The mission of the International Monetary Fund concluded on Feb. 13 that Ukraine needs to show more progress before it can get another tranche within the existing stand-by lending arrangement.
The news comes as a blow to the hopes of the Ukrainian government that said it expected to receive the $700 million tranche in February or March.
For over a month, starting in January, IMF staff and the Ukrainian authorities were discussing progress in implementing the policies and reforms in the program supported by the current stand-by arrangement.
It left the IMF representatives unconvinced.
“The discussions were productive, but more progress is needed to support completion of the first review under the program. Discussions will continue,” Goesta Ljungman, the IMF resident representative in Ukraine, said in a statement on Feb. 12.
According to Ljungman, the discussions concerned strengthening the governance of the National Bank, improvements to the legislative and regulatory framework for bank supervision and resolution, policies to reduce the medium-term fiscal deficit, legislation restoring and strengthening the anti-corruption framework and the judiciary; and energy policy.
The current 18-month stand-by agreement between Ukraine and the IMF was signed in June 2020. Within it, the IMF plans to lend the country $5 billion. The first tranche, $2.1 billion, was disbursed in summer 2020.
Next, Ukraine is scheduled to get two more tranches, $700 million each. They were originally expected to arrive in late 2020, but were rescheduled to 2021.
The first such tranche was expected to arrive early in the year – no later than March, according to the Ukrainian government.
However, now the IMF payments are on hold until a new mission re-evaluates Ukraine’s progress and comes to a more positive conclusion.
According to Finance Minister Serhiy Marchenko, the Ukrainian side provided the IMF representatives with draft legislation in the areas of anti-corruption regulations, energy, and finances, and is awaiting the mission’s opinion of them.
“We are ready to continue the discussion when the IMF representatives finish their analysis (of the proposed legislation),” Marchenko told Ekonomichna Pravda.
But Tymofiy Mylovanov, an economic adviser to President Volodymyr Zelensky’s chief of staff, offered a more controversial opinion. Mylovanov, who was part of the discussions with the IMF, said that the demands of the fund would undermine the independence of Ukraine’s governance.
This is a narrative popular with anti-Western bloggers and media in Ukraine, who often falsely claim that the West wants to control Ukraine’s judiciary.
“The good news is that we will not feel any negative consequences immediately. There is a safety cushion. In the coming months, we can manage without the IMF money,” investment banker Serhiy Fursa wrote on Facebook. “The bad news is that the lack of motivation, the lack of urgent need for money means no reforms. The government will not do reforms until they absolutely have to.”
Meanwhile, in 2021 Ukraine is scheduled to repay the IMF $1.67 billion of the debt it holds from the previous lending programs.
The news comes just a day after the European Parliament passed an extensive resolution that evaluates Ukraine’s progress on the path of reforms.
