Despite the grievous state of the Ukrainian economy, the IMF said it will continue to lend money to Ukraine, so Kiev can complete economic restructuring.
“In the event that a negotiated settlement with private creditors is not reached and the country determines that it cannot service its debt, the Fund can lend to Ukraine consistent with its Lending-into-Arrears Policy,” IMF Managing Director Christine Lagarde said.
The IMF chief’s comments come as Finance Minister Natalia Yaresko and Ukrainian Prime Minister Arseny Yatseniuk wrapped up their promotional trip to US, which also included pleading with the IMF. Kiev hopes to persuade the international lender to release a $1.7 billion tranche of aid in July, as part of a $40-billion aid package that the IMF and Ukraine’s foreign allies have committed to.
Ukraine’s economic program (2015 – 18) seeks to implement macroeconomic and structural reforms. It’s designed to focus on fiscal consolidation and energy sector reforms as well as the banking system. Kiev hopes to generate $15.3 billion in public sector financing during the program period. Ukrainian authorities also aim to bring public debt to under 71 percent of the country’s GDP by 2020. Finally, the country seeks to gain economic stability by balancing the budget’s gross financing needs to no more than 12 percent of GDP annually in 2019 – 25.
Yet Kiev’s virtually bankrupt economy can’t make the debt payments, when a $500-million bond matures in September. Upon his return from Washington, Ukraine’s PM threatened to freeze debt repayments if no deal is agreed with private lenders. Kiev claims its military campaign in the east of the country is draining internationally borrowed funds.
“Today, Ukraine spends as much on foreign and domestic debt servicing as it does on defense,” Yatsenyuk told a government meeting. “The budget can no longer afford it – and not just the budget. The Ukrainian people can no longer live like this,” he said.
“We will not take money out of Ukrainians’ pockets to pay foreign debts,” he warned.