Ukraine has received the first tranche of critical aid from the International Monetary Fund, after reaching an agreement with the international lender on Dec. 18.
Kyiv received 1 billion special drawing rights — roughly $1.4 billion — as part of a Stand-By Arrangement, the National Bank of Ukraine, or NBU, wrote in a statement on its website. The new aid buffeted the country’s foreign exchange reserves up to $20.1 billion on Dec. 21 for the first time since January 2014.
Special drawing rights are a supplementary foreign exchange reserve asset used by the IMF that gives the holder a claim to currency held by the fund.
Under the new aid program, Ukraine is scheduled to receive a total of 2.8 billion special drawing rights ($3.9 billion) worth of IMF financing over the course of 14 months.
The Stand-By Arrangement aims to further fiscal consolidation, decrease inflation, preserve a flexible exchange rate for the hryvnia, and strengthen the financial sector. It also supports several tax, privatization, and state management reforms, Ukraine’s central bank wrote.
On Dec. 18, the IMF’s board of directors agreed to loan Ukraine a total of $3.9 billion through the end of 2019. The aid will help Kyiv avoid default, increase confidence in the country despite its negative economic indicators, and potentially attract foreign direct investment.
After receiving the initial $1.4-billion tranche on Dec. 21, Ukraine will have to meet several criteria over six monthly reviews to get the rest.
In particular, the country’s budget deficit cannot exceed 2.5 percent of gross domestic product and the Ukrainian government must maintain fiscal discipline. Additionally, it must continue to form an Anti-Corruption Court and raise domestic household gas prices closer to market levels.
According to the NBU, aid from the IMF, the World Bank, and the European Commission will allow Ukraine to end the year with foreign exchange reserves of close to $20 billion, exceeding the bank’s own predictions. The money will also help the bank support reserve levels throughout 2019.
