IMF Approves $15.1 Billion Loan for Ukraine

New program aims to address fiscal and financial vulnerabilities

Social assistance programs for the poor to accompany reforms

Policies aim to boost Ukraine’s resiliency, long-term growth prospects

The approval of the 29-month Stand-By Arrangement triggered an immediate disbursement of $1.89 billion to the country. Subsequent disbursements will be subject to quarterly reviews.

“The authorities are committed to addressing existing imbalances and putting the economy on a path of durable growth through important fiscal, energy, and financial sector reforms,” said IMF First Deputy Managing Director John Lipsky in a statement following the Board decision. “Sustained implementation of these reforms will help Ukraine entrench macroeconomic stability, boost confidence, facilitate access to capital markets, and emerge with more balanced and robust growth.”

Putting reform back on track

The global economic crisis hit Ukraine hard in late 2008 and 2009. A major steel exporter and borrower on the international markets, Ukraine was severely hit by the decline in demand for steel products and reduced access to capital markets—the impact of which was magnified by pre-existing economic and financial vulnerabilities. Confidence in the currency and the banks waned, causing a system-wide run on deposits. As a result, real GDP collapsed, domestic demand plummeted, and falling fiscal revenues strained public finances.

The authorities’ program, supported by a $16.4 billion loan from the IMF in late 2008, managed to restore macroeconomic and financial stability. A sharp adjustment was to an extent unavoidable given the large pre-existing imbalances. However, measures to restore banking system confidence helped stabilize deposits and exchange rate pressures eased over time. By mid-2009, an incipient recovery was under way. The program went off track in late 2009, however, and a number of structural weaknesses are still outstanding.

The new program seeks to build on progress achieved under the previous one. The government that took office in March has formulated a medium-term plan of economic reforms to tackle these weaknesses and promote strong and durable growth.

Working toward fiscal sustainability

Ukraine’s public debt has increased considerably in recent years, and large budget deficits—partly caused by a worse-than-expected downturn—divert important resources away from the private sector. While some measures were taken to strengthen public finances...