IMF Board Approves $5 Billion Ukraine Loan, Sends First Cash

(Bloomberg) -- The International Monetary Fund’s executive board approved $5 billion of aid to Ukraine, the culmination of months of talks that grew more urgent as the coronavirus pandemic struck.

The Washington-based lender will disburse the first $2.1 billion loan tranche immediately, according to an emailed statement Tuesday. Ukraine needs money to help cover its budget deficit, which tripled as the government ramped up economic support amid the Covid-19 pandemic.

Ukraine initially sought the IMF assistance last year as a means of bolstering its foreign reserves and reassuring international investors that it was serious about overhauling its economy. But key requirements -- including the lifting of a moratorium on farmland sales and measures to protect the nationalization of the country’s biggest bank -- took much longer than envisioned to complete.

“The program will focus on safeguarding medium-term fiscal sustainability, preserving central-bank independence and the flexible exchange rate,” IMF Managing Director Kristalina Georgieva said in the statement. “Concerted reform efforts aimed at tackling corruption and strengthening governance will be critical to ensure macroeconomic stability and achieve sustainable and inclusive growth.”

The financing approved by the board is for 18 months, rather than the originally planned three years, and the volume was reduced from an earlier $8 billion. The first tranche will arrive in the coming days, Ukrainian central bank Governor, Yakiv Smoliy, said on Twitter.

The nation’s economy will probably shrink 8.2% this year, the IMF said. Helping to cushion the blow, Tuesday’s deal unlocks additional funding from the World Bank and the European Union.

The new program was approved despite “substantial” uncertainty about the direction of domestic economic policies, according to Georgieva. The lender urged the government to tighten fiscal policy once the economic recovery sets in.

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