European Parliament approves EUR 1.8 bln loan to Ukraine

EU plans to lend Ukraine EUR 1.8 bln to help plug its short-term balance of payments gap were approved by the European Parliament on Mar. 25. The EU will borrow the money externally and lend it on to Ukraine with the same interest rate. The disbursement will be tied to structural reforms which Ukraine has pledged to undertake. These reforms should tackle the problems that have contributed to the current crisis. Ukraine would have to return the money within fifteen years of borrowing it.

The terms for the loan still need to be agreed upon by the EU and Ukraine in a memorandum of understanding. This will commit Ukraine to a reform program designed to remedy the accumulated fundamental weaknesses that helped to cause the current deficit. The draft deal includes public finance management reforms, anti-corruption measures, tax administration changes. There will also be reforms in the energy and financial sectors along with measures to improve the business environment. Once the EU and Ukraine sign the deal, the money will go directly into Ukraine’s budget. Two thirds of the agreed amount could be disbursed by the end of 2015 and the final tranche in the first quarter of 2016.

Ukraine will also receive EUR 250 mln of macro-financial support from EU in April 2015. This approved in 2014 (EUR 1.36 bln was received last year) and was conditional on a positive decision of the IMF.

Alexander Paraschiy: The IMF deal is bearing its fruits. EUR 250 mln will arrive next month and EUR 1.2 bln is to be secured by the end of the year (assuming Ukraine meets the conditions of the reform progress). Since the funds are to be allocated directly to the budget it reduces substantially hryvnia printing needs (by at least UAH 36 bln under the current exchange rate).

According to the IMF memorandum Ukraine has been promised USD 6.3 bln in external support on the top of USD 10 bln from the Fund for 2015. The Cabinet has already announced its intention to issue USD 1 bln of Eurobonds during April-May under U.S. guarantees. According to our estimates, the outlined funding (if the Cabinet is diligent and moves forward with all committed reforms) should be enough to secure substantial capital inflow with gross international reserves increasing up to USD 11.5 bln by the end of the year. This estimate does not include a possible effect from the government’s debt operation.

Источник: Конкорд Капитал