Ukraine Sees $7 Billion IMF Funding This Year

Ukraine will probably receive $7 billion in International Monetary Fund financing this year to support the state budget and central bank reserves, Finance Minister Oleksandr Shlapak said.

The east European nation is also seeking further funding from the Group of Seven countries, Shlapak said an interview in Washington yesterday. Of the group’s members, Canada has pledged $200 million and the U.S. has also responded, he said.

The government predicts Ukraine’s economy will shrink 3 percent in 2014, the third recession since 2008, while reserves are at a nine-year low. The country sealed a preliminary accord with the IMF last month for as much as $18 billion in loans during two years, with the agreement unlocking $27 billion in international financing. Ukraine needs about $30 billion through 2015 to “balance the situation,” Shlapak said.

“We have fulfilled all preliminary requirements we have agreed with the IMF,” Shlapak said. “Tomorrow, we will report that to our IMF colleagues.”

The hryvnia has weakened 35.2 percent against the dollar this year, the worst performance among more than 170 currencies tracked by Bloomberg. It depreciated 0.9 percent to 12.7109 per dollar as of 10 p.m. in Kiev.

“As to its adequacy, we’ll need more than the numbers the IMF are currently looking at I believe in Ukraine,” said Canadian Finance Minister Joe Oliver today in Washington. “This is an issue subject to continual study and review.”

Recouping Losses

The currency will rebound after the IMF deal is completed, Shlapak said. Ukrainian officials will meet IMF Managing Director Christine Lagarde on April 14 and the government “hopes” the lender’s board will convene to approve the loan this month, he said. Ukraine wants to get the funds as soon as possible, he added.

“While we announced the $27 billion, which is the financing need of the country for the next 24 months, we have also given a range for the financing that would come from the fund, and that range has been $14 to $18 billion,” IMF European Director Reza Moghadam said today in Washington. “Our exact financing will depend on how much comes from other bilateral and multilateral lenders.”

The hryvnia plunged during almost five months of political turmoil, including deadly street clashes in Kiev in February and the Russian annexation of the Crimean peninsula from Ukraine in March. President Vladimir Putin yesterday threatened to halt gas supplies to Ukraine because of the country’s debt, while NATO says that about 40,000 combat-ready Russian troops are massing along the countries’ border.

Currency Volatility

Ukraine will continue to experience currency volatility in the short term, according to Moghadam.

“I am sticking to our forecast of an average rate of 10.5 per dollar this year,” Shlapak said. “Though there is a risk - - the military situation. It is hard to predict how Putin will behave.”

Ukraine will tap international markets for financing “as soon as the situation improves and we will be able to get decent yields,” Shlapak said. “We will borrow ourselves not to depend on donors.”

Shlapak said he spoke with Franklin Resources Inc., the biggest holder of Ukraine’s Eurobonds. The group has amassed $7.3 billion in Ukraine’s debt and increased its holding in the fourth quarter amid street protests, according to data from its most recent filings compiled by Bloomberg.

“They are very sure in Ukraine, they are ready now to provide additional resources, they believe in Ukraine as a partner,” Shlapak said. “We also assured them that we will repay all our debts.”

Ukraine’s 2023 government bonds fell to 88.1 cents on the dollar, pushing the yield up 24 basis points to 9.48 percent as of 5:12 p.m. in Kiev, data compiled by Bloomberg show.

Ukraine, which is seeking as much as 20 billion cubic meters of gas a year from Europe, is also holding talks with the U.S. to win its “help and support” in securing supplies of liquefied natural gas, Shlapak said.

The government had discussions with a potential supplier of a floating LNG platform, which may be leased in three months, Shlapak said. The government needs to spend $100 million on constructing the necessary infrastructure at the Black Sea port of Odessa and may start receiving the fuel in a year, he said.

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