Ukraine has agreed a 14-month Stand-By Arrangement (SBA) with access to Special Drawing Rights of SDR2.8bn (equivalent to $3.9bn) from its main donor, the International Monetary Fund (IMF).
The programme will replace the arrangement under the Extended Fund Facility (EFF) agreed March 2015. Ukraine has received $8.4bn from the IMF so far under the multinational lender's EFF.
The move followed Kyiv's announcement that it is ready to increase gas tariffs for the population by 23.5% from November 1. According to Prime Minister Volodymyr Groysman, this is what the government "managed to achieve with incredible efforts as a result of these negotiations [with the IMF]".
"We started negotiations from the issue of raising prices by 60% from the current level, but as a result of our negotiations and compromise, we found a different approach, and prices for gas from November 1 will grow by only 23.5% but not 60%," he said.
On October 18, Ukraine's parliament, the Verkhovna Rada, greenlighted a bill on the 2019 national budget in the first reading. The approval of the IMF-compliant state budget for 2016 is also crucially important for Kyiv's cooperation with the Fund.
"The new SBA [...] will provide an anchor for the authorities’ economic policies during 2019," the IMF said in a statement on October 19. "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."
According to the IMF, the new program has been developed in close coordination with the World Bank and the European Union (EU) who have parallel operations to support Ukraine. The authorities’ steadfast and effective implementation will be critical for the programme to achieve its objectives.
At the same time, the new agreement is subject to IMF management approval and approval by the IMF Executive Board. "Board consideration is expected later in the year following parliamentary approval of a government budget for 2019 consistent with IMF staff recommendations and an increase in household gas and heating tariffs to reflect market developments while continuing to protect low-income households," the IMF underlined.
Ukraine's opposition leader, former prime minister and the leader of the Batkivshchyna (Fatherland) party Yulia Tymoshenko immediately slammed the new agreement with the IMF on October 19, urging President Petro Poroshenko to reverse the government's decision on increasing natural gas prices for households.
"This means by nearly a quarter more. And Poroshenko's decision has been fulfilled. This means that the price for gas and heating tariffs will be 23.5% higher in the new heating season," Tymoshenko, who is a bitter rival to Poroshenko, as the front runner to replace him in the 2019 presidential election, said in a statement, adding that price hike will push Ukrainians "into a poverty niche".
"Why has it happened that the prices for gas, and therefore the heating tariffs, have been raised? Because Poroshenko's corrupt entourage has already taken the best mineral fields in Ukraine. And in the seven months that are left before the end of their governance, they want to put billions on their offshore accounts by extracting gas from our own Ukrainian fields," Tymoshenko added.
Earlier, Tymoshenko slated the 2019 draft state budget as a budget "of complete stagnation". "I want to draw your attention to the fact that this budget leaves the country's gross domestic product almost below the ground level, 36.5% lower in currency terms than it was in 2013," Interfax news agency quoted Tymoshenko as saying on October 1.
"This stagnation continues, and this budget supports it. "According to the politician, the document does not solve the problem of bringing the economy out of the shadows, as it allegedly contains no provisions on deoffshorisation and legalisation. "This is a budget of poverty, extreme poverty," Tymoshenko added.
"If you compare gross domestic income per capita that is proposed by this budget in dollar terms, then it is almost 27% lower than it was in 2013."
The new deal comes in the nick of time for the cash-strapped government that has another $3bn of debt obligations to pay off this year and some $7bn to pay back in 2019. The government has been trying to raise money on the domestic market with dollar-denominated Eurobonds, but has not been able to raise enough to cover its debt payments. The country’s hard currency reserves dropped below the minimum three months of import cover and the hryvnia had begun to lose its value. The new IMF deal will shore up the state’s finances and keep the economy stable throughout the election season next year.