Ukraine and the IMF agreed on a loan package of 15.6 billion dollars

FRANKFURT, Germany — Ukraine and the International Monetary Fund have agreed on a $15.6 billion loan package aimed at boosting public finances, which have been severely strained by the Russian invasion, and to reassure allies that Ukraine is pursuing a strong economic policy, with more support.

Ukraine’s finance ministry said on Wednesday that the program “will help mobilize financing from Ukraine’s international partners and maintain macro-financial stability and the path to post-war reconstruction after Ukraine’s victory in the war against the aggressor.”

The loan program is for four years, with the first 12 to 18 months aimed at helping Ukraine’s huge budget deficit and easing pressure to finance spending, the IMF said in a statement on Tuesday.

The rest of the program focuses on supporting Ukraine’s bid for EU membership and post-war reconstruction.

The IMF deal is expected to mobilize even more money for Ukraine as it provides evidence to potential donor governments, including the Group of Seven Democracies and the European Union, that Ukraine’s government is pursuing sound economic policies.

Gavin Gray, head of the IMF’s mission in Ukraine, said the deal, which still needs IMF board approval, “is expected to facilitate the mobilization of large-scale concessional financing from Ukraine’s international donors and partners over the duration of the program.” says in a statement.

The IMF stated that the Ukrainian authorities have demonstrated their commitment to a sound economic policy during a preliminary consultation and have met all the set goals. The loan program goes beyond the IMF’s previous practice of lending to a country at war under new rules that allowed aid under conditions of “extreme uncertainty.”

Ukraine has greatly increased its military spending while the economy shrinks by around 30% in 2022, which has hit tax revenues.

The result was a huge budget deficit covered by external financing from the US, the European Union and other allies. Foreign aid helped the country end its reliance on money printed by the central bank and lent to the government, an emergency move deemed necessary early in the war, but one that could fuel inflation and destabilize the country’s currency if prolonged.

Before the war, Ukraine made progress in reforming its banking system and making government contracts more transparent. However, Ukraine was still ranked 122 out of 180 countries on Transparency International’s Corruption Perceptions Index. Its pre-war economy was characterized by the political involvement of wealthy individuals known as oligarchs and slow progress in the development of a legal system that was considered too open to political influence.

The IMF, however, stated after preliminary consultations that the government “has made progress in governance, anti-corruption and rule of law reforms, as well as laying the foundations for post-war growth, although the reform agenda in these areas remains significant.” “

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