Exclusive: Ukraine calls for tailor-made IMF and World Bank programs

U.S. dollar, euro and Ukrainian hryvnia banknotes are seen in this illustration taken in kyiv, Ukraine October 31, 2016. REUTERS/Valentyn Ogirenko/Illustration

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  • Ukraine debt management chief urges IMF not to be dogmatic
  • Says printing money is necessary if funding needs are not met
  • $17 billion needed to quickly rebuild key infrastructure
  • Excludes state guarantee to resolve Naftogaz standoff

LONDON, Sept 20 (Reuters) – Ukraine will push for unprecedented and tailor-made International Monetary Fund and World Bank programs worth tens of billions of dollars in the coming weeks to shore up its war-ravaged finances, the country’s debt management chief told Reuters.

Ukraine’s military has retaken swaths of its territory from Russia in recent weeks, but the financial and humanitarian costs of the nearly eight-month war continue to mount. Read more

Its budget this month estimated it would face a $38 billion deficit next year, money that will either have to come from Western and multilateral donors or be printed. These Western and multilateral donors are already ready to provide around $20 billion this year. Read more

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The International Monetary Fund looks set to give it a boost by allowing countries struggling with rising global food prices – a group that includes Ukraine – to draw more money from its main rapid funding facility. . Read more

Kyiv’s goal, however, is a full-fledged IMF program that would provide enough money and security to see it through for years to come.

IMF chief Kristalina Georgieva said last week following a meeting with Ukrainian President Volodymyr Zelenskiy that the Fund would continue to support Ukraine, but the country wants things to happen more quickly. Read more

“We have a very heated debate with the IMF on the preconditions for this,” said Yuriy Butsa, government commissioner in charge of public debt management, explaining that the uncertainty over the duration of the war and its impact on the country’s economy made a deal difficult. settings with the Fund.

“I’m not sure that the standard IMF tools are really designed for this type of situation,” he added. “They probably need to introduce some creativity,” noting that the last time Europe saw a war of this magnitude, the IMF was not created.

“Creating a bespoke facility or using existing facilities in different ways. But being a little less dogmatic in that sense would probably help.”

Ukraine defaults on sovereign bonds

Officials expect the next step will be the IMF and World Bank annual meetings in October, followed by an IMF staff mission to the country to try to determine what a potential new 15-to-1 program might look like. $20 billion. Read more

Ukraine expects its economy to have shrunk by about a third this year. Next year’s rebound could be as modest as 4%.

RECOVERY AND SURVIVAL FUND

The shortfall between what taxes and other sources of revenue bring in and what Kyiv spends to keep the country and the war going has fallen to around $3.5 billion a month from $5 billion according to Butsa’s estimates, but the numbers are still huge.

It has received just over $17 billion in Western aid and loans. About another $10 billion is owed by the European Union, the United States and countries like Britain.

But its biggest source of funding is its own central bank, which has already had to print more than $10 billion in Hryvnia.

“If we are not there in terms of funding, we will have to rely on monetary funding like this year,” Butsa said. “We will have a lot of problems after the war to deal with, we don’t want to create another one like hyperinflation to fight.”

Inflation is currently around 23%. Read more

Where does Ukraine’s money come from?

Post-war reconstruction costs are also piling up. They are already estimated by the World Bank at more than $350 billion, but the government wants $17 billion to be made available quickly to repair key infrastructure so that millions of people who have fled the war can return.

Butsa said he was discussing with the World Bank a special facility for this money, where others, including private donors, could also contribute. The government photographs the damage so that donors can choose which projects their money goes to.

“We call it the rapid recovery for survival (fund),” Butsa said. “It’s really very crucial for us to be quick with that one because there are cities where it’s not safe to live during the winter because there’s no central heating. .”

Ukraine’s fastest advance since ousting Russian forces from the capital in March has turned the tide of the six-month war

NAFTOGAZ

Butsa managed to weather a two-year sovereign debt payment freeze last month, but national energy company Naftogaz is now in default after much of its bondholders rejected a similar plan. Read more

Creditors were upset because Naftogaz had said it would continue to repay its debt just weeks before it defaulted.

Analysts have suggested a deferral plan could be agreed if Kyiv offers to guarantee Naftogaz’s debt in the future – which it is not currently doing – but Butsa is reluctant.

“They (Naftogaz) are not considering this option,” he said. “From my perspective, it will be really suboptimal to increase the amount of secured debt in the current environment.”

Naftogaz needs its cash reserves to buy gas through the winter and beyond, he said, although some analysts said the company had sufficient supplies for now.

“Once all the participants (bondholders) have a firm grasp on the fact that there will be no payments on the bond principle, it can become a more nuanced discussion of what the solutions may be,” Butsa said.

($1 = 0.9994 euros)

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Reporting by Marc Jones; Editing by Alison Williams

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