UKRAINE - A mission from the International Monetary Fund (IMF) confirmed it has recommended the second tranche of a loan should be paid to Ukraine following the implementation of budget reforms which include the balancing of the state pension fund.

Ceyla Pazarbasioglu, head of the IMF mission, announced it had reached staff-level agreement with the Ukrainian authorities on the first review of the country’s two-year Stand-By-Arrangement and proposed the IMF disburse the second and third tranches of the loan in equal instalments of $2.8bn (€2.16bn).

She said: “Ukraine’s economy continues to be severely affected by the global crisis. However, there are a number of encouraging signs that the economy has started to adjust to the large shocks. Following extensive and constructive discussions with the authorities, we have reached understandings on outstanding policy issues, including the implementation of fiscal corrective measures and bank recapitalisation and strengthening.”

Under the terms of the IMF loan, Ukraine is required to take measures to reduce its budget deficit, though in February it said the deteriorating conditions since the programme was designed in October 2008 meant certain fiscal corrective measures “are needed” including an improvement to the financial position of the state pension fund and a reduction of the structural deficit at Naftogaz.

These measures were incorporated into a series of anti-crisis resolutions put forward by the government last week. However when Verkhovna Rada, the Ukrainian Parliament, failed to agree the bail-out programme Yulia Tymoshenko, the prime minister, called a special sitting of the government to approve the plans and bypass parliament. (See earlier IPE article: Russia moves on reforms as Ukraine seals IMF loan)

Pazarbasioglu said: “In light of the sharper than expected decline in economic activity, the authorities commit to containing the budget deficit to 4% of GDP in 2009, in line with available financing. The recent fiscal measures adopted by the Cabinet of Ministers yield significant additional savings which will help ease the pressure on public finances and achieve this target.”

Tymoshenko meanwhile revealed that around half of the funds in the second tranche of the IMF loan would be directed towards aiding the state budget, although she did not rule out the possibility that the money could be used to repay foreign loans.