IMF approves $700 million tranche for Ukraine under stand-by program

According to Zelensky, the funds will go to supporting the financial system and tackling the consequences of COVID-19

The International Monetary Fund (IMF), following the first review of the stand-by program, has approved a second loan tranche for Ukraine of $699 million and decided to extend the program until June 2022. 

The decision was made by the IMF Executive Board on Monday, November 22, the fund's press service reported.

The funds received from the IMF will be directed to supporting the financial system and tackling the consequences of COVID-19, said Ukrainian President Volodymyr Zelensky. 

The National Bank also outlined the areas assigned to the regulator under the program. In particular, these include strengthening the independence of the National Bank of Ukraine, achieving the 5% inflation target, restructuring the state banking sector, and further implementing corporate governance reform.

The National Bank also faces the task of reducing state spending on insolvent banks, lowering the level of non-performing loans, strengthening banking supervision, regulating the non-bank financial sector, etc.

The Fund also agreed to Ukraine's request that the result from December 2020 regarding the ceiling on state-guaranteed debt not be taken into account in the assessment. The decision is due to the government having already taken the necessary corrective actions.

Continued implementation of the stand-by program will allow Ukraine to receive further IMF tranches totaling SDR 1.6 billion, that is, more than $2 billion.

For its part, the Ukrainian Ministry of Finance said the funds will be used to ensure macroeconomic stability and to finance the budget deficit.

Ukraine's obligations

At the same time, according to the IMF decision, Ukrainian authorities have committed to return fiscal policy to a regime consistent with medium-term debt sustainability, "while protecting socially vulnerable groups and strengthening revenue administration".

Ukraine has pledged to ensure the independence of the central bank and focus monetary policy on returning inflation to the target level. Kyiv must ensure the financial health of banks, in particular through proper governance, in order to restore reliable bank lending to the private sector.

In addition, Ukraine has pledged to fight corruption, carry out judicial reform and reduce the role of the state and corporate interests in the economy in order to improve the business environment, attract investment and increase the economy's potential.

As previously agreed at the staff level, the program will further focus on: 

• aligning fiscal policy with medium-term debt sustainability requirements while protecting socially vulnerable groups; strengthening budget revenue administration and reducing fiscal risks from quasi-fiscal operations, in particular in the energy sector; 
• Ensuring the independence of the central bank and focusing monetary policy on returning inflation to target levels;
• ensuring the financial health of banks to revive bank lending to the private sector; 
• fighting corruption and advancing the implementation of judicial reform; 
• Reducing the role of the state and vested interests in the economy to improve the business environment, strengthen corporate governance, attract investment and increase the economy's potential.

In June 2020, the IMF approved a stand-by program for Ukraine providing a loan of about $5 billion at a reduced interest rate, subject to economic reforms, including "the independence of the National Bank of Ukraine".

At the same time, Ukraine received the first tranche of $2.1 billion under the program without any reform conditions. In total, the program provides for four reviews to release tranches of $700 million each.

The first review began at the end of 2020, and as early as February the IMF rejected Ukraine's request for the release of the tranche.