Aug. 29 (Bloomberg) -- The International Monetary Fund agreed to disburse $1.4 billion to Ukraine under a loan program whose success is threatened by the country’s intensifying conflict against separatists tied to Russia.
The fund said the total amount of the loan remains unchanged at $17 billion and the program is progressing despite the volatile political situation. The money released today will bring total disbursements under the arrangement to about $4.51 billion, the fund said in an e-mailed statement after completing the first review of the deal.
“Downside risks to the program remain very high,” IMF Managing Director Christine Lagarde said. “The program success hinges on a timely resolution of the conflict in the East, as well as on the authorities’ strong policy performance and adherence to the planned reforms.”
The Washington-based fund four months ago approved the loan to aid an economy battered by deadly anti-government street protests, Russia’s annexation of Crimea and a pro-Russian insurgency in the nation’s eastern industrial heartland. The conflict has intensified since, and both the IMF and the government see the economy contracting more than the 5 percent forecast earlier this year, making it more difficult for Ukraine to meet some of the IMF program targets in the short term.
“To compensate for these deviations, the authorities have committed to a strong policy package,” Lagarde said today.
Ukraine will take actions to accumulate international reserves, tighten fiscal policy in 2015 and 2016 more than previously agreed and step up efforts to put state energy company NAK Naftogaz Ukrainy “on a sound financial footing by improving bill collections and adjusting energy prices as needed,” she said.
Fighting in Ukraine’s easternmost regions, which the United Nations says has claimed more than 2,000 lives in the past five months, is expanding both in terms of numbers and area. Ukrainian President Petro Poroshenko yesterday pledged to step up the country’s defenses against what he earlier called a “de facto” Russian incursion after separatists gained ground in intensified fighting.
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