IMF approves $15.6 billion Ukraine loan, part of $115 billion in global support

© Reuters. Ukraine’s President Volodymyr Zelenskiy speaks with Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva via videolink, as Russia’s attack on Ukraine continues, in Kyiv, Ukraine May 20, 2022. Ukrainian Presidential Press Servic

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) -The International Monetary Fund said on Friday its executive board approved a four-year $15.6 billion loan program for Ukraine, part of a global $115 billion package to support the country’s economy as it battles Russia’s 13-month-old invasion.

The decision clears the way for an immediate disbursement of about $2.7 billion to Kyiv, and requires ambitious reforms of Ukrainian officials, especially in the energy sector, the Fund said in a statement.

The Extended Fund Facility (EFF) loan is the first major conventional financing program approved by the IMF for a country involved in a large-scale war. The size of the overall package is meant to signal the global community’s commitment to continue supporting Ukraine in the war, sources said.

Ukraine’s previous, $5 billion long-term IMF program was canceled in March 2022 when the fund provided $1.4 billion in emergency financing with few conditions. It provided another $1.3 billion under a “food shock window” program last October.

The latest loan is expected to unlock about $100 billion worth of additional international support for Ukraine. An IMF official said the $115 billion package includes the IMF loan, $80 billion in pledges for grants and concessional loans from multilateral institutions and other countries, and $20 billion worth of debt relief commitments.

Ukraine must meet certain conditions over the next two years, including avoiding steps that could erode tax revenue, keeping adequate foreign exchange reserves to maintain exchange rate stability, promoting central bank independence and strengthening anticorruption efforts.

Deeper reforms will be required in the second phase of the program to enhance stability and early post-war reconstruction, returning to pre-war fiscal and monetary policy frameworks, boosting competitiveness and addressing energy sector vulnerabilities, the IMF said.

IMF First Deputy Managing Director Gita Gopinath said the program faced “exceptionally high” risks, and its success depended on the size, composition and timing of external financing to help close fiscal and external financing gaps and restore Ukraine’s debt sustainability.

“Russia’s invasion of Ukraine continues to have a devastating economic and social impact,” she said, lauding Ukrainian authorities for maintaining “overall macroeconomic and financial stability.”

The decision formalizes an IMF staff-level agreement reached with Ukraine on March 21 that takes into consideration Ukraine’s path to accession to the European Union after the war.

Ukrainian President Volodymyr Zelenskiy welcomed the new funding.

“It is an important help in our fight against Russian aggression,” he said on Twitter. “Together we support the Ukrainian economy. And we are moving forward to victory!”

U.S. Treasury Secretary Janet Yellen said the funding package would help secure economic and financial stability and set the foundation for long-term reconstruction.

“I call on all other official and private creditors to join this initiative to assist Ukraine as it defends itself from Russia’s unprovoked war,” Yellen said in a statement. “The United States will continue to stand by Ukraine and its people for as long as it takes.”

The IMF said that multiple stakeholders, including international financial institutions, private-sector firms, most of Ukraine’s official bilateral creditors and donors are supporting a two-step debt treatment process for Ukraine that includes adequate financing assurances on debt relief and concessional financing during and after the program.

LONGER WAR SCENARIO

IMF official Gavin Gray told reporters the fund’s baseline scenario assumed the war would wind down in mid-2024, resulting in the projected financing gap of $115 billion, which would be covered by the multilateral and bilateral donors and creditors.

The fund’s “downside scenario” saw the war continuing through the end of 2025, opening a much larger $140 billion financing gap that would require donors to dig deeper, he said.

Gray said the program had been designed to function, even if economic circumstances were “considerably worse” than the baseline. He said the countries providing financing assurances had agreed to work with the IMF to ensure Ukraine was able to service its debt to the IMF if larger sums if needed.

Ukraine will face quarterly reviews beginning as early as June, he said.