Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

Ukraine, IMF Agree on $15.6 Bln Loan Package


Wed 22 Mar 2023 | 06:21 PM
Ukrainian President Volodymyr Zelenskyy
Ukrainian President Volodymyr Zelenskyy
Israa Farhan

Ukraine and the International Monetary Fund (IMF) agreed on a $15.6 billion loan package aimed at tapping into more support by reassuring allies that Ukraine pursues strong economic policies and fights corruption.

Ukraine's Finance Ministry said on Wednesday that the program will "help to mobilize financing from Ukraine’s international partners, as well as to maintain macro-financial stability and ensure the path to post-war reconstruction after Ukrainian victory in the war against the aggressor.”

On Tuesday, the IMF said in a statement that the loan program would last for four years, with the focus of the first 12 to 18 months on helping Ukraine plug its huge budget deficit and ease the pressure to print money for spending.

The Washington-based IMF said Ukrainian authorities demonstrated their commitment to healthy economic policy and met all agreed-upon goals during a preliminary consultation. 

The loan program goes beyond previous IMF practice by lending to a country at war, under new rules that allowed assistance due to circumstances of “exceptionally high uncertainty.”

Ukraine has dramatically increased military spending while the economy shrank by about 30% in 2022, hurting tax revenue.

The result was a huge budget deficit that was covered by external financing from the US, the European Union, and other allies. 

The aid helped the country end its over-reliance on money printed by the central bank and loaned to the government, an emergency step deemed necessary early in the war but which could fuel inflation and push the currency down if prolonged.

Before the war, Ukraine had made progress in reforming its banking system and making government contracts more transparent. However, it still ranks 122 out of 180 countries on Transparency International's Corruption Perceptions Index.

Its pre-war economy was characterized by political participation by wealthy individuals known as oligarchy and slow progress in improving a legal system seen as too open to political influence.

However, the IMF indicated that after initial consultations, the government has "made progress in reforms to strengthen governance, anti-corruption and rule of law, and lay the foundations for post-war growth, although the agenda of reforms in these areas remains significant.”