IMF tranche for Ukraine at risk in 2023 - What's the cause?
Photo: IMF Managing Director Kristalina Georgieva (Getty Images)
By the end of the year, an unforeseen situation could arise regarding Ukraine's assistance from the International Monetary Fund (IMF). The risk of a tranche disruption exists due to partners, particularly related to the domestic political situation in the United States.
This is discussed in the article by RBC-Ukraine "What could derail new IMF tranche and how Ukraine plans to plug budget gap."
There are no special risks regarding Ukraine's compliance with the benchmarks for receiving the third tranche of the IMF loan. However, a new risk of disruption to the financing schedule has recently emerged. This risk is not related to Ukraine but to international partners who essentially fund the budget deficit.
In particular, as of today, there are no guarantees that funds from the EU and the USA will be provided in the expected volume and on the previously agreed schedule.
EU is ready to allocate only half of the expected funds
Until the beginning of the full-scale war, Ukraine's primary creditor was the IMF. Others - the USA and the EU - provided funds based on progress in the program with the IMF. The situation significantly changed in 2022. The IMF remained the reference point for other creditors, but their role in financing Ukraine's budget deficit has significantly increased. Currently, the IMF has to align its actions with the USA and the EU.
At present, the EU is ready to provide only half of the expected funds for Ukraine in 2024, according to the Deputy Minister of Economy Oleksii Sobolev.
This concerns the 18 billion euros that Ukraine has planned in the budget for next year to cover its deficit, while Brussels is ready to provide only 9 billion.
"We are currently working with the Europeans to ensure that out of these 39 billion, 18 billion will come specifically next year," Sobolev said.
Risks from the USA
Uncertainty also exists regarding the disbursement of funds from the United States. Due to the current domestic political situation, a decision on financing Ukraine cannot be made.
"Right now, we are meeting the conditions of the IMF. But the program consists of two parts – commitments from the Ukrainian government and financial guarantees from our partners, without which the program will not work. Currently, our risks lean toward our partners due to what is happening in the USA," said a source familiar with the negotiations on financing Ukraine, speaking to RBC-Ukraine.
However, without guarantees of external inflows to cover a significant portion of the deficit, it is impossible to predict the situation for the next year.
"If this source of funding is not available (or if it is not provided in full), the IMF will not have confidence that the country can meet its needs. There may be a problem with approving the next tranche if the issue is not resolved by December," the source noted.
In conclusion, if the disbursement of the tranche is indeed postponed due to uncertainty in funding from other partners, it will be the first case in Ukraine's cooperation with the IMF when a program fails not due to non-compliance with program conditions.
IMF program
On March 31, the IMF approved a four-year Extended Fund Facility (EFF) program for Ukraine, amounting to $15.6 billion. This program is part of an international support package with a total value of $115 billion. At the same time, the Ukrainian government has to implement 19 structural benchmarks to continue receiving funding.
As Prime Minister Denys Shmyhal stated, Ukraine will need about $42 billion in external financing in 2024 to cover the state budget deficit. In 2024, Ukraine expects IMF loans under the EFF program amounting to $5.4 billion.
