An International Monetary Fund mission visiting Kiev said on Friday it would recommend approval of a further $3.3bn in aid for Ukraine, while downgrading its annual growth forecast for one of the world’s most recession-battered economies.
Ceyla Pazarbasioglu, IMF mission chief to Ukraine, said Kiev could expect the third tranche from a $16.4bn standby loan granted last autumn within four weeks, pending approval by the fund’s board.
The fresh cash also hangs on adoption of legislation to reform Ukraine’s bank sector, a challenge given that the country’s parliament has been paralyzed in bitter political rivalries.
Referring to a disastrous 20 per cent contraction in gross domestic product in the first quarter of 2009, Ms Pazarbasioglu said the fund had downgraded annual growth expectations for Kiev from 8 per cent to 14 per cent.
“These revisions mainly reflect the first quarter. Looking forward, we hope there will be a return to growth,” she said, adding that government and central bank policies have “allowed the country to manage the crisis, bringing stability to its financial system”.
The global economic recession has severely cut domestic consumption and demand for Kiev’s top export, steel. The country’s finances are stretched to the limit. With a 40 per cent market share, European banks are watching Kiev closely after fuelling a lending boom that went bust, and fear troubles could spill over.
Russia has urged Brussels to help Ukraine finance natural gas payments, threatening to cut off flow – a move that could disrupt supplies to Europe – if Kiev’s bills are not paid on time.
Yulia Tymoshenko, Kiev’s prime minister, said fresh IMF funds would help “minimise losses during the crisis period”.
The IMF agreed to accept a larger budget deficit of 6 per cent rather than 4 per cent. ”We have been flexible in this difficult period, and will support Ukraine as long as good policies continue to be implemented,” Ms Pazarbasioglu said.
In return, Ms Tymoshenko agreed to “unpopular measures”, cutting budget expenditures and balancing the finances of a cash-strapped state gas company by gradually raising tariffs on households each quarter, to market levels.
Politically, however, this is a risky move ahead of a January 2010 presidential election in which Ms Tymoshenko is a leading contender. Referring to poisonous political rivalries that have complicated Ukraine’s handling of the recession, Ms Pazarbasioglu called for “consensus”.
Ukraine’s currency plunged 40 per cent last autumn in the wake of the global financial crisis, rattling banks and lenders. The weaker currency has helped exporters and balanced Kiev’s trade balance, but unemployment has doubled, leaving 1m jobless. Ukraine’s 46m citizens are economically squeezed and disillusioned with their leadership, but have remained largely calm.
Earlier this week, London-listed XXI Century, a leading Ukrainian property company, successfully restructured $175m in eurobond notes. Peter Vanhecke, head of Renaissance Capital in Ukraine, said XXI’s successful talks with bondholders, in addition to the fresh IMF aid, would be good news for Ukraine’s economy and companies seeking to restructure more than $30bn in foreign debt obligations.
