Why does Ukraine repay more money to the IMF than it borrows?

Mariia Mygal

The issue of attracting external financial assistance has always been relevant for our country. Ukraine started cooperating with international organizations back in 1992 when it became a member of the International Monetary Fund. We received the first loan from the IMF in 1994, and since then the Fund has been one of the country’s main partners in providing loans.   

Over the 30 years of cooperation before the war, our country received about $35 billion in financial support from the International Monetary Fund. In return, about $74 billion was agreed upon. 

Why did Ukraine not receive the full agreed amount of funds?

How much money does our country owe to the International Monetary Fund? How much has been paid to the IMF? 

To analyze these questions, we have examined Ukraine’s fulfillment of its obligations under the last three IMF programs.

Before the war, financial assistance from the IMF was provided to Ukraine under 11 loan programs. Each of them required the Ukrainian side to fulfill certain conditions. In other words, each subsequent tranche from the IMF is possible only if the country complies with the agreements under the loan agreements. 

However, over the past 10 years, Ukraine has not fully fulfilled its obligations under any IMF program. The format of cooperation with the IMF stipulates that if a country does not comply with the agreed agreements, funding is terminated. Thus, one of the reasons why only a part of the IMF funds is received is that Ukraine has not fulfilled its obligations. 

In addition, there are some payments that directly depend on the fulfillment of agreements with the IMF. For example, the commitment fee is charged at the beginning of the program and is refunded only if the country has complied with all program obligations and received the agreed amount. 

In the case of Ukraine, additional surcharges are also charged. These are amounts that a country pays if its debt is significant and has not been repaid for a long time. We wrote about the policy of paying these surcharges in relation to Ukraine in our previous article.  

Thus, Ukraine’s failure to fulfill the agreed terms not only negatively affects the country’s reputation before the Fund and other creditors, but also actually leads to financial losses. 

Ukraine and the IMF. General information

Today, Ukraine is the third largest country in terms of its outstanding debt to the IMF. As of the end of May 2022, the amount of loans is about $10.8 billion, including interest and other additional payments. 

Under the 2015, 2018, and 2020 programs, Ukraine received half of the total amount agreed with the Fund. In particular, out of the planned $24 billion, our country received only $12 billion. This means that Ukraine has not received about $12 billion more. Again, the reason is that the Ukrainian side failed to fulfill its obligations to the IMF under any of the programs. 

In total, over the past 4 years, Ukraine has repaid about $7.2 billion to the IMF, including accrued interest and fees. In return, it received about $4.2 billion over the same period. Thus, today Ukraine is repaying more money to the IMF than it borrows.

Despite the difficult economic situation, as of the end of September, Ukraine paid about $1 billion to the IMF. These funds were paid to repay debts that arose under the 2015 and 2018 programs. According to the IMF’s forecasts, Ukraine will start repaying the loans received in 2022 after the war in 2025-2027.

Over the next 5 years, Ukraine will have to pay about $9.2 billion to the Fund, including interest and fees. According to IMF forecasts, Ukraine will pay off its debts in full only in 2037. Of course, this scenario is only possible if we do not receive new financing. If we receive new loans from the IMF, Ukraine will actually pay interest on them continuously.

Therefore, the cyclical nature of loan repayments in the case of Ukraine can only be broken by paying off a significant part of the debt and not receiving new loans.

There is no doubt that the post-war recovery of our country will be supported by the IMF. However, Ukraine should draw lessons from previous programs about the scope of its commitments and how it fulfills them. Our country should be as efficient as possible in complying with the agreements so that we can receive the full amount of financial resources and avoid additional financial losses. 

In which aspects Ukraine did not comply with the agreements with the IMF under the last three programs, read in the next article.

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