(Bloomberg) — Ukraine is considering a plan — including expanded domestic bond sales, tax hikes and spending cuts — to plug a hole in its budget in a bid to secure money from the International Monetary Fund if crucial US aid remains blocked.
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Ukrainian officials intend to propose the plan to the IMF during a staff visit to Kyiv next week, according to people familiar with the matter, who asked not to be identified discussing private deliberations. The measures are needed to assure the IMF that Ukraine can service its debts in case allies fail to provide aid, a condition for its $15.6 billion loan program.
The IMF staff, led by the fund’s Ukraine mission chief Gavin Gray, will visit Kyiv for three days starting Feb. 12, prior to official talks on Ukraine in neighboring Poland, the people said. The visit comes ahead of the IMF’s review of the loan program, which will start later this month and would unlock a $900 million tranche of aid.
Ukraine has offered to discuss a “plan of action” with the IMF in case foreign aid is disrupted, the central bank said in an emailed comment to Bloomberg News. It still expects assistance will resume “in the coming months,” and the IMF shares this view, according to the statement.
“Measures envisaged by Plan B are currently being discussed and will potentially include the activation of the domestic borrowing market, fiscal optimization and consolidation,” the central bank said, adding it expects the upcoming IMF review to be successful.
The IMF declined to comment.
While Ukraine is fulfilling its obligations, the finance ministry and central bank believe there’s a risk that the IMF’s board won’t approve the next loan disbursement without the fiscal plan if US funds are still blocked, a Ukrainian official said. Kyiv has been scheduled to receive $5.3 billion from the IMF program this year.
The key source of funds to replace those from the US would be an expansion of domestic government borrowing, the official said. Ukraine’s banks are highly liquid, and the government expects them to keep investing cash, which they refrain from lending due to war risks, in high-yield government bonds.
That could bring in at least $5 billion in revenue this year, the official said. The government could also raise taxes or reduce spending if needed, according to the official.
More than $60 billion in Ukraine funding requested by President Joe Biden, most of which is earmarked for weapons, has been blocked in Congress. The US Senate signaled support for war aid to Ukraine and Israel in a test vote Thursday. However, some House Republicans flatly oppose help to Ukraine and others want to revive efforts to link it to action on stemming a record wave of migration across the US border.
The Washington-based IMF approved the four-year loan for Ukraine last year, the first time it has lent to a nation at war. The program was coordinated with the European Union, the US and other Group of Seven countries, which pledged financial aid to help cover Kyiv’s budget gap.
The IMF’s executive board approved disbursing $900 million for Ukraine in December, and urged other countries and lenders to follow through on their pledges, which last year totaled $122 billion. An EU package worth €50 billion ($55.6 billion) was finally approved last week.
–With assistance from Steven T. Dennis and Piotr Skolimowski.
(Updates with the central bank’s comments in 4th-5th paragraphs.)
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