Is there life without IMF tranche

18:00, 15 July 2016
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Opinion

If MPs do not take the required laws by July 15, there will probably be no IMF tranche. Over the past two years, the Fund has been very loyal to Ukraine, but such loyalty has its bureaucratic limit: if the memorandum is not fulfilled, the borrower gets no money. However, it’s up to the IMF to have a final say. I believe the Board will assess the situation based on the bills, on which the Fund insisted, rather than those proposed to be included in the memorandum as conditions by the Ukrainian side.

In my view, in the first half of 2016, Ukraine reached the bottom of its crisis, while statistics on industrial production for five months (+ 3.1%) indicates that the recovery processes are ongoing in the Ukrainian industry. The central bank’s lowering of its key rate against a background of liquidity optimization processes should revive the domestic market. But overall growth will depend on the developments in Ukraine’s foreign export markets. So far the situation in these markets carries no significant risks for Ukraine.

Therefore, the Ukrainian economy will not be affected within a two-three-month period whether the IMF tranche is allocated or not. Of course, such allocation would have a psychological effect and speed up the filling of foreign reserves, which would probably increase the level of financial stability and confidence of foreign investors in Ukraine. It is important for the assistance from the World Bank and EBRD to be unlocked. Cooperation with EBRD is of a particular value, as funds from its projects go to Ukraine’s real sector.

The Ukrainian economy will not be affected within a two-three-month period whether the IMF tranche is allocated or not

And finally, I would like everyone to understand now that these days, Ukraine has significant incentives for development even without the IMF’s money.

1. Export potential. The situation in commodity markets is evolving according to a script totally different from the one earlier followed by The U.S. Federal Reserve and the largest U.S. investment banks. The market of iron ore and rolled steel began to revive despite all odds this spring, and prices rose, but this growth stopped in the summer, and the market awaits stimulating measures from the government of China.

Ukraine has significant incentives for development even without the IMF’s money

2. Attractiveness to foreign investors, formed under the influence of low labor cost and the start of the implementation of the Ukraine-EU Association Agreement. Few people noticed, but the country has already started a wave of projects with foreign investments: construction of a tea factory in Kyiv, setting up production for a Japanese corporation in Lviv, expanding a bank of land for agricultural investments – this is just how a classical mechanism of recovery unfolds, but unfortunately, it does so very slowly.

3. The grain harvest expected to yield 60 million tonnes in 2016 promises to become a record breaker, catalyzing domestic market and exports.

Therefore, Ukraine needs IMF money only for confidence and as a safety net. If this money comes in, it is good, but if it doesn’t – there will be no major disaster given the current situation.

Vitaliy Shapran is a member of the executive committee of the Ukrainian Society of Financial Analysts

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