IMF will drip-feed funding to drive Ukraine reforms

Subject

IMF conditionality as a driver for Ukrainian reforms

Significance

The IMF board's September 14 decision to release a 1-billion-dollar tranche to Ukraine after a delay of more than a year mixes partial acknowledgement of reforms to date with a call for swifter progress. Ukraine's heavy reliance on external financing makes IMF funding one of the few effective external instruments for keeping the reform process on track. The 2017 budget plan with a deficit of 3% of GDP reflects IMF advice.

Impacts

• Securing IMF assistance will boost the government's domestic standing.
• A resumption in lending by the IMF and other international partners will send a positive signal to investors.
• Renewed funding is unlikely to improve Ukraine's investment outlook immediately.
• IMF money should allow the central bank to replenish depleted foreign reserves, reducing devaluation pressures.