How war-torn Ukraine clinched $15.6 billion loan package from the IMF

The International Monetary Fund (IMF) has reached a staff-level agreement with Ukraine for a $15.6 billion financial package. This has made Ukraine the first nation at war to win a loan from the organisation. The IMF has said its executive board is expected to discuss approval for the loan programme in the coming weeks. What would IMF’s loan for Ukraine entail and how did the war-torn nation secure the funds even as other economic crisis-afflicted countries struggled to obtain bailouts? How will the package assist Ukraine? We explain. IMF’s loan for Ukraine The four-year loan programme has been divided into two phases. As per IMF’s statement, in the first phase, lasting 12-18 months, Ukraine will take steps to “strengthen fiscal, external, price and financial stability,” including eliminating monetary financing. The second phase “would shift focus to more expansive reforms to entrench macroeconomic stability, support recovery and early reconstruction, and enhance resilience and higher long-term growth, including in the context of Ukraine’s EU (European Union) accession goals,” the lender said in the statement. “During the second phase, Ukraine would be expected to revert to pre-war policy frameworks, including a flexible exchange rate and inflation targeting regime”, it added. [caption id=“attachment_12334632” align=“alignnone” width=“640”] Since last March, the IMF has already provided $2.7 billion to Kyiv through two emergency loans. Reuters (Representational Image)[/caption] If approved, this would be IMF’s biggest loan to a country actively embroiled in a war. As per an Al Jazeera source, IMF staff informed board members of the deal on Tuesday (21 March) who were “supportive”. “Russia’s invasion of Ukraine continues to have a devastating impact on the economy: activity contracted by 30 percent in 2022, a large share of the capital stock has been destroyed, and poverty levels have climbed,” IMF official Gavin Gray said in a statement, as per BBC. “The programme has been designed in line with the new fund’s policy on lending under exceptionally high uncertainty, and strong financing assurances are expected from donors, including the G7 and EU.” Since last March, the IMF has already provided $2.7 billion to Kyiv through two emergency loans, as per The Wall Street Journal. IMF changes policy

The IMF’s staff-level agreement comes days after the organisation changed rules that would allow it to grant funds to countries facing “exceptionally high uncertainty”.

On 17 March, the multilateral lender said in a statement that the amendment to financing assurances policy would apply to countries experiencing “exogenous shocks that are beyond the control of country authorities and the reach of their economic policies”. Before this, the IMF – which helps countries hit by financial crises – did not have rules to allow non-emergency loans for countries tackling massive uncertainties, such as war or multiple natural disasters in a year induced by climate change, noted Reuters. How does the IMF fund countries?  As per the Fund website, its resources come from the “capital subscription (quotas)” that nations pay when they become members. This quota is different for members and is based on each country’s “relative position in the world economy”. It is from this coffer that the lender provides loans to members struggling with economic crises, such as the inability to pay foreign debt and depleting foreign exchange reserves. Currently, the IMF has 190 countries as its members.

The United States is the largest shareholder of the IMF.

After a member nation requests the IMF for a loan, that country’s government and the lender’s staff then hold talks to discuss its financial needs and situation. Before the IMF lends money, it asks the country to undertake certain actions related to economic policies. Once an agreement is reached, then the approval of the IMF’s executive board is sought. After the board sanctions a loan, the IMF then gradually releases the funds and also monitors how the country is implementing the economic measures. Was the IMF loan approval easier for Ukraine? Kyiv had started talks with the IMF for a full loan programme last June and reached a non-cash deal for four months in an intermediary stage in December, as per Bloomberg. Financial Times reported in early February that Ukraine’s allies are putting pressure on the global lender to finalise the multibillion-dollar lending programme. The US, which has emerged as the biggest financial contributor to Ukraine since Russia invaded the European nation last February, had also been pushing the IMF to quickly clear financial assistance to Ukraine. “Treasury is encouraging the IMF and Ukraine to work together expeditiously toward agreeing on a programme,” the US Treasury said earlier this year, as per Financial Times. The Wall Street Journal noted that before the war began, Ukraine faced problems with the IMF and other lenders in securing loans over concerns about corruption and its non-transparent economy. Since last October, Kyiv has been working with the IMF under an economic policy monitoring programme that is aimed at wooing donors. Moreover, this ease in expected loan approval for Ukraine stands in contrast with the delays witnessed by financial crises-burdened Sri Lanka and Pakistan. After months of talks with the IMF, Sri Lanka has received the first tranche of a nearly $3 billion IMF bailout programme, President Ranil Wickremesinghe told parliament today (22 March). [caption id=“attachment_12334642” align=“alignnone” width=“640”] Sri Lanka has finally received the first tranche of a nearly $3 billion IMF bailout programme. Reuters[/caption] The crisis-ridden island nation had first started talks with the IMF for a bailout last June. After the discussions failed to materialise, a second round of talks commenced in August. Last September, the IMF reached a staff-level agreement to pay a $2.9 billion loan package over four years to Sri Lanka. After assurances from Sri Lanka’s creditors, the IMF executive board finally gave its nod for the loan on 20 March. Meanwhile, Pakistan continues to struggle in securing a crucial IMF bailout package. Last week, the Pakistan government said the multilateral lender first wants “friendly” nations to fund the cash-strapped country before it green lits the $6.5 billion bailout programme. “This has led to a delay in concluding talks with the IMF for the programme,” Pakistan finance minister Ishaq Dar said. “Certain countries had made pledges to support Pakistan during the IMF’s review and it is asking they should actually complete and materialise those commitments,” he told the lower house last Thursday, as per Bloomberg.  Cash-strapped Pakistan is awaiting a $1.1 billion tranche of funding from the global lender. It is a part of the bailout programme started in 2019 by then-Prime Minister Imran Khan. The current negotiations over the much-needed $1.1 billion tranche have repeatedly gone off course. Even as many acknowledge IMF’s role as a “financial firefighter”, critics have pointed out how its bailout conditions do not match with the ground realities of the nations, as per Council on Foreign Relations (CFR) think tank. The IMF has also been called out over its policies in poor countries. In his 2002 book, Globalization and Its Discontents, Nobel Prize-winning economist Joseph Stiglitz argued that the economic reforms set as lending conditions by the IMF – privatisation of state enterprises, fiscal austerity, high interest rates, open capital markets – have many times been “counterproductive” for target countries and had a “devastating” impact on the local population, according to the CFR article. How will the IMF loan help Ukraine? The IMF loan is expected to aid war-torn Ukraine in bolstering government finances as well as assuring its allies that Kyiv is following strong economic policies, noted Associated Press (AP). Ukraine’s finance ministry said Wednesday that the loan programme will “help to mobilise financing from Ukraine’s international partners, as well as to maintain macrofinancial stability and ensure the path to post-war reconstruction after Ukrainian victory in the war against the aggressor.” Gray, the IMF’s mission chief for Ukraine, said the package “is expected to help mobilise large-scale concessional financing from Ukraine’s international donors and partners over the duration of the programme,” reported AP. Ukraine’s economy shrunk by around 30 per cent in 2022, resulting in a large budget deficit. The US, the European Union and other allies of Ukraine have helped the war-ravaged nation to overcome its financial woes, with Kyiv being able to end its reliance on money printed by the central bank. US Treasury Secretary Janet Yellen, who had pushed the IMF for months to move forward with the financial programme, has also welcomed the announcement. “An ambitious and appropriately conditioned IMF programme is critical to underpin Ukraine’s reform efforts, including to strengthen good governance and address risks of corruption, and provide much needed financial support,” she said in a statement, as per Al Jazeera. Ukrainian prime minister Denys Shmyhal said the IMF loan would support the government to “finance all critical expenditure and ensure macroeconomic stability and strengthen our interaction with other international partners”. With inputs from agencies Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.