The International Monetary Fund improved its forecast for Ukraine’s gross domestic product in 2021, but the prospects remain uncertain for restarting a $5 billion lending program frozen in June after the first installment of $2.1 billion was made.
The IMF expects Ukraine’s real GDP to reach 4% this year, up 1 percentage point from its previous forecast last October, according to the fund’s World Economic Outlook released on April 6. The growth, however, is 2 percentage points slower than the 6% growth that the IMF expects from the global economy this year.
The fund also improved Ukraine’s 2020 GDP figures, saying the decline in GDP was closer to -4.2% as opposed to earlier forecasts of -7.2%.
Kyrylo Shevchenko, governor of the National Bank of Ukraine (NBU), said that Ukraine may be able to count on additional lending of $2.7 billion if it meets conditions for the lending. Negotiations stalled when the IMF’s mission concluded on Feb. 13 that Ukraine needed to show more progress on reforms before it will resume lending.
In June 2020, the IMF approved an 18-month agreement for Ukraine for $5 billion, with the immediate disbursement of $2.1 billion. While announcing that he hopes the IMF will resume lending this year, Shevchenko said Ukraine’s parliament should adopt all laws needed for cooperation to continue.
The laws in question reforms of the High Council of Justice and a relaunch of the High Qualifications Commission of Judges, two bodies that choose and discipline judges, as well as legislation ensuring the independence of the National Anti-Corruption Bureau. The three agencies are considered essential to the creation of independent law enforcement and a trustworthy judicial system, lacking in Ukraine today.
But draft versions of the laws have stirred much controversy. Judicial and anti-corruption watchdogs argue that the draft bills from President Volodymyr Zelensky do not represent progress.
Shevchenko said that the resumption of IMF lending is important not so much for the money, but for the signal to investors. “These funds can be replaced by the placement of eurobonds. We all know that the IMF is primarily not about money, but about trust in the country. This is a powerful signal to investors,” he said.
Shevchenko also stated that the NBU would not finance the state budget deficit. “I can only quote again my favorite article of the NBU Law No. 54: ‘The National Bank does not finance the state budget deficit,’” Shevchenko said. “Neither the NBU, nor I plan to deviate from this point.”
