Govt requests IMF to relax Covid spending ceiling by $2b - The Correspondent

Ukraine aims to strike a deal for a $15-$20 billion programme with the International Monetary Fund before year-end to help shore up its war-torn economy, the country’s central bank governor Kyrylo Shevchenko told Reuters.

Battered by Russia’s invasion launched on Feb. 24, Ukraine faces a 35%-45% economic contraction in 2022 and a monthly fiscal shortfall of $5 billion and is heavily reliant on foreign financing from its Western partners.

Shevchenko, 49, speaking during his visit to London, also said he hoped to agree on a swap line with the Bank of England “within weeks”, though he did not specify the amount.

Kyiv had already submitted its request to the IMF, the governor said, and was now in consultation with the fund over the new financing that he hoped would provide as much as $20 billion over two or three years in form of a Stand-By Arrangement (SBA) or an Extended Fund Facility (EFF).

It was the first time Ukraine has put a number on the fresh financing it needs from the Washington-based lender. A $20 billion programme would be the second largest currently active loan from the IMF after Argentina.

“The IMF has always acted as Ukraine’s partner during the war,” Shevchenko told Reuters. “My hope is to start the programme this year.”

The central bank chief said a new program should provide measures that will help stabilize the economy.

That could ensure a return to pre-war conditions, such as a flexible exchange rate, no limits on the currency market, decreasing non-performing loans in the banking sector and a balanced fiscal policy.

The IMF’s latest loan to Ukraine was a $1.4 billion emergency financing support agreed in March – the equivalent of 50% of the country’s quota in the fund. Separately, Kyiv is now in talks with its international creditors over a freeze in debt payments to ease its liquidity crunch.

On Tuesday, Ukrainian energy firm Naftogaz has become the country’s first government entity to default since the start of the Russian invasion. “I hope that Naftogaz, together with the ministry of finance of Ukraine, that they will find a solution,” said Shevchenko.

“The consequences (of the default) will be solely relating to Naftogaz.”

Grain deal

Ukraine’s central bank has a $1 billion line with Poland’s central bank already.

Some relief on foreign exchange revenue and liquidity would also come from the deal agreed last week between Moscow and Kyiv to allow safe passage for grain shipments in and out of Ukrainian ports, blockaded by Russia since its invasion.

However, those revenues and shipments would only pick up in earnest next year, when under the central bank’s “conservative” estimates exports could hit 5 million tonnes per month and generate approximately $5 billion in 2023, Shevchenko said.

Speaking about the central bank’s intervention in currency markets as well as its bond buying programme, Shevchenko said both would continue for now, though the latter would cease as soon as the war ended.

“To provide monetary financing was the most painful decision in my life, but we did realize it was necessary during the war,” said Shevchenko.

He added that operating in times of war had seen a whole new host of vocabulary spring up, with expressions such as “maturity of war” – a term to describe the time frame of a debt instrument used in the context of the conflict.

“We see (this) as one of the biggest uncertainties,” he said. “Until the end of war, we and the Ministry of Finance should work together to overcome all these challenges, using the monetary finances and the internal debt market.”

Ready to help Bangladesh

The International Monetary Fund (IMF) said on Wednesday it would discuss with Bangladesh its loan request after the country became the third in South Asia to seek such support after Pakistan and Sri Lanka.

Bangladesh’s $416 billion economy has been one of the fastest-growing in the world for years, but rising energy and food prices because of the Russia-Ukraine war have inflated its import bill and the current account deficit.

The IMF said Bangladesh was interested in its new Resilience and Sustainability Facility aimed at helping countries face climate-change challenges and had also requested negotiations for an “accompanying IMF programme”.

“The IMF stands ready to support Bangladesh, and the staff will engage with the authorities on program design as per the established policies and procedures of the Fund,” an IMF spokesperson said. “The amount of support will be part of the program design discussions.”

Earlier in the day, Bangladesh’s finance minister told reporters the government would take an IMF loan only if conditions are favourable and said the country’s macroeconomic conditions were fine.

“If the IMF conditions are in favour of the country and compatible with our development policy, we’ll go for it, otherwise not,” Minister A.H.M. Mustafa Kamal said. “Seeking a loan from the IMF does not mean Bangladesh’s economy is in bad shape.” The IMF’s resilience and sustainability trust caps funds at 150% of a country’s quota or, in Bangladesh’s case, a maximum of $1 billion.

Bangladesh’s Daily Star newspaper reported on Tuesday that overall, the country wanted $4.5 billion from the IMF, including for budgetary and balance-of-payment support.

The country’s economic mainstay is its export-oriented garments industry, which is bracing for a slowdown as key customers like Walmart are saddled with backlog as inflation forces people to prioritise essentials.

After garments, remittances are the second highest source of foreign currency for Bangladesh, a country of nearly 170 million people.

Its foreign exchange reserves fell to $39.67 billion as of July 20 – sufficient for just over five months worth of imports – from $45.5 billion a year earlier.

Its July to May current account deficit was $17.2 billion, compared with a deficit of $2.78 billion in the year-earlier period, as its trade deficit widened and remittances fell.


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