MBS Blog

This will come as no surprise to people living and working here, but the International Monetary Fund sees greater economic decline than it had projected earlier. The real concern…spoken in hushed tones by businessmen here…is that things may not really improve until the political situation does. The upcoming elections could help, but real reforms will be slow in coming and that may keep Ukraine in an economic funk long after other emerging markets recover.

IMF Sees Sharper Downturn in Ukraine, Budget Strain Amid Crisis

By Kateryna Choursina and Timothy R. Homan

June 18 (Bloomberg) — The International Monetary Fund will likely change its forecast for an 8 percent economic contraction in Ukraine to a sharper decline, an IMF spokeswoman said.

“We do foresee a sharper-than-expected contraction,” Caroline Atkinson, director of external relations at the IMF, told reporters today in Washington, adding that the numbers are still being worked out. “Obviously we are looking at the strains of the budget from the deeper contraction and from the continued financing need of Naftogaz.”

The global economic turmoil forced Ukraine, like other emerging markets, to seek assistance from the IMF last year to prop up its financial system and currency. Moreover, the Ukrainian government said this week it will increase the capital of state-run energy company NAK Naftogaz Ukrainy as it seeks funds to pay for natural gas to be stored over the summer.

Of the $16.5 billion the IMF has allocated to help Ukraine, the first $4.5 billion tranche was received in November and the second $2.8 billion in May.

The IMF originally planned a third payment of $2.8 billion, which Prime Minister Yulia Timoshenko has said can be $3.2 billion. To qualify for that installment, Ukraine needs to stabilize its troubled lenders.

The use of third tranche specifically to bolster Ukraine’s budget “is quite possible,” the IMF’s Atkinson said.

An IMF mission is scheduled to depart for Ukraine next week, she said.

(from www.bloomberg.com)