Skeptics Rife as Ukraine Moves $17.5 Billion Aid Goalposts

Updated on
  • Resumption of IMF bailout loan has been repeatedly delayed
  • Survey predicts state-asset sales will also miss target

A week after his appointment, Ukraine’s new finance minister targeted May for a resumption of inflows from the nation’s $17.5 billion bailout. The date has been pushed back repeatedly. Now it’s August, and economists say that could yet prove optimistic.

Ukraine will receive $1.5 billion of a possible $4 billion from the International Monetary Fund this year, and $2.5 billion next, according to the median estimates in a Bloomberg survey of nine analysts. The outlook for privatization -- a source of budget revenue -- is uncertain, with $500 million of the government’s $700 million plan to be fulfilled, according to the poll.

While Ukraine doesn’t face an immediate balance-of-payments crisis, delays in receiving the latest slice of IMF aid are “clearly negative,” said Andreas Schwabe, an economist at Raiffeisen Bank International AG in Vienna. “Another tranche could follow in late 2016, but this is purely speculative and we wouldn’t take this as a given. Our base case is that the IMF program is continued into 2017, but the total amount disbursed is rather unpredictable.”

Still recovering from the strains of revolution and a separatist war, Ukraine has been relying on foreign aid and reforms of industries from energy to banking to heal its economy. IMF disbursements have become bogged down as the government delays overhauls. The state-asset sale program, in the works since 2014, is yet to complete a single transaction.

The central bank has been pushing the government to resume cooperation with the IMF, a step that would also unlock other bilateral assistance from allies such as the U.S. and the European Union. Loans from sources outside the Washington-based lender will total $1.6 billion this year, pushing total foreign aid to $3.1 billion, the survey showed.

That’s just a quarter of the $12 billion in international assistance that Prime Minister Volodymyr Hroisman said as recently as last month it was possible to receive in 2016.

Inflows would boost central bank reserves and support the hryvnia. The stockpile of gold and foreign currencies, $14 billion as of July 1, will swell to $16 billion by year-end, less than the bank’s goal of $18.7 billion, according to the survey. The hryvnia, the world’s fourth-best performer against the dollar since March, will weaken to about 27 from 24.81 at present, the poll showed.

“I don’t see any grounds for the hryvnia rate to slide,” Finance Minister Oleksandr Danylyuk told Ukrainian television late Tuesday. “We’re in the IMF program, there are inflows to central bank reserves and the budget. I don’t see any risk to the hryvnia.”

The outlook for privatization is also souring after the government scrapped the sale of Ukraine’s biggest ammonia maker this month. Saddled with debt and amid complaints over the asking price, there were no bids, according to the state property fund, which will try to auction the plant again in October.

Revenue from state-asset sales will pick up next year, reaching $1 billion, the survey showed.

(Updates with finance minister in eighth paragraph.)
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