Ukraine returns to IMF for further $14.9bn rescue loan

Following fast on the declaration of additional help for Hungary, Ukraine – another early victim of the credit crunch – has announced that it too will apply for fresh funding; a loan of $14.9bn to help plug the country's budget deficit and boost investor confidence.

The IMF agreement commits Ukraine to slashing its budget deficit faster than planned – to 3.5 per cent of GDP next year.

Last year the IMF suspended Ukraine's $16.4bn rescue programme because the former administration of President Viktor Yushchenko, who was at odds with his government, reneged on promises of financial restraint. Talks on a new stand-by facility have been prolonged as the IMF urged the government to set more ambitious fiscal tightening targets. The new government of President Viktor Yanukovich adopted the 2010 budget with a deficit target of 5.3 per cent of gross domestic product and said it would reduce the gap by one percentage point a year for the next five years.

Last year the budget deficit stood at 3.9 per cent of GDP but the government increased planned spending by a third this year to help the economy recover and to raise social security payments such as pensions.

The IMF had indicated it wanted Ukraine to set more ambitious targets for cutting the budget deficit, which would probably require unpopular measures such as hiking utilities tariffs and reducing pensions or raising the retirement age.

Analysts say the new deal will help restore investor confidence and give a boost to Ukraine's $1.3bn Eurobond issue planned later this month.