IMF loans have become more expensive for Ukraine during the war, increasing from 1% to nearly 5% annually
Currently, the cost of loans provided by the International Monetary Fund to Ukraine is approximately 4.8% per year, compared to the previous rate of about 1%. Parliamentary representatives explained this rise in loan costs as a result of increased borrowing expenses among countries whose currency basket forms the payment instrument issued by the IMF, according to FintechInsider.
According to Danilo Hetmantsev, a member of parliament and head of the Verkhovna Rada Committee on Finance, Taxation, and Customs Policy, the previous cost of IMF loans exceeded approximately 1% annually, whereas it now stands at 4.8%.
According to him, the interest rate is determined according to the IMF's own rules, using a formula that takes into account the average rates for short-term borrowing in the issuing countries of the US dollar, euro, yuan, yen, and pound sterling. These currencies make up the basket that serves as the basis for Special Drawing Rights (SDRs), the IMF's separate currency.
"Despite the increase in loan costs, they still remain among the cheapest sources of credit in the world. We do not have the opportunity to borrow money at the level of private or public placements. The interest rate we will be paying for this loan is moderate, taking into account the rising cost of funds worldwide," noted the member of parliament.
Governments issue three-month domestic government bonds. The average interest rate on these bonds is the same rate at which the IMF provides its loans. Therefore, according to Hetmantsev, the interest rate on IMF loans is solely an economic, not a political decision.
"The interest rates on loans are determined by taking into account Special Drawing Rights, which consist of a basket of five currencies: the US dollar, euro, yuan, yen, and pound sterling. Governments of these countries (issuers of these currencies) issue three-month domestic government bonds. The average interest rate on these bonds is the same rate at which the IMF provides its loans. Therefore, the interest rate has automatically increased both globally and within the IMF," explained Hetmantsev.
It is worth mentioning that the International Monetary Fund has improved its forecast for the growth of the Ukrainian economy in 2023. Previously, there were expectations of GDP changing from -3% to +1%, but now growth of 1-3% is anticipated.
On February 24, 2023, Russia launched a massive invasion of Ukraine, resulting in a nearly 50% contraction of its economy.