IMF Board Approves $15.6 Billion Loan For Ukraine Amid War

(Bloomberg) -- The International Monetary Fund’s board signed off on a $15.6 billion aid package for Ukraine, the final approval for the institution’s first-ever loan to a nation at war.

The executive board approved the four-year loan on Friday, and will immediately disburse about $2.7 billion, the Washington-based lender said in an emailed statement. 

A group of Ukraine’s creditors supported the unprecedented deal, which required the IMF to change its lending rules, with assurances that they’d extend a debt-repayment standstill for the duration of the program. The creditors — Canada, France, Germany, Japan, the UK and the US — urged other bilateral and private lenders to help restore debt sustainability for Ukraine, whose economy has shrunk by about a third after Russia’s invasion last year.

The program will be divided into two phases. In the first, lasting 12-18 months, Ukraine will take measures to strengthen fiscal, external, price and financial stability, including eliminating monetary financing.

The second phase would shift to more expansive reforms to bolster macroeconomic stability and support the nation’s recovery and reconstruction, including in light of Ukraine’s goal of European Union accession. During this period, Ukraine would be expected to revert to pre-war policy frameworks, including a flexible exchange rate and inflation targeting regime, according to the IMF.

“The program has been appropriately designed to resolve Ukraine’s balance-of-payments problem and restore medium-term external viability in both a baseline and downside scenario,” First Deputy Managing Director Gita Gopinath said, noting risks to the facility “are exceptionally high.”

IMF staff forecasts for Ukraine’s economy this year range from a 3% contraction to 1% expansion, after a slump of 30% in 2022.

The unprecedented agreement required the IMF to change its policies. The Russian invasion, launched over a year ago, has laid waste to Ukraine’s export economy and infrastructure, killing thousands of people and driving more than a third of a pre-war population of 40 million from their homes. 

The financing arrangement is an upgrade, with previous IMF funds distributed via rapid financing instruments that didn’t involve conditions. Kyiv began negotiating a full loan program with the lender in June, striking a four-month non-cash deal in an intermediary stage in December.

Ukraine’s economy collapsed by about a third last year, wiping out the budget’s revenue base and forcing the government to rely on international aid. The government targeted at least $38 billion from foreign donors this year to plug the fiscal gap, with a deficit amounting to some $3 billion a month.

Ukraine’s Finance Ministry planned on receiving $28 billion in grants and loans from the US and the European Union, with the rest coming from bilateral loans from other states and the IMF.

(Updates with comment from IMF in second paragraph.)

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