War-ravaged Ukraine and IMF agree on a $15.6-billion loan package

Ukrainian President Volodymyr Zelenskyy talks during a joint press conference with Japanese Prime Minister Fumio Kishida in Kyiv, Ukraine, Tuesday, March 21, 2023. (AP Photo/Efrem Lukatsky)

(Efrem Lukatsky / Associated Press)

War-ravaged Ukraine and IMF agree on a $15.6-billion loan package


March 22, 2023

Ukraine and the International Monetary Fund have agreed on a $15.6-billion loan package aimed at shoring up government finances severely strained by Russia’s invasion and at leveraging even more support by reassuring allies that Kyiv is pursuing strong economic policies.

Ukraines finance ministry said Wednesday that the program would help to mobilize financing from Ukraines international partners, as well as to maintain macro-financial stability and ensure the path to postwar reconstruction after Ukrainian victory in the war against the aggressor.

The loan program will run for four years, with the first 12 to 18 months focusing on helping Ukraine close its massive budget deficit and alleviating pressure to finance spending through printing money at the central bank, the IMF said in a statement Tuesday.

The remainder of the program will focus on supporting Ukraine’s bid for European Union membership and postwar reconstruction.

The IMF deal is expected to leverage even more money for Ukraine since it provides evidence to potential donor governments, including in the Group of 7 democracies and the EU, that Ukraine’s government is following sound economic policies.

The agreement, which still needs approval from the IMF’s executive board, is expected to help mobilize large-scale concessional financing from Ukraines international donors and partners over the duration of the program, Gavin Gray, the IMF’s mission chief for Ukraine, said in a statement.

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The Washington-based IMF said that Ukrainian authorities demonstrated their commitment to healthy economic policy and met all agreed-on goals during a preliminary consultation. The loan program goes beyond previous IMF practice by lending to a country that is at war, under new rules that permit assistance under circumstances of exceptionally high uncertainty.

Ukraine massively increased military spending while its economy shrank by around 30% in 2022, hitting tax revenues.

The result was a huge budget deficit that has been covered by outside financing from the U.S., the EU and other allies. The external assistance has helped the country end its reliance on money printed by the central bank and lent to the government, an emergency step that was considered necessary early in the war but that could fuel inflation and destabilize the country’s currency if prolonged.

Before the war, Ukraine had made progress in reforming its banking system and making government contracting more transparent. But Ukraine still ranked 122 out of 180 countries on Transparency International’s corruption perceptions index. Its prewar economy was characterized by political involvement by oligarchs and by slow progress on improving a legal system perceived as too open to political influence.

The IMF, however, said that, after the preliminary consultations, Kyiv has “made progress in reforms to strengthen governance, anti-corruption and rule of law, and lay the foundations for postwar growth, although the agenda of reforms in these areas remains significant.