ENP Newswire -
Release date- 02092014 -
In an interview shortly after the IMF's first review of
Last April Ukraine unveiled a comprehensive program of economic reforms which was backed by a
The loan, under a two-year Stand-By Arrangement, backs a policy program that aims to restore macroeconomic stability, promote sustainable growth, and strengthen economic governance and transparency.
Thomsen: Program policies have generally been implemented as planned, as the authorities have persisted in taking difficult and sometimes socially challenging measures despite the extremely volatile political situation. In view of implementation slippages that marred previous Fund-supported programs with
And unfortunately, the economic environment has become much more challenging than envisaged at the time of the program approval. In fact a number of risks have already materialized, including an intensification of the conflict in the eastern part of the country and an escalation of the gas price and arrears dispute between
In light of these challenges, key program targets for end-2014 and beyond have been revised. In fact, some temporary deviations from the initial program targets will be accommodated, while compensatory measures related to foreign exchange market purchases, fiscal measures, and Naftogaz bill collections will also be put in place to ensure that key program objectives are met.
Thomsen: The program is faced with major uncertainties related to the conflict. We are assuming that that the conflict will begin to subside in the coming months. But the balance of risks appears to be tilted to the downside. If this assumption does not hold, we would have to reconsider elements of the program strategy, and the program's viability could hinge on larger assistance from
Thomsen: In light of the challenging economic prospects in the short term, the program's fiscal strategy has been rebalanced allowing for a larger budget deficit this year to accommodate the temporary loss of revenue caused by the conflict and avoid undue economic and social hardship. Nonetheless, staying the course of fiscal adjustment in 2015 and beyond is necessary in view of the deteriorating debt dynamics and the significant financing constraints. Over the program period, the targeted structural adjustment over 2014-16 is now stronger than the one envisaged at the time of the program request.
The program has also taken a more conservative stance toward potential fiscal costs stemming from the financial sector and Naftogaz. It now envisages higher potential bank restructuring costs and larger support for Naftogaz to cover its increased deficit and repay external liabilities. These revised fiscal outlays will add to general government debt in 2014-15. Despite the higher outlays,
Thomsen: The success of the program critically depends on the government's ability to make a decisive break with a past riddled with weak governance, widespread corruption, and abysmal business climate. So far, notwithstanding some pushback from special interest groups, the new government has been determined to achieve this objective.
Specifically, in consultation with IMF staff, the government conducted a diagnostic study on governance issues to identify areas for reforms, focusing on tackling corruption and improving the business climate and the effectiveness of the judiciary. Following through with the plans to create an effective anti-corruption agency and strengthen the anti-money laundering framework, as well as steps to simplify the regulatory environment for business activity will be a critical test of the authorities' willingness to address these issues. Over the course of the program, further structural reforms (supported by the IMF and other international partners) will be introduced, as priorities shift from economic stabilization toward raising potential growth.
While the situation in
Most Popular Stories
- U.S. Families 'Extraordinarily Vulnerable': Yellen
- Hillary Clinton to Address CHCI Conference
- Larry Ellison Steps Down as Oracle CEO
- Alibaba Prices IPO at $68 a Share
- Apple Locks Itself Out of Devices
- Veterans to Get Training as Solar Panel Installers
- Hispanics Doubt Marco Rubio's Chances
- Wildfires Rage in California
- John Cantlie Delivers ISIS Message to Save Life
- Alibaba: Today China, Tomorrow the World