The International Monetary Fund’s new funding arrangement with the Ukrainian government has the added effect of making President Petro Poroshenko a viable candidate in the 2019 elections. An economic collapse before Ukrainians go to the polls is unlikely now, and Poroshenko can run on a record that is neither spectacular nor quite disastrous.
On Oct. 19, the IMF announced it had reached a staff-level agreement to replace Ukraine’s $17.5 billion debt facility, set in 2014, with a new 14-month deal that would give the country access to $3.9 billion, contingent on further fiscal consolidation and efforts to rein in inflation. Technically, this means Ukraine will get less from the IMF than it could count on initially. The fund only disbursed $7.7 billion under the old program, which would have run out in March 2019.
The last of the IMF money came in April 2017; another $3.9 billion over the next 14 months doesn’t add up to the $17.5 billion originally offered. The total, $11.6 billion, is also smaller than the $15 billion assistance package that Russia’s president, Vladimir Putin, offered Viktor Yanukovych, the now-deposed Ukrainian president, in exchange for not signing an association agreement with the European Union.
The final amount of IMF support, however, isn’t important in the grand scheme of things. As long as investors know Ukraine is cooperating with the fund, they’ll keep buying Ukrainian bonds. Once the preliminary IMF deal was done, the Ukrainian government started preparations for a 10-year dollar bond issue, something it couldn’t dream of doing without the deal.
The new arrangement also makes it possible for Ukraine to collect a total of $2 billion from the EU and the World Bank. In an October report on the state of the Ukrainian economy, the bank estimated that the country’s gross domestic product should grow 3.5 percent next year given IMF support and probably less than 2 percent without it because of lower investor confidence, weaker macroeconomic fundamentals and debt-repayment concerns. Now, the optimistic scenario is likely to unfold, the government’s liquidity crunch no longer threatens to turn into a full-blown crisis, and the national currency, the hryvnia, is unlikely to tank.
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