IMF Loan No Guarantee Of Stability
BMI View: While the approval of a USD17 .0 bn Stand-By Arrangement from the IMF (including USD3.2bn for immediate disbursal) is positive for Ukraine's near-term debt servicing prospects, we remain sceptical that the interim government will be able to accomplish the IMF required reforms given the considerable political challenges facing the country.
The IMF approved a USD17.0bn two-year Stand-By Arrangement (SBA) for Ukraine on April 30, with USD3.2bn to be disbursed immediately. This is broadly in line with our expectations for a small up-front payment to be distributed in order for Ukraine to meet its financing obligations over the next three months ( see 'In Urgent Need Of External Financial Aid', 6 March 2014).
While positive for solvency over the coming quarter, the SBA falls short of our estimates for Ukraine's external financing needs in 2014, which we place at around USD20bn alone (the IMF payments will be spread over two years). It is possible that the recent devaluation in the hryvnia to UAH11.5/USD will narrow the current account deficit beyond our baseline forecasts as imports collapse, reducing the hard currency requirement. However, by our estimates a devaluation to UAH12.0/USD would push up the government debt/GDP ratio by around 6.2 percentage points, to 49.1% of GDP (excluding the latest tranche of IMF SBA debt).
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