IMF opens account to channel donor funds to Ukraine

The IMF has opened an account to channel donor funds to Ukraine as nations opposed to the Russian invasion seek to put further pressure on Moscow.

The account, which was approved by the lender’s board on Friday night, will receive grants and loans “aimed at helping Ukraine meet its balance of payments and fiscal needs and to help stabilize its economy.” IMF said in a statement.

The aid, which is paid directly into Ukraine’s account with the fund, can be denominated in either reserve currencies or special drawing rights, a form of foreign exchange reserves that are effectively newly minted money.

“Donors will benefit from the IMF’s tested infrastructure to make authenticated payments quickly,” the fund added.

The Canadian government proposed allocating up to $795 million to the account as part of its latest federal budget, the fund said, an amount available to all other members as well as intergovernmental organizations trying to “use it as a vehicle to provide financial assistance.” for Ukraine.

The IMF said last month it was working with bilateral donors who had asked it to set up an instrument through which they could channel resources in the form of grants and loans to help Ukraine.

“Ukraine is in dire need of cash,” said Timothy Ash, senior sovereign strategist at BlueBay Asset Management. “Tax revenue has collapsed because of the War. They have a huge funding hole and the West really needs to step up to fill it or they will be forced to fall back on it [National Bank of Ukraine] Funding, which of course will be inflationary and will put pressure on the hryvnia.”

In early March the IMF authorized a $1.4 billion emergency loan to Ukraine under its Rapid Financing Facility, which has already been disbursed.

The Ministry of Finance of Ukraine said this week that in addition to the IMF loan in the amount of 1.4 billion, of which $350 million had been disbursed. The World Bank has mobilized an additional $575 million from member countries in the form of grants and loan guarantees.

The European Bank for Reconstruction and Development last month announced a €2 billion “resilience package” for Ukraine and the European Investment Bank has provided a €639 million aid package. France, Italy and Canada have provided around $940 million in additional aid.

The US last month Congress approved $13.6 billion military and humanitarian aid to Ukraine.

Rich countries have been repeatedly urged to use their IMF foreign exchange reserves to support Ukraine, which the IMF endowed with $650 billion last August as part of its response to the coronavirus pandemic.

SDRs are allocated to the IMF’s 190 member countries roughly according to their share of the world economy. Countries in the G7 group of the world’s richest economies received about $290 billion. Ukraine received $2.65 billion.

G7 members pledged to channel $100 billion of their SDRs to countries in need, even though only about $60 billion had been pledged in loans from 13 countries when Russia launched its latest attack in February. IMF opens account to channel donor funds to Ukraine

Adam Bradshaw

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