It’s a 150-page report, but well worth reading to gain understanding of where Ukraine’s economy stands in the estimation of the International Monetary Found.
The IMF is a big creditor to Ukraine, having doled out $7.6 billion in loans since last year out of a $17.5 billion program through the end of 2018. But Ukraine’s faltering anti-corruption drive and slow progress on structural reforms caused the international lender to delay a fresh $1 billion installment for more than a year. Finally, Ukraine showed enough commitment to its conditions for the IMF to recommend restarting the lending program last month.
The executive summary by Christine Lagarde, the IMF’s managing director, is straight to the point: “Ukraine is showing welcome signs of recovery, notwithstanding a difficult external environment and a severe economic crisis. Activity is picking up, inflation has receded quickly, and confidence is improving. Gross international reserves and bank deposits have risen. While the social and economic cost of the crisis has been high, growth is expected to be higher in the period ahead. This progress owes much to the authorities’ program implementation, including sound macroeconomic policies, bold steps to bring energy tariffs to cost-recovery levels, and measures to rehabilitate the banking system. Determined policy implementation, however, remains critical to achieve program objectives, given the significant challenges ahead.
“Further progress in fiscal reforms is key to ensure medium-term sustainability. The authorities need to avoid tax policy changes that lead to higher deficits. The focus should be on improving tax and customs administrations.
Moreover, parametric pension reform is crucial to reduce the pension fund’s large structural deficit, help reduce fiscal deficits and public debt, and create room to bring pensions to sustainable levels over time.
“Monetary policy has been skillfully managed and financial sector reforms have started to yield results. Priority should continue to be given to reducing inflation and rebuilding international reserves, also to make room for the gradual removal of remaining administrative measures. The authorities need to further strengthen the banking system through recapitalization, unwinding of related-party lending, and resolution of impaired assets.
“A sustainable recovery requires completing the structural transformation of the economy, where much remains to be done, including combating corruption and improving governance. Creating a level-playing field and ensuring equal application of the rule of law is essential to raise investment. A decisive start needs to be made with the restructuring and divestiture of state-owned enterprises, and prosecuting high-level corruption cases.
“Ukraine’s international partners have contributed to efforts to strengthen the economy with considerable financial and technical support. These remain important for the success of the program. The completion of the restructuring of sovereign debt held by private bondholders was an important step to put debt back on a sustainable path. It is important that the resolution of remaining sovereign arrears proceeds promptly.”
“The ex-post evaluation…notes that while the program faced substantial risks from the outset and did not achieve many of its goals, it served as an important policy anchor in an uncertain environment.”
In a published Sept. 1 letter of intent signed by President Petro Poroshenko, Prime Minister Volodymyr Groysman, National Bank of Ukraine Governor Valeria Gontareva and Finance Minister Oleksandr Danylyuk, the Ukrainian leaders made this commitments:
“We remain committed to continuing our efforts to enhance transparency and address corruption, speed up privatization and improve governance of state-owned enterprises…In this regard, we have adopted legislation and launched an effective and transparent asset declaration requirement for high-level officials. We have also stepped up our efforts by adopting several key pieces of legislation, including amendments to the law on privatization and a new law on corporate governance of state property.”
