By Karin Strohecker and Jorgelina do Rosario
LONDON (Reuters) – Ukraine aims to strike a deal on a $15-20 billion program with the International Monetary Fund before the end of the year to prop up its war-torn economy, the country’s central bank governor Kyrylo Shevchenko told Reuters .
Besieged by the invasion of Russia that began on February 24, Ukraine faces an economic contraction of 35% to 45% in 2022 and a monthly budget deficit of $5 billion and is heavily dependent on external financing from its Western partners.
Shevchenko, 49, also said during his visit to London he hopes to agree a swap line with the Bank of England “within weeks”, although he did not specify the amount.
Kyiv has already submitted its application to the IMF, the governor said, and is now in consultation with the fund on new funding, which he hopes will raise up to $20 billion over two or three years in the form of a stand -by agreement (SBA) or an Extended Fund Facility (EFF).
It was the first time Ukraine had quantified the new funding it needed from the Washington-based lender. A $20 billion program would be the IMF’s second largest currently active loan after Argentina.
“The IMF always acted as Ukraine’s partner during the war,” Shevchenko told Reuters.
“I hope to start the program this year.”
The central bank governor said a new program should include measures to help stabilize the economy. This could ensure a return to pre-war conditions such as flexible exchange rates, unlimited foreign exchange markets, deleveraging in the banking sector and balanced fiscal policies.
The IMF’s most recent loan to Ukraine was a $1.4 billion emergency funding agreed in March — 50% of the country’s quota in the fund.
Separately, Kyiv is currently in talks with its international creditors about freezing debt payments to ease its liquidity crunch.
The Central Bank of Ukraine already has a $1 billion line with the Central Bank of Poland.
Some relief in foreign exchange earnings and liquidity would also come from the deal agreed last week between Moscow and Kyiv to allow safe passage for grain shipments in and out of Ukrainian ports that have been blocked by Russia since its invasion.
However, those revenues and supplies would not start to increase seriously until next year, when exports could reach 5 million tons per month, according to the central bank’s “conservative” estimates, and bring in about $5 billion in 2023, Shevchenko said.
Discussing the central bank’s intervention in the foreign exchange markets, as well as its bond-buying program, Shevchenko said both will continue for the time being, although the latter will be halted once the war is over.
“Providing monetary funding was the most painful decision of my life, but we realized during the war that it was necessary,” Shevchenko said.
He added that a whole new vocabulary has emerged in wartime operations, with terms such as “martial maturity” – a term used to describe the timeframe of a debt instrument used in the context of the conflict.
“We see (this) as one of the biggest uncertainties,” he said. “Until the end of the war, we and the Treasury should work together to address all of these challenges using monetary finance and the internal debt market.”
($1 = 0.9878 euros)
(Corrected story to remove reference to ECB swap line in paragraph 11.)
(Reporting by Karin Strohecker and Jorgelina do Rosario; editing by Tomasz Janowski)