Page 9 - UKRRptJul21

and increase the share of small and medium-sized businesses of exports to 40%. All of these goals, but especially the FDI target, will be much harder to do without the underpinning of an IMF programme.
“A staff-level agreements over the first review under the current IMF program will need to be reached by early July to allow for executive board approval before the August recess. Should authorities miss this window, it is our view that the SBA will likely expire in December and negotiations over a much-needed new IMF arrangement will become complicated,” the IIF analysts said.
Even if the IMF deal is done Ukraine’s external financing needs are set to rise significantly as the current account deficit is expected to widen to more than 3% of GDP in 2022, according to IIF.
“For the current year, we find that even under pessimistic assumptions, reserve losses would likely be limited (around $1.5bn), while the SDR allocation would allow Ukraine to increase reserves by close to $5bn under optimistic assumptions. However, the situation could look very different in 2022 with looming reserve losses of close to $4.5bn,” IIF warned.
While the deficit for 2020 came in lower than initially expected at 5.2% of GDP, budgetary support from IFIs reached roughly $2.6bn (or 1.7% of GDP) was needed to fill a substantial financing gap. For 2021, the Ministry of Finance projects a deficit of 5.4% of GDP before narrowing in the subsequent years.
Ukraine has developed a talent for muddling through and $4.5bn is not a huge amount of money for a sovereign state to raise, even in the absence of help from the International Financial Institutions (IFIs) – and the prospects of restarting the IMF programme remain uncertain.
“Unfortunately, arrangements between Ukraine and the IMF have a relatively poor track record, with many expiring without the full disbursement of approved amounts,” says IIF. “We believe that an agreement before the IMF board recess is possible but major roadblocks remain, especially in the area of legal and governance reforms. Ukraine’s international partners seem to be determined to return to more strict conditionality in the aftermath of the COVID-19 shocks... It seems clear to us that Ukraine will need a new multi-year agreement with the IMF in 2022, independent of the result of current negotiations.”
9 UKRAINE Country Report July 2021 www.intellinews.com