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Concorde Capital Research: IMF, World Bank secure USD 2.2 bln in loans for Ukraine

December 19, 2018
The IMF executive board approved at its Dec. 18 meeting a 14-month Stand-By Arrangement (SBA) for Ukraine for SDR 2.8 bln (USD 3.86 bln), it announced in a press release. The approval enables the immediate disbursement of a SDR 1.0 bln (USD 1.38 bln) loan tranche, the IMF said. The remainder of the loan will be available upon completion of semi-annual reviews. The IMF listed four priorities for the program, including continuing fiscal consolidation to keep public debt on a downward path, reducing inflation at a flexible exchange rate regime, strengthening the financial sector and continuing structural reforms in tax administration, privatization and governance.

In other news, Ukraine’s Finance Ministry reported on Dec. 18 that the World Bank executive board decided the same day to provide a USD 750 mln financial guarantee for the Ukrainian government. MinFin clarified that loans under the guarantee will arrive in Ukraine this and next year, and will be used for general budget purposes and repayment of the government’s external debts that peak next year.

The Ukrainian government intends to attract two loan tranches under the World Bank’s guarantee with a cost limit of 4.9% p.a., according to a report from Interfax-Ukraine. The first tranche of USD 400 mln from two British financial institutions, to be received this year under a USD 375 mln guarantee, will mature in four years. The second tranche (most likely, USD 400 mln to be taken next year) will have ultimate maturity of ten years and will be amortizing semi-annually starting in 4.5 years.

Alexander Paraschiy: These loans – widely expected to be approved after Ukraine met requirements – are encouraging for Ukraine’s credit risk, but they do not secure the country’s mid-term debt sustainability. Following these decisions, Ukraine has secured new loans of almost USD 2.2 bln for the end of 2018 and 2019, including USD 0.8 bln loans under World Bank’s guarantee and the first IMF tranche under the SBA.

Providing Ukraine will receive the first World Bank-guaranteed loan and the IMF’s first tranche this year, the country’s net hard currency borrowing will reach USD 2.5 bln in December (including local hard currency debt and the MFA IV loan from the EU). That should allow Ukraine’s gross international reserves to exceed USD 20 bln as of end-December 2018, the first time in the last five years. These reserves will likely reach 3.3 months of future imports as of end-December.

The next two IMF tranches under the SBA (likely USD 1.24 bln each) – which are planned for 2019 – are not secured. Their provision will depend on Ukraine’s willingness to continue cooperation with the fund, which will depend upon the result of this spring's presidential elections, in our view. In particular, it will be important for the fund that power brokers will protect the institutional independence of Ukraine’s central bank, as well as continue fiscal consolidation. Ukraine can survive the next year without new IMF tranches, even though the government is due to repay over USD 6 bln in external loans. But maintaining IMF cooperation will be important for the country to get smoothly through 2020, when repayments of international debt are not much smaller than in 2019.
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