After a long and intense period of debate and worry, Ukraine and the International Monetary Fund (IMF) finally reached an agreement on October 19th, 2018. The $3.9 billion dollar accord is 14 months in term and will replace a previous agreement that would have left Ukraine in dire financial circumstances had it lapsed in March of 2019 as expected. The new IMF agreement, however, is not without stipulations.
Ukraine Must Increase Gas Prices
The previous IMF agreement mandated an increase in gas prices each quarter in order to receive promised funds. Because Ukraine did not comply with the quarterly increases, the country has not received an IMF disbursement since April of 2017. In order for the country to receive funds under the new agreement, it must execute a 23.5% price hike by today, November 1st, 2018.
Ukraine Must Address Political Corruption
International opinion has named political corruption as the number one problem with the Ukrainian economy. The IMF conditioned their assistance on the establishment of an independent anticorruption court. This is somewhat of an atypical move for the IMF however, Ukraine adopted the law establishing such a court last June in hopes of moving forward.
Ukraine Must Present A Sound Budget
During the final stages of negotiation, Ukraine presented a budget that boasted a deficit of just 2.3% of their GDP. It was adopted by parliament upon the first presentation. The IMF will require that the budget is finalized prior to releasing any funds to the country.
The acceptance of a new IMF agreement is widely appreciated across the country, as it wisely precedes the upcoming Presidential elections scheduled to take place on March 31, 2019. If no agreement had been reached, the expiration of Ukraine’s previous Extended Fund Faculty agreement would have sent the country into a destabilizing spiral at a critical juncture in time: concurrent with the elections.
The IMF agreement is a crucial step in working to improve Ukraine’s economy and avoid national default as it helps to cover previous debts that will mature in the coming year. If the agreement is finalized later this year, it could potentially be the catalyst Ukraine needs to obtain credit from other financial donors.