Ukraine and the International Monetary Fund (IMF) have shifted ongoing talks over further financial assistance to focus on an 18-month stand-by arrangement to manage the economic impact of the coronavirus pandemic, IMF spokesman Gerry Rice said at a televised briefing on May 7.
The new arrangement will replace the pre-approved three-year aid package previously under negotiation.
The COVID-19 outbreak, which forced Ukraine and many countries around the world to shut down their economies to slow the spread of the coronavirus, changed the priorities, according to Rice.
“Given the unprecedented uncertainty surrounding the economic and financial outlook, and the need to focus policy priorities on near-term containment and stabilization, negotiations have shifted to 18-month stand-by support to reinforce the authorities’ response,” he said.
Rice added that, when the recovery is in place, the focus can shift back to addressing Ukraine’s long-term structural reform needs.
Ukraine imposed quarantine restrictions in mid-March, halting travel, shuttering most businesses and closing its borders. Under pressure from the business community, the government is now preparing to gradually reopen starting May 12, although the number of new infections hasn’t yet declined.
The National Bank of Ukraine forecast that the country’s gross domestic product would shrink by 11% in the second quarter of 2020 and the economy in general would contract by 5% as a result of the lockdown.
The IMF approved a new three-year, $5.5 billion loan package for Ukraine in December 2019. It was expected to be signed in 2020 and would replace the 14-month, $3.9-billion stand-by arrangement signed in December 2018. That program ended on Feb. 18, 2020, but Ukraine received only the first tranche of $1.4 billion due its failure to meet the fund’s requirements for reforms.
The previous, four-year, $17.5-billion program with the IMF also ended prematurely because of Kyiv’s failure to pass crucial reforms. Ukraine received $8.7 billion, and the IMF canceled the program.
For the new deal approved in December 2019, the IMF set two main conditions for Ukraine: to end its longstanding moratorium on farmland sales and to pass a new bank law that would make it legally impossible to return nationalized banks to their former owners. The latter condition was largely seen as a move to prevent billionaire oligarch Ihor Kolomoisky from reclaiming his former bank, PrivatBank, which was nationalized in late 2016.
Despite massive opposition, the parliament led by Zelensky’s party passed a law on lifting the ban on land sales and passed a critical bank law in its first reading on March 30. The next vote on the bank bill will reportedly take place on May 12 or 13.
