IMF predicts 5.5% GDP decline for Ukraine this year as it prepares $5bn disbursement

By bne IntelliNews March 12, 2015

bne IntelliNews -

 

The IMF has presented a new macroeconomic forecast for Ukraine after approving the $17.5bn programme for the country, including an immediate $5bn disbursement. The fund expects real GDP to decline by 5.5% in 2015, while inflation is forecast to spike briefly because of exchange rate depreciation and gas and heating tariff increases, before slowing down to around 27%. The current account deficit is estimated to decrease to 1.5% of GDP because of exchange rate adjustment and low domestic demand.

The IMF supposes that with ample international support, Ukraine’s international reserves will be steadily re-built, reaching around 3.3 months of import coverage at end-2015. The fund expects the currency devaluation and official borrowing to push public sector debt up to 94% of GDP and external debt to 158% of GDP in 2015.

For next year, the IMF forecasts GDP to rebound to 2% growth and rise to 4% in the medium term. Restored competitiveness will allow the CA deficit to stabilise at around 1.25% of GDP in 2016–18. By end-2018, the IMF expects inflation to decline to mid-single digits and the National Bank of Ukraine to build its international reserves to cover nearly 83% of short-term debt. Following the repayment of short-term debt debt and sustained fiscal adjustment, public debt is expected to decline to around 71% of GDP by 2020.

Ukraine’s Finance Minister Natalie Jaresko expects to receive the first tranche from the IMF by the end of March 13, while Prime Minister Arseniy Yatseniuk gave it more time, until March 15. Yatseniuk said he hoped the IMF programme's impact would be felt quickly. The programme "will enable us to stabilise the economy and the financial sector. It will be used to stabilise the currency. It will enable the Ukrainian economy to grow from 2016," Yatseniuk said in a televised statement on March 12.

The government expected that the first tranche of a $17.5bn loan from the IMF would amount to $10bn, so it came as a disappointment that the first tranche would be only $5bn, with the remaining $5bn to be provided over the course of a year. IMF chief Christine Lagarde said the funds were being “strongly front-loaded”, while Kyiv hopes that it will enable the economy, currency and financial sector to finally stabilise.

The IMF loan is likely to unlock additional credits from other donors. Ukraine now intends to begin talks with its bondholders to secure $15.4bn in debt relief. A further $7.5bn in loans is predicted to come from other international organizations.

 
 

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