Statement by IMF Managing Director Christine Lagarde on Ukraine

Press Release No. 15/50

February 12, 2015

Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), issued the following statement today in Brussels, Belgium:

“I am pleased to announce that the IMF team working in Kiev has reached a staff-level agreement with the Ukrainian government on a new economic reform program that would be supported by an Extended Fund Facility of SDR 12.35 billion (about $17.5 billion, €15.5 billion) from the IMF, as well as by additional resources from the international community. I intend to recommend this program for consideration to the IMF Executive Board. This new four-year arrangement would support immediate economic stabilization in Ukraine as well as a set of bold policy reforms aimed at restoring robust growth over the medium term and improving living standards for the Ukrainian people.

“It is an ambitious program; it is a tough program; and it is not without risk. But it is also a realistic program and its effective implementation—after consideration and approval by our Executive Board--can represent a turning point for Ukraine.

“There are a number of reasons why this new program can succeed:

“First, demonstrated commitment to reform.

“Over the past year, despite the challenging environment, the Ukrainian authorities have clearly shown their commitment to ambitious reform on several key fronts. They have maintained strong fiscal discipline (a 2014 deficit of 4.6 percent of GDP vs. a target of 5.8 percent); they have adopted a flexible exchange rate regime; and they have significantly increased household gas prices to 56 percent of the import price and heating prices to about 40 percent of the import price in 2014. In addition, in the first such move in many years, they have begun to strengthen the country's anti-corruption and anti-money laundering framework.

“Second, front-loaded actions going forward.

“The government is committed to front-loaded measures under the new program—including further sizable energy tariff increases; bank restructuring; governance reforms of state-owned enterprises; and legal changes to implement the anti-corruption and judicial reform agenda. This program will require the authorities’ steadfast determination to reform the economy. To help cushion the adjustment, especially for the poorest groups, measures are being taken to strengthen and better target the social safety net.

“Third, increased external support.

“The change in the IMF-supported program (from Stand-By Arrangement to Extended Fund Facility) will itself provide more funding, more time, more flexibility, and better financing terms for Ukraine to implement its reform agenda. These IMF resources will be complemented by other bilateral and multilateral financing. In addition, as the Ukrainian government has previously announced, it intends to hold consultations with the holders of their sovereign debt with a view to improving medium-term sustainability. From these various sources taken together, a total financing package of around $40 billion is estimated over the four year period.

“In short, this new program offers an important opportunity for Ukraine to move its economy forward at a critical moment in the country's history. And yet, while this is a comprehensive and strong program, it is also subject to high risks. The main risk, of course, relates to geopolitical developments that may affect market and investor confidence. For this reason, the program is based on conservative macroeconomic assumptions to buffer further the impact of the conflict in the East.

“Of course, resolution of the conflict, so critical for people, would also strengthen and speed up prospects for macroeconomic stabilization and growth.”