Ukraine’s government is trying to rush the International Monetary Fund into sending a mission to complete the second review under the $5 billion loan agreement, of which $2.1 billion has already been disbursed in 2020. The list of potential issues with the Fund I would imagine is pretty long at this stage and I would highlight:
* Hikes in the minimum wage, imparted already and planned for 2021:
* The 2020 budget and the fact that COVID-19 related funds were used to fund road building as opposed to specific health-related spending;
* The 2021 budget, and plans for very slow fiscal consolidation for the period 2021-23;
* PrivatBank and the Surkis case, where recent legal rulings may have jeopardized the official position;
* The 47,000 hryvnia monthly salary cap for employees of state-owned enterprises and members of independent supervisory boards;
* Independence of the National Bank of Ukraine in light of recent far-reaching management changes; and
* Perhaps most importantly and most difficult will be backtracking in the anti-corruption agenda, with pressures on the National Anti-Corruption Bureau of Ukraine (NABU) and Specialized Anti-Corruption Prosecutor’s Office (SAPO) in the courts, and the questionable decisions by the Verkhovna Rada, Ukraine’s parliament, in recent appointments to the commission set to choose the new SAPO chief after the last candidate was forced to resign.
Given that the range of issues is wide and deep, and fairly subjective in many respects, I think the IMFA will prefer a site visit rather than an online mission. They will want to talk extensively and in-person around the issues with local stakeholders, particularly in the anti-corruption field. So the fund I think will want to stall as far as possible until COVID-19 infection eases up, and a mission to Kyiv is safe.
From the government’s perspective the new urgency in kick-starting the IMF program might relate to looming local elections on Oct. 25, and the weakening poll ratings of President Volodymyr Zelensky and his Servant of the People party. The latest poll seemed to have the party only a few points ahead of ex-President Petro Poroshenko’s European Solidarity. The realization might also be dawning that with global markets wobbling now this side of U.S. elections on Nov. 3, market access for Ukraine might be difficult and expensive over the next few months.
My sense is that any IMF mission will be now after the U.S. elections, and more likely the next IMF funds will be disbursed, if then, in early 2021. The fund I think will want a fully focused U.S. administration to help them push forward the difficult reform agenda in Ukraine, and that is now only likely to happen early in 2021.
