IMF releases $3.3 billion loan installment to Ukraine

The International Monetary Fund has approved the release of a $3.3 billion loan installment to Ukraine, bringing the total extended so far to about $10.9 billion, the IMF said in a statement.

The money was the third tranche under an agreement that calls for a total of $16.4 billion in loans to the country after the government pledged to cut spending, raised gas prices and amended a bank rescue plan. Prime Minister Yulia Timoshenko said the country will use $1.9 billion to repay foreign debt.  

“Financial stress has eased in recent months and Ukraine’s current account is adjusting rapidly,” John Lipsky, first deputy managing director at the IMF, said in a statement. He added that “the fall in output is more pronounced than expected, which has necessitated further significant policy adjustments.”

Collapsing demand for Ukrainian products such as steel, a slumping currency and a wave of bank failures have forced the nation to join the countries, including neighboring Hungary and Romania, to seek assistance from the IMF. The first payment was released in November and the second in May, almost three months later than expected, because of disputes over state spending.

An IMF mission in the capital Kiev, led by Ceyla Pazarbasioglu, earlier this month recommended the board to increase the third loan release to $3.3 billion, up from the $2.8 billion originally planned, after Ukraine bailed out three troubled lenders in June.

“Restoring confidence in the banking system, which is essential to facilitate the economic recovery, remains a key priority,” Lipsky said in the statement.

Ukrainian lawmakers on July 24 approved changes to bank bailout procedures, which the IMF said will “help enhance confidence and promote the sustainable development of the banking sector.”