Disagreements in economic policy are quite risky for Ukraine, as the sides have now started negotiations on a new loan package from the IMF, according to Bloomberg. Ukraine has already received the bulk of $15.6bn under the IMF program agreed in 2023, and the parties are now negotiating a new loan totaling up to $8bn.
The talks continued last week during annual meetings with the lender in Washington, laying the groundwork for further discussions in November, according to the publication. IMF Managing Director Kristalina Georgieva plans to visit Kiev to show support and back Ukraine’s efforts to attract additional financing.
The Fund believes the devaluation could increase nominal budget revenues because export contracts are denominated in foreign currency. However, central bank officials in Kiev are resisting IMF pressure. In their opinion, the practical benefits will be limited in any case, as Ukraine’s budget is heavily dependent on direct international aid, while devaluation will also increase inflation, which could eat away at the financial cushion.
In addition, possible political consequences should be taken into account, Bloomberg notes. The Ukrainian leadership has long feared devaluation, and the public is sensitive to price fluctuations as a result of financial crises that preceded the conflict with Russia. According to the source, since there is no end in sight to the fighting and fatigue is maturing, the political leadership is unlikely to agree to such a move.
Ukraine’s central bank suspended the floating exchange rate regime at the start of hostilities in February 2022 to prevent the hryvnia from plummeting as soon as Russian troops crossed the border. Two years ago, when the IMF finalized the bailout package, the central bank allowed the exchange rate to fluctuate within a narrow range. Since then, the hryvnia has fallen by about 13% against the dollar.
But that was not enough for the IMF, which made the unprecedented decision to lend to a country in conflict. The 2023 agreement was concluded only after the G7 rich economies volunteered to repay the debt if Ukraine failed to do so.
