The International Monetary Fund’s board on Tuesday approved disbursement of $3.3bn in fresh financial support to Ukraine, one of the world’s economies hardest hit by recession.
This, the third tranche from a $16.4bn standby loan programme, brings the total amount of funds disbursed to Kiev to $10bn since the global financial crisis struck last autumn.
IMF support has helped to stabilise Ukraine’s shaky bank sector and compensate for overstretched state finances. Kiev’s currency plunged by 40 per cent last autumn. The Ukrainian Hryvnia has stabilised this year at about 8 relative to the US dollar, an exchange rate that has provided a boost for exporters.
In its decision on Tuesday, the IMF noted signs that Ukraine’s troubles were easing and welcomed decisions to adopt unpopular reforms ahead of a January presidential contest.
“Financial stress has eased in recent months and Ukraine’s current account is adjusting rapidly,” said John Lipsky, first deputy managing director of the IMF.
“At the same time, the fall in output is more pronounced than expected, which has necessitated further significant policy adjustments.”
To secure the fresh aid, Kiev’s government agreed to reduce expenditures and begin increasing natural gas prices this autumn for households to market levels. A safety net is to be established to protect the most vulnerable citizens. Last Friday, lawmakers overcame weeks of deadlock to adopt key bank sector reforms required to secure further IMF support. IMF officials have called upon Ukraine’s feuding political camps to put rivalries aside in order to deal with deep challenges still ahead.
Economists say Ukraine’s export-oriented economy, largely driven by steel exports, has suffered dramatically from falling orders during the global recession. Gross domestic product contracted by 20 per cent in the first quarter of 2009 and is estimated to have constricted by 18 per cent in the first half of the year.
Economists cite the Ukrainian economy’s resiliency this year in absorbing difficult adjustments, including a dramatic reversal from a mushrooming trade deficit.
Dozens of Ukrainian companies are in tough talks to restructure more than $10bn in debt owned to foreign creditors. The government and central bank have moved to bail out three banks but others are struggling to stay financially afloat as non-performing loans rise.
Controlling more than a third of Ukraine’s shaky bank market, European banks fear Kiev’s financial troubles could spill over. Meanwhile, Brussels has closely watched Kiev’s ability to pay for Russian natural gas.
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