BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/12
Immediately upon the acceptance of the new programme, the IMF released a $5 billion tranche. Some $2.5 billion of the tranche went blitz to the National Bank of Ukraine’s foreign currency reserves. With the approval of the EFF, Ukraine now has the possibility to access significant amounts of credit from other international lender institutions such as the World Bank as well as from individual nations. Despite the promised financing, Ukraine has been forced to begin negotiations with its private creditors on easing debt-servicing terms over the next few years.
Before approval of the EFF, Ukraine had to commit to enhancing economic efficiency and reducing its fiscal deficit, including prior actions. Progress in Ukraine’s reforms will be monitored regularly, and compliance is required for receiving loan payments. Higher domestic natural gas pricing is critical as various gas subsidies equivalent to several per cent of GDP are a major contributor to the government deficit and encourage wasteful energy use.
The EFF conditions further call for stabilisation of the banking sector and reform of the social security system to make sure that the country’s poorest households are better protected from taking the brunt of the financial crisis. The IMF foresees Ukraine’s GDP will contract this year by about 5.5 % and that 12-month inflation at year’s end will be running at around 27 %.