IMF Approves 2-Year $17.01 billion Stand-By Arrangement for Ukraine

UKRAINE - In Brief 01 May 2014 by Dmytro Boyarchuk

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The IMF Executive Board approves 2-year $17.01 billion stand-by arrangement for Ukraine. The first wire ($3.19 billion) will arrive on Monday. About $2 billion from the first wire will be allocated to the budget support. The next two wires will be subject to bi-monthly performance reviews. According to the IMF Ukraine committed to move to inflation targeting by mid-2015 while maintaining a flexible exchange rate regime. Budget deficit will be reduced to 3% of GDP by 2016 and Naftogaz’s deficit should be reduced to zero by 2018. The Fund anticipated 5% GDP decline this year with 16% inflation. CAD is expected to shrink to 4.5% of GDP and public debt to hit 57% of GDP in 2014. Economic recovery is scheduled for 2015 with 2% of GDP growth. In fact the news tells for itself. In light of recent events IMF funds are critical for Ukraine’s solvency. What more, the positive decision of the Fund unlocks investments and other financial aid badly needed for the country against the backdrop of Russia’s aggression. In contrast to previous programs, we are very optimistic about this one: Ukrainian authorities simply do not have any room for maneuvering but to comply with commitments in the face of mounting problems. In this respect, we see very high chances for this program to become a story of success. In fact, we already observe positive trends in economy. March CAD statistics revealed that non-Russian exports started to revive already which outlines very positive trend for external accounts disregard problems with Russian market. What more, 1Q 2014 GDP result (-1.1% y/y) appeared to be much better than we anticipated (we estimated -3.7% y/y) which means that real economy might st...