Ukraine Passes Budget, Additional Bailout Funds Possible

Ukraine’s parliament has finally approved a new budget for 2016. The budget was a compromise designed to satisfy demands of the International Monetary Fund (IMF) if Ukraine wanted to receive $17.5 billion in bailout funds, the distribution of which had been delayed pending the adoption of a conforming budget. The bailout funds were intended to help Ukraine escape a devastating economic recession.

Ukraine’s parliament has finally approved a new budget for 2016. The budget was a compromise designed to satisfy demands of the International Monetary Fund (IMF) if Ukraine wanted to receive $17.5 billion in bailout funds, the distribution of which had been delayed pending the adoption of a conforming budget. The bailout funds were intended to help Ukraine escape a devastating economic recession.

The budget passed the Ukrainian legislature by 263 of 450 votes on Thursday. It includes a predicted drop of 3.7 percent in gross domestic product (GDP) for 2016, a figure anticipated by the IMF. 

In an email statement issued by the Ukrainian Finance Ministry early Friday, the government noted, “The budget approval is an important step to receive the next tranche from the IMF and other international financial aid linked to it … However, the IMF’s experts will analyze separately whether the budget meets IMF program criteria.”

The dispute over the budget, and a corresponding fight regarding a new tax code, have become representative of the type of political turmoil within the Ukrainian government between the ruling pro-European coalition and the pro-Russian leader the ruling party displaced when it rose to power in 2014. The pro-European coalition rose to power after a series of protests in the streets led to the ouster of the prior regime. 

With regard to its demands, the IMF said last week that it would hold steady on its insistence that the Ukrainian budget meet its requirements if the nation wished to continue receiving aid. This, however, created a great deal of uncertainty about whether the nation would continue to receive bailout funds, causing bond prices to sink, investor confidence to plummet, and generally reducing the nation’s optimism following its political and economic restructuring. 

Following 18 consecutive months of contraction, the Ukrainian economy grew 0.7 percent between July and September 2015. Following the news of the new budget, most experts believe the IMF will follow through on distribution of an additional $1.7 billion in aid within the next few weeks. That disbursement, in turn, may open the way for an additional $3.3 billion in external financing, as well, including proposed $1 billion loan guarantee from the United States.

According to a report by Bloomberg, Ukrainian Prime Minister Arseniy Yatsenyuk acknowledged that the budget was not perfect, but believed it would accomplish the nation’s goals: “I do realize that it is not the best budget … I do realize that we will need to work more not only on this budget but also on all reforms, including tax, medicine, education. We will be able to carry out reforms if we are united.”