The resumption of the IMF program and a new tranche are crucial for Ukraine’s continued cooperation with other international creditors and donors.
We will be able to receive the planned amount of resources from the IMF (USD 3 billion) in 2022, which is provided by the draft budget for next year. This is a financial lever that will be useful to Ukraine in the near future and here’s why.
Ukraine is entering another zone of turbulence that is approaching against the background of a new global energy crisis and the consequences of pandemic shocks. That is, on the one hand, we are faced with uncertainty of new quarantine restrictions and losses of the domestic economy, on the other hand – the shock of gas market fever, its consequences for ordinary consumers, heat producers, agriculture and industry, even when the state is trying to regulate gas prices in one or another non-market way.
Besides, the head of the IMF mission in Ukraine Ivanna Vladkova-Hollar advocates “reducing fiscal risks from “quasi-fiscal operations”, in particular in the energy sector”. And right now, European countries are reviewing their own energy strategies. The world is not standing still and the most adaptive and flexible approaches to governance will be able to survive the crisis. Countries that are able to support their own economies.
In fact, we may suffer from several negative waves overlapping each other, the maximum critical indicators of which may coincide over time.
A sharp increase in world energy prices to USD 2,000 per 1,000 cubic meters of gas and to USD 84 per barrel of Brent crude oil (experts estimate growth to USD 100 this winter) will lead to a global financial crisis, under which it is very important to have access to low-cost financial resources to support own economy.
Cooperation with the IMF = economic stability
In our realities, the resumption of the IMF program means maintaining Ukraine’s access to loans and grants from official lenders, including the IMF. It will mitigate the effects of next year’s tightening global financial market. Even in the last months of this year, emerging markets’ bond spreads increased under the pressure of higher inflation in these countries and rising U.S. Treasure yields.
Most experts predict a “normalization” (tightening) of monetary policy in leading advanced countries for the next year, which cause a significant increase in world interest rates and raise the cost of market financing for Ukraine. IMF experts estimate that the rise in the yield on 10-year US Treasury bonds by 1 percentage point causes an increase in the term premium for borrowers from emerging market countries by 1.4 percentage points over 4 months.
In such circumstances, a buffer of external official financing for Ukraine in the form of IMF resources will reduce external financial vulnerability risks for the national economy and help maintain the sustainability of public finances.
Founder and Chairperson of the Board of the Growford Institute Vitalii Lomakovych for Liga.net.