News & Analysis

EBRD: New IMF deal will bolster Ukrainian growth

The Ukrainian economy has continued to pull out of sharp recession and the outlook has been bolstered by the prospect of renewed cooperation with the International Monetary Fund (IMF), the European Bank for Reconstruction and Development (EBRD) has said.

In its latest Regional Economic Prospects report, the EBRD said the approval and implementation of a new Stand-By Arrangement (SBA) with the IMF would help to address Ukraine’s near-term external financing needs and maintain macroeconomic stability during the electoral cycle in 2019.

IMF staff and the Ukrainian authorities reached agreement on economic policies for a new 14-month SBA in mid-October, which will replace the existing arrangement under the Extended Fund Facility (EFF), approved in March 2015 and set to expire in March of next year. The new SBA, with a requested access of 3.9 billion US dollars, will provide an anchor for the Ukrainian government’s 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.

As such, the EBRD is now forecasting Ukrainian growth of 3.5 per cent in 2018 and three per cent in 2019, compared with 2.5 per cent in 2017.

The bank said that large foreign exchange public debt liabilities falling due in 2018-19 posed downside risks to the outlook.

The report said fast-growing real wages and remittances had stimulated household consumption, while domestic investment in fixed assets had continued to grow apace in the first two quarters of 2018, albeit at a slower rate compared to the same period of the previous year.

Headline inflation remained elevated at 11.4 per cent year-on-year in the first nine months of 2018, well above the medium-term inflation target of five per cent plus-minus one percentage point, although the rate of inflation slid into high single digits between June and September.

The report noted that the National Bank of Ukraine had moved to counter inflationary pressures by raising its key policy rate four consecutive times from 14.5 per cent in January 2017 to 18 per cent in September 2018.

Exchange rate volatility had remained under control in the year to date, despite seasonal variations, it added.

An IMF team is currently in Kyiv discussing the country’s the draft budget for 2019. “The visit is being carried out at the request of the Ukrainian authorities,” said Goesta Ljungman, the IMF’s resident representative in Kyiv.

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