Ukraine has won IMF management’s endorsement for getting the next installment of its $17.5 billion bailout after passing laws required by the fund and progressing on a debt restructuring with creditors, according to a person familiar with the matter.
The conflict-torn nation is likely to win formal approval for the $1.7 billion disbursement as soon as July 31, when the International Monetary Fund’s executive board is scheduled to meet on the issue, said the person, who is familiar with IMF discussions and asked not to be identified because the talks aren’t public.
The Washington-based fund said in April it was vital that Ukraine reach a restructuring settlement with its bondholders before the next tranche was disbursed. IMF Managing Director Christine Lagarde softened that stance last month, saying that the fund can keep supporting Ukraine even if an accord with creditors “cannot be reached in a timely manner.”
Ukrainian bonds rallied earlier on Friday after the government said it made an interest payment on time, showing debt-restructuring negotiations are making progress. The nation’s debt maturing July 2017 rose to a five-month high.
The IMF loan program assumes the debt restructuring will save the Ukrainian government $15.3 billion by 2018. In addition to generating the projected savings, the fund wants a debt deal to lower Ukraine’s debt-to-GDP ratio to below 71 percent by 2020 and keep the gross financing needs of the government’s budget to an average of 10 percent from 2019 to 2025.
With Ukraine having fulfilled its reform promises to the fund’s satisfaction, IMF officials have been sufficiently encouraged by the pace of talks to recommend release of the $1.7 billion installment, the person said. IMF managers see Ukraine and its creditors as on track to satisfy conditions of the fund’s bailout, hopefully before the second review of the program is completed, according to the person.
The discussions affect $19 billion in international debt held by investors such as Franklin Templeton.
The country and its creditors have been making “good progress” in discussions on a debt deal, IMF spokesman Gerry Rice said separately Thursday at a regularly scheduled briefing in Washington.
The government and a group representing creditors agreed in a joint statement July 16 to work on “narrowing the gaps” between their proposals after meetings in Washington attended by Finance Minister Natalie Jaresko.
Lawmakers in Kiev last week passed laws on utility prices, anti-corruption efforts, deposit guarantees and improvements in the ability of the state energy company to collect receivables.
After completing a staff mission to Ukraine in May, IMF officials revised down their economic projection for the country to a contraction in output of 9 percent this year.