Ukraine’s allies push IMF to approve $14bn-$16bn loan

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Ukraine’s allies are pushing the IMF to finalise plans for a multibillion-dollar lending programme as they seek to strengthen the war-torn country’s finances.

The fund’s representatives are planning to meet Ukrainian officials in Warsaw in mid-February to advance discussions over a loan that could range from $14bn-$16bn, said officials familiar with the talks. The goal is to finalise it by the spring.

Ukraine has said it is facing a $38bn deficit this year, while the World Bank has estimated that more than half of its energy infrastructure has been destroyed by Russian attacks, compounding the pressure on its economy.

To cover the financing gap, the EU has put forward €18bn in a package agreed between its member states in December. But the bloc and other major partners of Kyiv want international lenders to accelerate their efforts to provide further support.

“The expectation is that other international donors including other G7 and international financial institutions would cover the rest of the financing need,” said Valdis Dombrovskis, European Commission executive vice-president, during meetings in Kyiv.

He told the FT that an IMF programme for Ukraine would carry “a certain signalling effect” that “can trigger also further donor support”. The sooner the loan arrived the better, he added. “These are not circumstances in which the IMF would normally lend, so it is a positive step that they are actually working on a proper disbursing programme.”

The US has also been pushing the IMF to deliver new financial aid quickly to Ukraine. “Treasury is encouraging the IMF and Ukraine to work together expeditiously toward agreeing on a programme,” the US Treasury said on Thursday. 

Securing approval for a multiyear aid package has been a prolonged process, given vast uncertainty about the financial situation in a war-torn country like Ukraine as well as its capacity to pay back what the IMF would lend out.

Kyiv has been pushing for funding from the IMF since September but talks have been held up by the conditions the fund would require to lend, as its rules do not allow financing to war zones. The fund is considering a three to four-year package of aid worth $14bn-$16bn, said people familiar with the discussions.

The fund previously granted $2.7bn of emergency funding and in December approved a four-month programme for Ukraine aimed at both shoring up the economy and preparing it for a significant IMF loan.

“We have been supporting Ukraine since the onset of the war and are committed to keep it going,” an IMF spokesperson told the FT. “We’re engaging closely with the Ukrainian authorities and hopefully move towards a fully-fledged programme as soon as feasible.”

Ukraine’s finance ministry declined to comment.

Advancing official loans to Ukraine is a complex process given the difficulties the country will have paying them back. The European Investment Bank on Thursday said it can only continue financing “risky” projects there if EU countries provide further guarantees.

Werner Hoyer, president of the EU’s lending arm, said: “If you want us to do more we need support because what we are doing in Ukraine is bloody risky.”

Since March last year, the EIB has distributed €1.7bn in funding to projects to help rebuild roads, trams and schools in Ukraine, with another €535mn due to be disbursed in 2023.

Talks on guarantees to underpin loans have resumed in recent weeks and Hoyer said he was “very confident” that member states would provide support. The discussions come as the EU prepares to start tense negotiations over its long-term budget later this year.

The European Bank for Reconstruction and Development has committed to €3bn worth of investment in Ukraine this year through loans and guarantees, while the World Bank said it has disbursed $16bn in aid to date.

Source: Financial Times

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