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‘Two steps forward, one step back’ — central bank revolt threatens Ukraine-IMF deal

Shevchenko: received open letter from staff

A mass resignation at the National Bank of Ukraine on Wednesday has threatened to put yet another roadblock on path to an IMF funding package, triggering concerns about Ukraine’s access to much-needed financing.


The funding in question is a $5bn Standby Agreement package that was agreed to in June last year. Of the total, $2.1bn was disbursed last year. A $700m tranche, which was supposed to be disbursed in late 2020 has still not yet reached Ukraine, as the Fund continues to cast doubt on Ukraine’s reform progress. The anti-corruption drive hit a blockage earlier this year, pushing Ukraine further away from securing the financing it needs to help its economic recovery. But progress on the reform front this week — in the form of new legislation passed around the judiciary and banking sectors — had increased hopes about inching closer to securing that disbursement. “This week is very productive in the Parliament with progress on most of the drafts discussed with our international partners,” says Yuriy Butsa, government commissioner for public debt management in Ukraine. “This demonstrates there is a clear political will to keep the current IMF programme on track.  In the nearest future we expect the Parliament to support the remaining legislation needed for the progress with the next review.”But as Edwin Gutierrez, head of sovereign EM debt at Aberdeen Standard Investments says, with Ukraine “it is always two steps forward and one step back with the Fund”. A large group of licensing staff at the central bank submitted their resignations on Wednesday, penning an open letter criticising the bank’s management and a lack of transparency under the new governor, Kyrylo Shevchenko, who has been in the post since July last year. They mark the latest in a string of departures from the central bank since then.  


Evgeniya Akhtyrko, analyst at Concorde Capital in Kiev, says it is a “disappointing development that will send alarming signals to the IMF”. The resignations are likely to revive questions about the central bank’s independence — another focus of the Fund. Some, including Concorde Capital, still hope that the disbursement will reach Ukraine by September. If it does not, however, it is likely to rollover until next year, leaving Ukraine with limited financing options for the remainder of its budget. "There is no alternative to IMF funding,” says Artem Shevalev, the EBRD’s board member for Ukraine. “The EBRD plays a role in the private sector, but it cannot influence change at the government level like the Fund can because it does not provide direct budget support. Ukraine could issue Eurobonds, with the liquidity glut and the markets behaving the way they have been recently, but it still will not be cheap and certainly not cheaper than its last issuance.”  

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