News Brief No. 99/55

News Brief: IMF Executive Board Completes Review and Approves US$184 Million Credit Tranche for Ukraine

September 7, 1999

The Executive Board of the International Monetary Fund (IMF) today completed the third review under the three-year Extended Fund Facility for Ukraine. As a result, Ukraine will now be able to access SDR 134.7 million (about US$184 million) from the IMF.

In commenting on the Board's discussion, First Deputy Managing Director Stanley Fischer said: "Directors noted that macroeconomic developments so far in 1999 have been better than expected, and that fiscal adjustment has been encouraging. While there have been some slippages, Directors welcomed the authorities' efforts to keep the macroeconomic program on track and to speed up structural reforms.

"Directors regretted the many tax privileges and exemptions that had been granted in the last few months and noted that these decisions have further increased pressures on the budget and contributed to a weakening of the fiscal outlook for 1999. While they recognized that the scope for corrective fiscal measures was limited at this time, they nevertheless urged the authorities to adhere to the revised fiscal targets for 1999.

"Directors also stressed the importance of adopting an appropriate budget for 2000, especially in view of the heavy external debt service payments that will fall due, and urged the authorities to work closely with parliament to strengthen revenue performance. In this regard, they recommended that the authorities widen the tax base especially by removing tax exemptions, improve public expenditure management, and eliminate budgetary arrears.

"Directors welcomed the prudent monetary and exchange policies followed by the National Bank of Ukraine. They noted that while the recent pressures on the exchange rate had eased, the National Bank should remain vigilant and stand ready to take appropriate steps to absorb domestic liquidity, if necessary. In the meantime, they urged the National Bank to take every opportunity to strengthen its external reserve position.

"Directors regretted the slower than envisaged pace of structural reforms. While a number of these slippages had now been addressed, as prior actions, they stressed that a more determined effort was needed to pursue structural reforms that would help to put the economy on a sustainable path of economic growth. In particular, there is an urgent need to accelerate reforms in the energy and agriculture sectors, and in public administration. A major step up in privatization was also essential, both to increase the private sector's share of the economy, and to help finance the heavy debt service obligations falling due in 2000.

"Directors noted that Ukraine had successfully negotiated new private sector involvement, but regretted that the amounts rolled over and the terms obtained would not make it easy to attain medium-term sustainability. This would make it all the more important to achieve a satisfactory financing of private sector external obligations maturing in 2000 and to concentrate on generating external financing including from privatization.

"Directors emphasized that a significant acceleration of the pace of structural reform would be essential to signal the authorities' strong commitment to the reform effort, and help mobilize further support from the international community," Fischer said.