What does the IMF expect from Ukraine? Interview with the Director of the European Department of the IMF

The new IMF program for Ukraine will provide greater predictability regarding the receipt of funds from international donors and, unlike last year, will avoid decisions related to delays. Alfred Kemmer, director of the European Department of the IMF, said this. As NBU Chairman Andriy Pishnyi said earlier in an interview, last year international donors allocated significant support to Ukraine, but due to the irregularity of revenues, the National Bank was forced to print money for the budget, which is a toxic policy.

Now the Fund is convinced: the new aid gives confidence both to donors and to Ukraine. At the same time, the IMF program contains important requirements that, at the first stage, relate to the reform of corporate governance and overcoming corruption. The program contains 19 conditions for providing funds, and its first review is scheduled for June.

In an interview with Voice of America Ukrainian Service journalist Oksana Bedratenko, Kemmer spoke about whether Ukraine will be able to stick to the program, which the IMF heard at meetings with Ukrainian officials in Washington during the World Bank and IMF meetings last week, as well as about forecasts for the Russian economy. .

The interview has been edited for clarity and flow

Oksana Bedratenko, Voice of America: The IMF recently announced a new package for Ukraine. How unusual is this kind of support for a country at war?

Alfred Kemmer, Director of the European Department of the IMF: First of all, I would like to note that the volume of the package is $115 billion. This is important. The IMF’s contribution to this package is $15.6 billion. Why do I distinguish it? Because this is a four-year program. We are preparing to finance macro-stability of Ukraine for four years. This program mobilizes donors’ expectations regarding the receipt of funds.

As you know, last year there was extraordinary donor support and IMF funding for Ukraine, but there was no framework program, so it made it difficult for donors to provide funds and for Ukrainian government officials to make decisions, because there was always uncertainty about when the funds would come. Now there is stability, there is a framework program and associated funding that the country can rely on.

OB: Regarding donor coordination. The memorandum with the IMF has certain conditions. Will the provision of funds through the World Bank also depend on Ukraine fulfilling these conditions?

A.K.: First of all, I want to say that this is a program of Ukraine. Ukraine wants to achieve macro stability. Among the aspects we are focusing on in the first part of the program is continued progress in corporate governance standards and the fight against corruption. This is what Ukraine wants.

The second part of the program is the deepening of structural and institutional reforms to create growth in the medium term and help Ukraine’s accession to the EU. This is what Ukraine wants and we support it.

As for other donors, as partners of Ukraine, they will provide financing. They will also support the constituent programs of the Ukrainian government to help them achieve macro-stability, stimulate growth in the medium term, rebuild the country and, ultimately, on the path to the EU.​

ABOUT.: The first viewing of the program is already in June. It’s very soon. You spoke with the Ukrainian delegation. What have you heard from them? Are you sure that Ukraine will be able to pass the first review of the program?

A.K.: I am happy to say that our relationship did not begin during the program. Last year, we communicated closely with the National Bank, the Ministry of Finance and other ministries, in particular on the development of the program. And last year we saw that government officials are very committed, they are ready to do the right thing and they need the tools to do it.

Now, in our discussions, we have seen the commitment of the National Bank to make the program work, to achieve their goals and to receive funding from donors. I saw deep devotion. I also saw that the coordination between the different agencies would be greatly improved with the new formal program. We saw that in the four-month program that came before this, and it will continue. The revisions will also make it possible to adapt the program if necessary, not only with regard to the implementation of reforms. It is also useful in conditions of extreme uncertainty for Ukrainian government officials.

OB: During our last interview in the autumn at the meetings of the IMF and the World Bank, we talked about the risks for Europe from Russia’s war against Ukraine in terms of energy, agriculture, and the migration crisis. Winter has passed, and can we say that Europe has coped with this test?

A.K.: First, the humanitarian impact on Ukraine is devastating and, unfortunately, it continues. I think we should always keep this in mind when we talk about maintaining economic stability, no matter what happens.

As for Europe, we can see that the Russian invasion of Ukraine had a significant impact on the economy, which was quickly recovering from the pandemic. It stopped. We see a sharp slowdown in 2023 – and this is the result of war.

You are talking about the reduction of Russian gas supplies to Europe. Governments in Europe took decisive steps not to enter the winter in a deep recession and they succeeded. Now they are taking action again. They used to help reduce the cost of living, now they have to focus on inflation to deal with the impact of the war. European government officials are working hard to overcome these effects, and we expect accelerated growth in 2023 and even stronger growth in 2024.

ABOUT.: Russia estimated its GDP to have fallen by just over 2% last year, a year of war. How transparent and reliable are Russian statistics?

A.K.: When we evaluate Russian statistics, we always rely on state data, but not only on them, we look at the data of partner countries, at the indicators of third parties. We try to make sure that this information is relevant, and we base our diagnosis and forecasts on this. Our institution is based on facts, we are objective and try to be impartial in our forecasts. This is a very honest job and I would say that we sincerely strive to make the best assessment of the Russian economy.

Last year, according to our estimates, it (the Russian economy – ed.) was supported by the rise in commodity prices, and exports held up, so there was a surplus of the current account of the balance of payments – $230 billion. This year it will no longer be the case. Due to lower prices and reduced volumes, the current account surplus will shrink to $75 billion, as will budget revenues from oil and gas sales. There will be pressure on the budget to keep revenues that are growing. It started last year. This increase in spending last year is also responsible for a better economic situation than we expected. And a certain push is still going on.

However, in general, when it comes to the Russian economy, it is largely cut off from many other countries, and this will have long-term consequences. We expect Russian GDP to grow by 7 percentage points less through 2027 than it could have. More importantly, we estimate that potential growth will slow to less than 1%.

This means that Russian incomes will no longer go in the same direction as Western incomes, but will diverge. Therefore, we see how the long-term consequences are manifested, which will be very difficult to overcome.