Ukraine may receive $2.7bn from the IMF this summer under a plan by the International Monetary Fund managing director, Kristalina Georgieva, to allocate $650bn from international reserves to restore the world economy after the coronavirus (COVID-19) crisis, UBN reported on April 13.

The money is designed to bolster the growth of weaker countries that are grappling with the tail end of the pandemic. The Ukraine’s current $5bn stand-by agreement with the IMF deal is currently suspended thanks to foot dragging on reform and back-tracking in the fight against corruption. Ukraine was due to receive $700mn last year that never arrived, and another $2.2bn this year before the SBA expires, but analysts are unsure any of this money will arrive.

However, the $2.7bn proposal is not part of the SBA programme and unlike the conventional IMF programmes, this money would not have to be paid back.  

The National Bank of Ukraine Governor, Kyrylo Shevchenko, announced the possible windfall on April 12 following a meeting with Alfred Kammer, the Director of the IMF’s European Department.  

The extra cash would be an enormous boon for the economy, which has a heavy repayment schedule this year of some $16bn in debt redemptions, of which $11bn comes due in September. Analysts have been worried that Kyiv will be unable to meet this bill without the IMF’s help, and if it dipped into its meagre gross international reserves (GIR) resources that could cause a currency crisis.  

The extra cash will also help boost Ukraine’s lacklustre growth outlook. The IMF just upgraded its outlook for global economic growth in 2021 to 6% in 2021, from its previous 5.5% forecast in January. For advanced economies, the IMF estimated growth of 5.1%, with the United States set to expand by 6.4%.

The IMF is more pessimistic on Ukraine, which it forecasts will grow by 4% this year and 3.4% in the following two years, whereas the official outlook is for a more optimistic 5%.  

Ukraine’s economy contracted by 2.8% in January and February, compared to the first two months of last year, estimated the Ministry of Economic Development and Trade in March. Except for retail trade, all sectors were down.  

The consensus forecasts put Ukraine’s 2021 GDP growth at 4%. These forecasts were made before the April coronavirus lockdown in Kyiv and half of the regions. Recent war jitters about Russia’s military threats also may dampen investment and growth this year.  

The IMF expects Ukraine’s nominal GDP will reach UAH4,606bn ($165bn) in 2021, or 12.6% higher year on year. It expects Ukraine’s CPI will increase to 7.2% by end-2021 (from 5.0% as of end-2020) and will gradually slow down to 5.0% by 2024. The fund also expects that Ukraine’s current account balance will switch from a $6.6bn surplus last year to $4.2bn deficit in 2021 (numbers comparable to those observed in 2018-2019). It expects Ukraine’s debt to GDP ratio will decrease to 58% in 2021 and 45% in 2026 (from 61% in 2020).

“The IMF numbers imply the fund is expecting stability for the Ukrainian hryvnia vs. the dollar, as the UAH/$ rate is expected to be on average 28.0 in 2021 and between 27.6 and 27.8 in the next five years,” Concorde Capital said in a recent note.  

While Ukraine currently enjoys a comfortable $27.04bn of GIR as of end-March, this is not enough to cope with the debt redemptions this year without the IMF’s help. The National Bank reported on April 7 that gross reserves cover 4.3 months of future imports, which is more than enough to underpin the stability of the hryvnia.  

But the debt servicing demand has already started and the GIR decreased 5% month on month in March due to large debt servicing outlays, in particular, the government spent $571mn on coupons for international Eurobonds and $325mn on the repayment and servicing of local Eurobonds as well as paying $508mn to the IMF. This was partially offset by $474mn in proceeds from the placement of local Eurobonds.  

The government has been able to tap the local debt market since it was hooked up to the international capital markets last year, but foreign investors have become nervous and their share has been falling recently.  

Another driver of the March the decline was the $250mn decrease in market value of financial instruments held by the NBU. Meanwhile, the NBU increased gross reserves by $50mn via the purchase of dollars on the forex market. 

“In April, government outlays related to debt repayment and servicing will be moderate (about $380mn), which can be potentially offset by new dollar borrowings on the local market. We do not expect any large forex operations by the NBU this month, so if there is no other decline in the value of the NBU’s portfolio, Ukraine’s gross reserves are likely to be flat m/m by the end of April,” Concorde Capital said in a research note.