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Ukraine To Plug Budget Gap, Boost Reserves With IMF Loan


The IMF said that under the 29-month lending program, around $1.9 billion will be made available to Kyiv immediately.

Ukraine says it will use $2 billion out of its new $15 billion loan from the International Monetary Fund (IMF) to finance this year's budget deficit.

The cash-strapped country plans to spend the rest on replenishing central-bank reserves.

Deputy Prime Minister Serhiy Tihipko's office made the comments today, one day after the IMF finalized the loan agreement with Ukraine's new government.

Ukrainian Prime Minister Mykola Azarov said the loan shows the government is taking the right steps towards relieving the country's battered economy.

"We consider this decision by the International Monetary Fund as a recognition of the fact that Ukraine's new government is conducting a balanced, realistic economic policy aimed at recovery from the crisis and the implementation of deep structural reforms in various spheres of our country's life," Azarov said.

The loan, intended to help Ukraine recover from a severe economic crisis, requires the country to tighten its public finances.

Tihipko's office said Ukraine expects to receive the first $1.89 billion disbursement within a few days. The second tranche is expected in late December.

The IMF said in a statement that under the 29-month lending program, subsequent disbursements subject to quarterly reviews by the IMF.

The IMF froze a previously agreed $16.4 billion rescue deal for Ukraine last year after the country's former government reneged on austerity measures ahead of a presidential election.

Ukraine's trade unions warned today that an abrupt price hike for natural gas, a precondition for the loan, will spark social unrest and uncontrolled inflation.

'Durable Growth'

Explaining the loan program, John Lipsky, the IMF's first deputy managing director, said in the statement that "Ukraine is emerging from a difficult period during which the economy was severely hit by external shocks" and "domestic vulnerabilities."

Lipsky said the IMF believed that the Ukrainian authorities were now "committed to addressing existing imbalances and putting the economy on a path of durable growth, through important fiscal, energy, and financial sector reforms."

The IMF statement added that under Ukraine's recovery plan, "fiscal adjustment will start in 2010 and deepen in 2011-12, backed by robust structural reforms of the pension system, public administration, and the tax system."

Ukraine is recovering from one of the world's worst recessions, which reportedly saw the country’s economy shrink by 15 percent last year.

compiled from agency reports