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11 Apr, 2014 10:08

Ukraine’s first IMF money won’t be used to pay off Russian debt

Ukraine’s first IMF money won’t be used to pay off Russian debt

Paying off debt to Russia will not be a first priority for Ukraine when it secures its first tranche of International Monetary (IMF) bailout cash, Oleksandr Shlapak, coup-imposed Ukraine’s Finance Minister has said.

"The money that we receive from the IMF will be divided between the reserves of the National Bank and the state budget, and the money will be earmarked. So we do not plan to spend on repaying debts to Russia,” Shlapak said at the IMF and World Bank spring meeting in Washington DC on Thursday.

IMF Director Christine Lagarde has said Ukraine’s bailout program will be unveiled in late April or early May, ahead of the May 25 presidential elections. Ukraine’s Ministry of Economic Development and Trade reported the country could receive $500 million in aid as early as May.

Oleksandr Shlapak said that Ukraine has fulfilled the necessary requirements to receive bailout money, and talks in Washington over the next week will be aimed at “more specific details on the timing and conditions of the support provided.”

The International Monetary has unlocked up to $18 billion for Ukraine, and along with other lenders from the US, an EU, overall $27 billion has been promised to Ukraine over the next two years. In return, Kiev will have to push through an austerity program - cutting government spending and gas subsidies, which will be both economically painful and politically unpopular.

Ukraine expects to receive $1.5 billion from the World Bank in three separate installments of $500 million.

To date, only Russia has provided Ukraine with tangible financial support. It provided Ukraine $3 billion in eurobonds in December, part of a larger $15 billion aid package agreed on by the Yanukovich-led government.

On Thursday, President Vladimir Putin penned a letter to European state heads saying Russia could no longer alone bear the brunt of Ukraine.

“Russia should not and cannot any longer bear the brunt of supporting the Ukrainian economy alone, giving it gas discounts and forgiving debts. In fact, with these subsidies Russia pays for a deficit in trade between Ukraine and the EU member states," the correspondence said.

Ukraine’s total debt to Russia, including the $2.2 billion bill for gas, now stands at $16.6 billion, Prime Minister Dmitry Medvedev said. Ukraine owes money to Gazprom, Russia’s largest gas producer, for unpaid gas deliveries from 2013 and 2014.

Ukraine’s GDP stands at around $170 billion, but the economy is on the verge of default. Moody’s recently downgraded the country’s sovereign debt to “default imminent with little prospect for recovery”.

Growth for 2014 is projected to contract between 3 and 4 percent.