(Reuters) – An IMF mission will visit Kiev on Tuesday to start a fresh round of talks with the new government linked to a $17 billion loan package that may have to be ramped up due to the financial toll of a separatist crisis in Ukraine’s east.
The visit coincides with a so-called “Day of Silence,” when both Ukrainian forces and rebels have pledged to observe an effective truce on the front line of the conflict, which has killed more than 4,300 people and nearly bankrupted the country.
The International Monetary Fund programme was agreed in April to shore up the ex-Soviet state’s severely depleted foreign currency reserves and to support its economy, which was blighted by years of corruption and is now struggling with the extra costs of fighting the pro-Russian rebellion.
Kiev had expected that the next loan tranche, worth $2.7 billion, would come before the end of the year, but the IMF waited for a new government to be formed to hold talks on the payment.
“Ukraine is currently in a pretty critical condition – and desperately in need of IMF life support,” Standard Bank analyst Tim Ash said in a note.
State coffers are at their lowest in ten years and Ukraine needs extra cash to service its debt and make gas payments at a time when the economy is contracting and the national hryvnia currency hovers close to historic lows.
“The situation is a lot more difficult than the last time the IMF was in place,” said Jefferies analyst Richard Segal.
In September the Fund warned that if Ukraine’s conflict with the separatists runs into next year, the country may need as much as $19 billion in extra aid.
“The IMF is willing to put in a lot of resources, but it has said up front that it can’t be the only one … We know the U.S. and the Europeans have committed more money recently, but the question is whether it’s enough and if not, who else is going to contribute,” Segal said.
Parliament elected a new government last week that includes three non-Ukrainian technocrats – seen as a bid by Kiev to prove to Western backers, including the IMF, its commitment to reforming an economy strangled by red tape and corruption.
However negotiations focused on the disbursement of the next tranche of IMF cash cannot take place until a budget for 2015 is ratified. New finance minister, U.S.-born Natalia Yaresko, said on Wednesday the cabinet would work to have a budget for 2015 adopted by the end of the year.
Given the standard International Monetary Fund time frame for loan payments, the next tranche of aid is not likely to be paid before February, Segal said.
Monday’s IMF visit will last until Dec. 18 and will focus on policy discussions with Ukrainian authorities in the context of the reform programme.