Turn on the sound

IMF Loans & Economic Challenges: Western Sunrise in Ukraine

The International Monetary Fund released the third tranche of its loan to Ukraine this year, despite Russia’s objections. Why IMF support is important for Ukraine?


Hello this is Ukraine Calling. A weekly roundup of what’s been happening in Ukraine, with a focus on a main story. I’m Marko Suprun for Hromadske Radio in Kyiv, and here are the some of the main stories from Ukraine.  

The Foreign Secretary of the United Kingdom, Boris Johnson visited Hromadske Radio and made a statement about the relationship between the UK and Ukraine.

Borys Johnson: I’m very proud to be here in Ukraine on my first ever visit. The reason I wanted to come to Ukraine so soon after being made Foreign Secretary of Britain because I want to show my country’s passionate support for Ukraine.

And we in the United Kingdom are going to fight to make sure that we keep the pressure up and keep the sanctions on Russia that is responsible for aggression against this country. And we want to see a strong, free, democratic, sovereign Ukraine, with a European vocation. And it’s wonderful to be here and to see how much good the United Kingdom is doing. We’re training some of the Ukrainian military forces, which is very important. We’re also helping with a lot of the humanitarian work and of course we are contributing to the OSCE monitors. And helping also to make sure Ukraine embarks on a sustainable program of political and economic reform and stamps out corruption.

And I wish everybody in the Donbas region particularly, while I know how difficult things are at the moment, and I can tell you that all of us in Britain are hoping and praying the Minsk process will be successful.

And that there is a security solution: a withdrawal of the Russian forces, and of course that we get a democratic solution in that part of the country as well. Nobody could pretend this is going to be easy. But I am sure it can be done. And I want to everybody to know that Great Britain, the United Kingdom is here to help. Thank you everbody.

IMF tranche

The International Monetary Fund released the third tranche of its loan to Ukraine this year, despite Russia’s objections. This is the first time in its modern history that Ukraine has received a third tranche. The IMF decision opens the door to further financial assistance from the US and the EU, and will hopefully stimulate foreign investments. Later in the show we’ll provide in-depth commentary on why IMF support is important for Ukraine by Olen Bilan, Chief Economist at Dragon Capital.

Papalympics in Rio

Ukraine’s athletes are doing really well in the papalympics in Rio. Better than they ever have since Ukraine began competing. And this despite the fact that they lost their main training facility in Yevpatoria when Russia annexed Crimea in 2014. They are expected to place third overall. Andrey Demchuk, who won gold in sabre fencing dedicated his medal to Ukrainian soldiers fighting in the east of the country, saying that two of his friends have been killed fighting for Ukraine. Ukraine’s performance in Rio caught the attention of the BBC who ran a big story titled, «Ukraine’s Paralympic success: What’s the secret?»


According to Ukrainian spokesmen, there has been a slight decrease in the number of attacks against Ukraine, but their intensity is increasing. Over the past week 7 Ukrainian soldiers were killed and 18 wounded. The deadliest day was Tuesday, when 3 were killed and 15 wounded. There was an interesting report by MP DmytroTymchuk, who heads up the Information Resistance Group. He posted on his FB page that Russian military personnel are terminating their contracts to avoid fighting in the Donbas. 

Ukraine’s Interior Minister Arsen Avakov has come under scrutiny. Channel 24 TV reported that the new prosecutor General Yury Lutsenko will be opening a criminal case against the minister based on allegations of the Anti-Corruption Action Center, a civil society organization. The charges are linked to misappropriation of land outside the city of Kharkiv, where the Minister comes from.

Visa free travel

There was some good news for Ukrainians who enjoy traveling to EU countries. A number of media outlets reported that the EU is in the final stages of approving visa free travel for Ukrainians. This decision was expected by the end of the year. But this week both the Parliamentary speaker Andriy Parubiy and President Poroshenko made statements that they expect the positive decision by next month. 

Suprun: Today with me in the studio is Olena Bilan, the Chief Economist of Dragon Capital. Dragon Capital is one of the Ukraine’s leading groups of companies in the field of investment and financial services that brings comprehensive set of services in equities and fixed income sales, training and research, investment banking, private equity, asset management for institutional, corporate and private clients. Olena has been working for Dragon Capital for almost 10 years now. She joined Dragon capital in 2006 as an economist and fixed income analyst. She was promoted to the position of Chief Economist in 2009 taking charge of macroeconomic forecasting and analysis of economic developments, credit and currency markets in Ukraine. She was named one of the top three analysts in the Ukrainian financial markets by Thompson Reuters Extel survey of global institutional investors in 2013 and 2014. She graduated with a Masters in International Economics from the Kiev Mohyla Academy. Olena, thank you very much for joining us today.

Olena Bilan: Thank you for inviting me.

Suprun: One of the issues this week is the IMF tranche. That we are expecting or not expecting. Could you tell our listeners why Ukraine needs IMF support?

Olena Bilan: We are expecting that tranche very much because the previous tranche was disbursed more than a year ago in August last year. There was a huge delay. Usually IMF tranches come according to a quarterly schedule. Next tranche would come in three months after the previous one. But that tranche was delayed for various reasons. We had political crisis in Ukraine. We had discussions on the budge.Then time passed, the economic situation changed and then new round of negotiations started. So the country needs this tranche very much. It is not about the money. Ukrainian economic situation is much better than it was before. The economy has stabilized. The financial markets are stable and there are some initial signs of recovery. But the overall situation remains fragile because we still have military conflict with the Russian separatists in the east. There is no political resolution found to the conflict. It is calm now. It is absolutely safe in Kyiv and on more than 90% of the Ukraine’s territory but there is always a risk of some escalation that would definitely hit confidence and economic situation.

Suprun: You have mentioned the war in the East. I know many friends of mine worked with Dragon Capital and your fund was helping out with the war effort.

Olena Bilan: That is true. Many people are volunteering in different ways. My colleagues and myself we give money and medicine whatever we can.

Suprun: Could you tell us why it is important for IMF loans to continue?

Olena Bilan: Participation of Ukraine in IMF program is a strong signal to international investor community in indicating that Ukrainian authorities are doing good work in putting economy on the right track of the sustainable growth path, to overcome the crisis, restructure the economy, and implement reforms. Reforms are very important  to be able  to escape the legacy of the Soviet Union and the previous oligarchic structure of the economy. We are definitely happy to receive the funding but what’s really important is to remain in the program and continue with the reforms according to commitments made by the government.

Suprun: You said that that this memorandum between Ukraine and IMF has been subsequently changed?

Olena Bilan: Overall, main direction of the reforms will remain the same in  the energy sector, fiscal sector, banking sector, state owned enterprises, and big anticorruption component.

Suprun: Indeed the last memorandum had a notion of increased tariffs.  Regarding the gas and central heating retail prices the increase was 285% and 67% respectively. That brings me to this interesting issue that raising tariffs and pension age is part of the memorandum.

Olena Bilan: The tariffs are clearly part of the memorandum. I am not sure of the pension age but some element of the pension reform will be also included in the memorandum. If whether it will be related to a pension age or other measures is not clear yet. Regarding the gas tariffs I would like to stress that Ukraine has increased gas tariffs dramatically. The 285% increase is only the first step. If you look at the tariffs two years ago, they were at $17 for 1000 cubic meters of gas. Now it is 11 times higher. You can imagine that in almost 3 years the increase was 11 times.

Suprun: Isn’t this put a lot of stress on the country and the people who live in the country?

Olena Bilan: That is true. Definitely there is a short term negative impact on the population and households but this is mitigated by quite generous subsidies to the poor. This is very important because low prices means that everyone was subsidized including very rich people. We have many reach people in Ukraine. They do not show the real income. In reality some people were heating their pools outdoor pools with gas and paid this very low price. Definitely this is not the role of the state to subsidize these rich people. Now there is more targeted subsidization directed to those who are really in need.

Suprun: So the subsidies will not be “blanket” subsidies in Ukraine.

Olena Bilan: Not anymore. They will be targeted and based on income and on the share of utilities bill in the income. If it is very high, the part of the utility bill will be compensated and is currently compensated by the state.

Suprun: This is interesting. I spoke with some insiders in the Rada last week and they said that Ukrainian budget requires a 120 billion of hryvnas to cover the subsidies, which is about 20 billion hryvnas more than the budget for the Ministry of Defense.  There is a fear that there will be “taryfnyimaidan” in the fall. Do you see this happening?

Olena Bilan: I would like to see the estimates and calculations behind the numbers. As now you can say any numbers in order to generate some headlines. So far what was budgeted for this year is 40 billion hryvnas, which seems enough to cover this year subsidies.  Maybe there will be some small increase when we will see who will apply. I do not think it is really 100 billion.

Suprun: So these numbers are often used as a political football to start fears that the crisis is coming may be in fact artificial?

Olena Bilan: I do not know. I would like to see some estimates. That is what our community is missing. Someone gives a number, it appears  and it is not supported by proper calculations.

Suprun: Do you expect any political risks to these reforms that are coming?

Olena Bilan: Increase in tariffs has been already done. This was a very unpopular but very important step to improve the public finances. Ukraine really did a very good job in consolidating the budget, in reducing the deficit. You cannot imagine in 2014 the  budget deficit was 10% of GDP. Last year it was already 2% OF GDP. Partially it is thanks to the gas tariff increase. It was very important for the future of the economy and its growth, and for overall economic stability.

Suprun: So it is a part of energy independence program…

Olena Bilan:Yes, it is. It would definitely help to reduce gas consumption. Because people will think very carefully whether they really want to use gas and to keep temperature very high in their houses.

Suprun: Interesting. Often you can see in wintertime in Kyiv people always have their windows open.  

Olena Bilan: Kyiv and large cities are really a problem. Because in large cities we have central hitting which is very difficult to adjust in your individual apartment. Many people who use gas have individual hitting system. Those that live in suburbs and some small towns live in individual houses they have individual hitting system they can really use as much gas as they need.

Suprun: So the memorandum with IMF is on the road of modernization and would  bring Ukraine closer to the 21st century.

Olena Bilan:The important part of memorandum is a macroeconomic stabilization.  Another part is called the Extended Fund Facility and it is on much longer term. One of its structural components is anticorruption initiative. That is what would make Ukrainian economy stronger and would help to recover quicker.

Suprun: Pat of me wonders. This is clearly a loan. This means it had to be paid back. What are some of the conditions of the term of the loan?

Olena Bilan: It is not typical IMF Program. It is a long term program. The first payment, if I am not mistaken, will be paid in 5 years after the first disbursement came. It is quite extended over time. The interest rate is below 3%. For Ukraine which has its sovereign Eurobond traded at 8% at the moment it is a source of very cheap financing.

Suprun: I did not know that.

Olena Bilan: The yield compressed quite substantially over the last months. Ukraine has quite high yield. This is a reflection of absence of IMF tranche for a long time. There is still some  uncertainty about the economy and the conflict in the east…

Suprun: How closely the exchange rate is linked to the IMF program? I remember in the former document the exchange rate was 20 to 1.Today it is 26 to 1. Would receiving the loan stabilize the currency?

Olena Bilan:The currency has already stabilized. It was 25 several weeks ago. Now it is close to 27. This was kind of expected. Usually we have some pressure on devaluation of currency in the end of summer-beginning of fall. IMF recommends and advocates for Ukraine  is to have flexible exchange regime. Do not fix the currency. Ukraine had a pegged exchange regime for many years. Foe the structure of the economy it did not worked very well. We always had a period of stability and then an economic crisis because the pegged exchange rate created an illusion of stability. It distorted how people behaved.  Many people underestimate the risk of exchange rate fluctuation. They prefer all operations in foreign currency. They do not take an account the exchange rate risk. Now the Central Bank is moving from pegged exchange rate system to inflation targeting which is very popular monitor policy regime adopted in many countries. It means that an exchange rate will not be stable, it will be moving but the Central Bank would step in to confront extreme movements in the currency.

Suprun: When the exchange rate was falling to 26-27 how do you think Ukraine will be able to pay some of the subsidies? What is your projection of the currency in 5 years?

Olena Bilan: The current level is close to fundamentally justified level. Ukraine now runs very small trade deficit, close to zero. There is no major overvaluation of the currency.

Suprun: Essentially economically things are looking good…

Olena Bilan: Yes, but it depends if we will have an external shock or not.

Suprun: Such as a war with Russia.

Olena Bilan: The escalation of the conflict… I do not see us on the brink of war. I do not see this. For Russia it is quite expensive. Plus potential geopolitical cost and cost to the domestic politics But escalation of the conflict is still not off the charts. This might be an external shock. Ukraine is also a commodity-based economy. About 60% of all the goods we export are commodities such as steel or grain. An adverse move in prices may trigger the turbulence and affect the markets .

Suprun:Minister Danyliuk says that even without the tranche Ukraine has resources and tools to stabilize the economy. Do you think it is possible?

Olena Bilan: Ukraine does not need money as much as it needs a signal. Working without extra funding for some period of time, not forever, would be possible for Ukraine to survive for another several months, maybe for a year.  But it is much better for the country to get this financing, to get IMF on board, and to send a signal to the rest of the world that we are moving forward in terms the reforms.

Suprun: Thank you very much Olena for joining us.

Olena Bilan: Thank you!


This is a week of openings in Ukraine. The 23rd Annual L’viv Book Forum opens on Thursday the 15th. So does an Exhibit called BabynYar in Kyiv’s History Museum. This begins a series of events commemorating the 75th anniversary of the tragic events which will be held in Kyiv for the rest of the month. On Friday the 16th Gogolfest opens in Kyivm a festival of music, theatre, art, cabaret, food, lectures, film and more. This year it’s at the trendy Art Factory Platform. We’ll post links to all these openings on Ukraine Calling’s website. And here’s a song for you, «De Ty Buv?» which means «Where Were You?» by a new Kyiv band, Frau Marla. It’s sort of like a contemporary Ukrainian version of the 1960’s classic, «I Will Survive». 


On Monday Russians go to the polls to elect a new DUMA, which is what their parliament is called. Elections are also due to be held in Crimea, which has been under Russian occupation since it annexed the peninsula in spring 2014.

According her campaign, Hillary Clinton is planning to meet with Ukraine’s President Poroshenko next week during the United Nations General Assembly meeting in New York. 

Ukraine Calling will be watching these and other stories. Tune in next weekend for a new episode of Ukraine Calling. If you have any suggestions or comments, please write to the show at: [email protected].

I’m Marko Suprun in Kyiv. Thanks for listening.



May Be Interesting

Chairman of the DEJURE Foundation: Rule of law, anti-corruption reforms and democracy building under missiles flying in Ukraine

Chairman of the DEJURE Foundation: Rule of law, anti-corruption reforms and democracy building under missiles flying in Ukraine