IMF changes lending rules paving way for billions to Ukraine
The International Monetary Fund approved changes to its lending rules, enabling it to help countries facing exceptionally high uncertainty and opening the way for support to war-torn Ukraine that’s expected to be worth about $15 billion.
The changes apply in situations “involving exogenous shocks that are beyond the control of country authorities and the reach of their economic policies, and which generate larger than usual tail risks” and address key barriers to designing programs for these nations, the Washington-based lender said in a statement Friday.
In approving the changes to the financial-assurances policy, the executive board said that proceeding with a fund-supported program in cases of exceptionally high uncertainty “would require careful judgment about whether such a plan would be feasible and credible given its likely risk characteristics.”
The fund has traditionally only lent to countries that have a clear path for repaying the organization, to ensure its ability to keep lending to other nations. That has been in doubt for Ukraine since Russia’s invasion last year devastated its export economy and infrastructure, killing thousands of people and driving thousands more from their homes.
The fund is exploring a multiyear aid package for Ukraine worth as much as $15 billion to help cover the country’s needs and provide a catalyst for more international financing while Kyiv tries to repel Russian forces. An agreement would be the first time the IMF has offered a full-fledged loan program to a nation at war.
On March 15, the IMF said it would conclude talks for a loan to Ukraine “in coming days.”
Besides the change to the fund’s lending rules, a loan program would require endorsement from Group of Seven nations, Ukraine’s donors and creditors ensuring the sustainability of the country’s debt, and commitment from the government in Kyiv to a series of policies.
On March 16, Ukraine’s central bank kept interest rates on hold and unveiled measures to spur competition among local lenders, as the government closes in on an IMF deal.
Ukraine’s economy collapsed by about a third last year, wiping out the nation’s revenue base and forcing the government to rely on international aid. The government targeted as much as $38 billion from foreign donors this year to plug the gap, with a deficit amounting to some $3 billion a month.
Ukraine’s finance ministry planned on receiving $28 billion in grants and loans from the US and the European Union, with the rest coming from bilateral loans from other states and the IMF.
