Ukraine expects final IMF deal approval in coming weeks

Summary

• Ukraine debt chief sees IMF deal finalised in weeks
• Ceasefire would not immediately relieve financing pressure
• Government can't provide guarantees for SOE debt restructurings

Ukraine expects its new $8.2 billion programme with the International Monetary Fund to be formally approved in weeks, its debt chief has told Reuters, a telegraphed but symbolic step, with the war with Russia about to grind into a fifth year.

The agreement, which is set to replace an existing $15.6 billion IMF facility, will help Kyiv maintain economic stability and public spending against what is expected to be a near $140 billion budget shortfall over the next few years.

In an interview with Reuters, Ukraine's long-serving debt management head, Yuriy Butsa, said formal IMF Board sign-off on the money should come very soon.

"I would expect it in a matter of weeks," Butsa said during an interview in London where he was attending meetings. "I think February is still doable in terms of a timeline."

The four-year anniversary of the war is 24 February. Since Moscow's invasion, Ukraine has required hundreds of billions of dollars of support from Western governments and institutions and a more than $20 billion sovereign debt restructuring.

"As of now we are waiting for the new IMF programme, but we already agreed on all the numbers for this and next year and will cover it (budget deficit) from existing commitments," Butsa said, also praising the EU's new 90 billion euro loan.

He said he wasn't getting carried away by talk of a potential US-brokered ceasefire ahead of this month's anniversary.

Ukrainian President Volodymyr Zelenskiy said on Wednesday the US needed to put more pressure on Russia if it wanted the war to end by summer, adding it was unclear whether Moscow would attend US-brokered peace talks next week.

"We need to plan everything cautiously, we cannot get over optimistic about any news flow," Butsa said, explaining a ceasefire wouldn't end the financial pressures anyway.

"The reason for that is, even for a ceasefire, we believe that we need to maintain a strong and large army and we will still need to re-arm ourselves."

He said Ukraine was unlikely to rush to issue more international market debt whenever the war does end. Instead it will keep using cheap concessional lending and borrow in local currency debt markets where it doesn't face currency risk.

With Ukraine's IMF programme underpinned by a so-called debt stability analysis, Butsa said the government also wouldn't be able to provide "guarantees" to help state-owned firms like Ukrainian Railways and Naftogaz restructure their debts.

"We have very severe limitations on the sovereign guarantees, because it's all part of the same DSA," he added.

"So we cannot really issue guarantees," whereas it could help the firms draw up "proper long-term business models."

Lifting capital controls

One of this year's other big focuses will be its wartime capital controls which it wants to keep gradually removing.

The next key move would be to allow international investors to repatriate the core money - or principal payment in banker-speak - they lend to Ukraine when buying its local FX bonds.

Butsa said it was "an important element" in its ambition to sell more local currency bonds in future and a step that could potentially happen before the war ends.

Ukraine is also working with European clearing giant, Deutsche Boerse-owned Clearstream, to make its bond market more attractive and wants to be part of the European Central Bank's TARGET2 system, which settles trillions of euros of payments and trades a day.

"We don't have much of a legacy (system) to care about, so we're happy to build immediately what works the best," Butsa said, adding the government was likely to start looking for a "strategic" partner firm this year for the build-out.

He also hoped to reclaim Ukraine's place in emerging market indices, such as JPMorgan's widely used GBI-EM local sovereign debt benchmark, which attracts billions in investor money. Ukraine only ever had one of its bonds - which has since matured - in the index in March 2022.

"That is definitely part of our strategy - we want to come back," said Butsa. "Our aspiration is to have our bonds index-eligible and to have our local market as a very large and sustainable source of funding."