IMF FUNDS TO UKRAINE STILL ON HOLD…

Following extensive meetings between the Ukrainian delegation and the IMF representatives during the IMF/World Bank summit in Prague this month, it seems that the Fund may soon decide on a resumption of funding to Ukraine under the US$2.6 billion Extended Fund Facility, which has been on hold since September 1999 (Bloomberg, September 26). The few outstanding issues, which will have to be resolved before the proposal to resume funding goes in front of the IMF’s board of directors, involve the review of preliminary results of structural reforms, the assessment of progress on bank privatization and restructuring, and a review of the assumptions for next year’s budget. The Ukrainian side believes that all of these issues could be resolved within the next two to three weeks opening the way to the long anticipated reopening of a relatively normal financing relationship between Ukraine and the Fund.

Delays in IMF funding, which according to some estimates should total up to US$900 million this year, put additional pressure on Ukraine’s budget. The original budget for 2000 assumed a balanced budget with both revenues and expenditures at approximately UAH33.4 billion (US$6.1 billion). However, the scheduled payments on foreign debt in the remainder of the year, which were expected to be covered in part from external funds will have to be generated internally. This may force the government to cut spending this year by close to 5 percent. The draft budget for next year also provides for a balanced budget. In this case, however, the government hopes to raise close to UAH11 billion in privatization revenues in 2001. While not unrealistic, this assumption forced the IMF to concentrate a substantial part of its review of Ukraine’s economic situation on evaluating the existing privatization infrastructure. The experience with privatization so far (the government has sold assets worth only UAH2.5 billion this year) is not promising and much remains to be done in order to convince foreign companies to invest sizeable amounts of funding into the country.

…BUT WITHOUT THEM HRYVNYA WILL REMAIN UNDER PRESSURE.