JAKARTA (TheInsiderStories) – The International Monetary Fund (IMF) and the Ukrainian authorities have reached agreement on economic policies for a new 14-month Stand-By Arrangement (SBA). The new SBA will replace the arrangement under the Extended Fund Facility (EFF), approved in March 2015 and set to expire in March 2019.
The new SBA, said the Fund on Oct. 19, with a requested access of SDR2.8 billion (equivalent to US$3.9 billion), will provide an anchor for the authorities’ economic policies during 2019. Building on progress made under the EFF arrangement in reducing macro-economic vulnerabilities, it will focus in particular on continuing with fiscal consolidation and reducing inflation, as well as reforms to strengthen tax administration, the financial sector and the energy sector.
The new program has been developed in close coordination with the World Bank and the European Union (EU), who have parallel operations to support Ukraine. The authorities’ steadfast and effective implementation will be critical for the program to achieve its objectives.
Board consideration is expected later in the year following parliamentary approval of a government budget for 2019 consistent with IMF staff recommendations and an increase in household gas and heating tariffs to reflect market developments while continuing to protect low-income households.
in March, 2015, IMF approved a four-year extended arrangement under the EFF for Ukraine. The arrangement amounts to the equivalent of SDR12.348 billion (900 percent of quota) and was approved under the Fund’s exceptional access policy.
At that time, the approval of the extended arrangement under the EFF enables the immediate disbursement of SDR3.546 billion, with SDR1.915 billion being allocated to budget support.
Ukraine’s economic prospects will improve in the medium-term. Buoyed by restored competitiveness, the current account deficit is projected to stabilize at around 1¼ percent of GDP in 2016–18.
By end-2018, inflation will fall to mid-single digits and the central bank will build its international reserves to cover nearly 83 percent of short term debt. Following the debt operation and sustained fiscal adjustment, public debt is expected to decline to around 71 percent of GDP by 2020.
Ukraine’s most prolonged and deadly crisis since its post-Soviet independence began as a protest against the government dropping plans to forge closer trade ties with the EU and has since spurred a global standoff between Russia and Western powers.
After the ouster of President Viktor Yanukovich in Feburary 2014, Russian moves to take control of the Crimean Peninsula signaled Moscow’s intent to retain its sphere of influence and raised serious questions about the ability of the state’s new leaders to provide stability and a path to meaningful reforms.
Yanukovich’s subsequent ouster sowed new divisions between the eastern and western halves of the country, though a new group of transitional leaders promised to form a national unity government and hold elections on May 25, 2014.
Before the new arrangement, EU has announced $15 billion over the next several years conditioned on Ukraine reaching an agreement with the IMF and enacting tough reforms like ending gas subsidies. Washington has promised $1 billion in US loan guarantees and technical assistance.
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