THERE was relief in Ukraine’s corridors of power on March 11th when the International Monetary Fund (IMF) approved its long-awaited bail-out for Ukraine. The fund’s promised loan amounts to $ 17.5 billion over four years. Other donors have pledged several billion more. The first tranche has already brought in a badly needed $ 5 billion, nearly doubling the country’s reserves, which had dropped to just $ 5.6 billion.
Ukraine hopes to pick up another $ 15 billion of savings from private creditors in debt restructuring talks due to begin next week. But even that may not be anywhere near the amount that is needed by Ukraine’s crumbling economy.
Confidence is feeble, with inflation soaring, GDP contracting, and tanks still rumbling in the Donbas despite the latest ceasefire. The government’s worst-case projections see GDP sagging by nearly 12% this year and inflation exceeding 40%. Capital controls and an increase in the central bank’s interest rate from 19.5% to 30% have helped to stabilise the hryvnia, Ukraine’s currency, after it plummeted last month. Yet black-market traders continue to buy and sell at rates 25% lower than the official level. Ukrainians have pulled huge sums from banks; last month the country’s fourth-largest bank, Delta, was declared insolvent. Haphazard reforms have spooked the markets. The West’s lack of urgency in coming to Ukraine’s…
The Economist: Europe
