January 27, 2023
WASHINGTON – The International Monetary Fund is exploring a multiyear aid package for Ukraine worth as much as US$16 billion (S$20 billion) to help cover the country’s needs and provide a catalyst for more international funding while Kyiv tries to repel Russian forces, according to people familiar with the matter.
Whether the programme is implemented hinges on a range of conditions, including endorsement from Group of Seven nations, and Ukraine’s donors and creditors ensuring the sustainability of the country’s debt, said the people.
The plan would also require changes to IMF lending rules so the fund could lend to the war-torn country, and the government in Kyiv would need to commit to a series of policies, on top of successfully completing a four-month non-cash IMF programne approved last year, according to the people, who asked not to be identified because they’re not authorised to discuss the issues publicly.
If approved, the three- to four-year programme – worth US$14 billion to US$16 billion total – will assume a disbursement of US$5 billion to US$7 billion in the first year, according to the people.
There is hope the plan will be agreed on by the end of March, with the first tranche coming as early as in April in the best-case scenario, they said.
It is also expected to help propel more financial support for the country from public and private creditors.
The IMF “remains closely engaged” with Ukraine, the fund said in a statement in response to questions from Bloomberg News, adding the cooperation “could pave the way towards a fully fledged programme,” without elaborating on details such as the potential size of a loan.
Ukraine’s Finance Ministry declined to comment. In a separate statement on Thursday, the ministry expressed hopes for a “fully fledged” programme with the fund that would include financing.
If the plan does not get the support from enough IMF member countries, the fund could back Ukraine with a US$1.3 billion Rapid Financing Instrument programme, according to two of the people.
The IMF last month estimated Ukraine’s external funding needs to be at least US$39.5 billion this year, while Finance Minister Serhiy Marchenko said on Jan 10 the government’s monthly budget shortfall will amount to US$3.5 billion during 2023, which would total about US$42 billion.
However, the country will likely need about US$8 billion more this year for critical infrastructure damaged by recent Russian attacks, one of the people said.
The European Union has committed to providing Ukraine with €18 billion (S$25 billion) in financial assistance this year and the US is expected to contribute about US$10 billion, while Ukraine anticipates other creditors will also send varying amounts.
Under the current programme with the IMF, the Ukraine government has committed itself to take measures to boost tax revenue, significantly reduce the central bank’s support of its war-battered budget and further improve corporate governance at state-run companies.
When the war ends, Ukraine will need major financial support to finance its reconstruction. Recent Russian attacks targeted civilian infrastructure, and particularly the power grid, in a bombing campaign that wrought damage across the country, leaving millions of people and businesses without reliable supplies of electricity, heat and water.
Economic recovery may be slow. Ukraine’s economy is expected to grow 0.3 per cent after a 30.3 per cent decline last year, the country’s central bank said on Thursday. BLOOMBERG