Ukraine needs to reduce its budget deficit and implement economic reforms in order to secure loans from the International Monetary Fund (IMF) that are vital for the ex-Soviet country’s economy, the Central Bank official said.

External factors will also play an important role in the Fund’s decision to resume talks with Kyiv. The IMF mission visited Ukraine last month, but no agreement was reached under an existing agreement.

Absence of agreement with the IMF will cost Ukraine as the government should reduce spending in order to ease pressure on the balance of payments and the hryvnia currency, Dmytro Solohub, the central bank’s deputy governor, said in an opinion piece published on Ekonomychna Pravda website.

“Absence of cooperation with the Fund will probably mean a rise in spending on debt servicing, reduced inflows of foreign investment and pressure on the central bank’s currency reserves,” Solohub wrote.

“The government will therefore have to cut the budget deficit. The hryvnia will weaken in order to offset the negative influence on the balance of payments and, as a result, inflation will quicken.”

Solohub said that the Fund had also expected Ukraine to implement macroeconomic reforms. Favorable external factors included high prices for Ukraine’s exports and low energy commodity prices, he added.

Last June, the IMF approved the $5 billion loan programme and disbursed the first tranche of $2.1 billion to help the economy, which has been hit hard by the coronavirus pandemic.

Ukraine expects to receive $2.2 billion divided into three equal tranches from the IMF in 2021, but loans have been frozen due to slow pace of reforms and the government’s recent decision to regulate household gas prices. The Fund’s mission said in February “no progress” was made during its recent visit.

The IMF wants Ukraine to advance with judicial reform, make efficient steps to root out corruption and guarantee central bank independence.