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Ukraine Eyes IMF Credit Lifeline in Early 2015

Valeria Hontareva, head of Ukraine's central bank, is seen at a news conference in Kyiv, Dec. 30, 2014.

Ukraine expects the International Monetary Fund to disburse new and overdue loans after a visit next month and still hopes a $17 billion bailout program can be expanded, its central bank chief said on Tuesday.

Valeria Hontareva declined to give a value for the payment, even when pressed by journalists, but it is likely to total more than $4 billion.

With its economy pushed close to bankruptcy by a separatist war in the east and costly energy imports from Russia, Ukraine hustled through an austerity budget on Monday which it hopes will impress the Fund when a mission visits Kyiv from January 8.

The former Soviet republic has so far received two tranches of aid worth a combined $4.6 billion under the IMF-led bailout package that was agreed in April to support the economy and shore up depleted foreign currency reserves.

The government, which is struggling to control an economic slide and a crisis in relations with Russia following the overthrow of a Moscow-backed president in February, has since said the aid program will need to be expanded.

But the IMF and the government's Western backers, including the European Union, say any further financial assistance will hinge on Ukraine's ability to implement long-promised reforms.

Hontareva told a news conference that following next month's visit, Kyiv expected the IMF to release two slices of credit which had been expected by year-end, plus a third tranche.

“I expect three tranches to be combined and I hope that the program will be increased even further,” she said, saying the credit would go to paying off external debt, which will stand at more than $7 billion next year, and the foreign trade deficit.

With a combined value of $2.7 billion for the outstanding tranches, a further disbursement of $1.4-1.5 billion as outlined under the program would take the overall to over $4 billion.

Ukraine's economy is additionally hobbled by dependence on imports of natural gas, mostly from Russia, which have only just resumed under an interim winter agreement while a Stockholm arbitration court decides on an appeal by Ukraine over pricing.

Gas debt repayments to Russia and efforts to support the struggling hryvnia currency have more than halved foreign currency reserves during 2014, to a 10-year low.

Reserves stand at just under $10 billion, barely sufficient to cover two months of imports. But Gontareva said they could be restored to health with an injection of credit from the IMF.

“I'd like to see a minimum of cover for three months of imports - that is $15 billion,” she said. “Together with the IMF we consider it would be good to see them [reserves] at around $23 billion.”

Much will depend on how the IMF views the detail of Ukraine's budget and a series of austerity laws, including amendments that would impose extra duties on imports.

Prime Minister Arseniy Yatseniuk said on Monday that one of the budget's main focuses would be defense and security spending amounting to 90 billion hryvnia ($5.7 billion).

Political upheaval and war has pushed the hyrvnia to record lows and crippled the economy, which is forecast to shrink 4.3 percent next year.