KIEV (Reuters) – The International Monetary Fund on Thursday warned of “large risks” to Ukraine’s outlook after approving a new $5 billion deal for the country tumbling into a recession caused by the coronavirus pandemic.
The IMF sees the eastern European country’s economy shrinking 8% this year, a steeper decline than the government’s estimate of around 5%, and said “output is not expected to reach its pre-crisis levels until 2023–24.”
President Volodymyr Zelenskiy’s government has said the IMF programme was needed to stave off default, as a nationwide lockdown to fight the spread of COVID-19 forced many businesses to shut or operate under restrictions.
Ukraine received a first loan tranche of $2.1 billion this week but must continue to pass reforms to qualify for further disbursements. These include further steps to clean up the banking sector and governance at major state-run companies.
“Risks to a new programme are very large, stemming from a possible deepening of the COVID-19 crisis and a further deterioration in global economic and financial conditions, as well as possible domestic policy slippages and reversals, as vested interests may continue to push back against reforms,” the IMF said in a document.
To secure the IMF deal, Ukraine had to pass legislation that prevents the former owners of insolvent banks from regaining their assets.
The move was viewed as aimed at the interests of Ihor Kolomoisky, who formerly owned the country’s largest lender, PrivatBank – nationalized in 2016 – and who has waged a legal battle to regain control or receive government compensation.
The IMF wants further amendments to the banking legislation by November.
After Kiev secured the deal, the central bank on Thursday cut its main interest rate to the lowest level since the country’s independence from the Soviet Union in 1991.
(Editing by Chizu Nomiyama)