter today. He declined to give more details.
The delay marks the second time the IMF program has been shelved, after payment was stalled for three months in the beginning of 2009 because of a dispute over state spending.
Economic Contraction
The economy is in a recession after nine years of growth as demand for its exports, which make up more than 40 percent of gross domestic product, slumped. The economy sank 15.9 percent in the third quarter after shrinking 17.8 percent in the second and a record 20.3 percent in the first three months of 2009.
The country will use part of the IMF loan to cover the budget deficit, which will reach 13 percent of GDP this year, according to the lender.
Ukraine also needs the IMF funds to pay for Russian gas, on which it relies on for more than 50 percent of its energy needs. Deputy Prime Minister Hryhoriy Nemyria said on Nov. 10 that the country may face payment difficulties starting from January if the IMF doesn’t release fund by then.
The price dispute between Ukraine and Russia has disrupted supplies to European countries twice since 2006 as Russia cut gas flows to Ukraine, the main route for the fuel to the European Union.
Standard and Poor’s, which rates Ukraine’s debt CCC+, lowered the outlook on the country’s credit rating to stable from positive on Oct. 31, citing concern that cooperation with the IMF may be stalled. Fitch cut the rating to B-, six levels below investment grade, on Nov. 12, citing the delayed IMF payment.
Bloomberg
