IMF mission agrees on $14.9 billion loan for Ukraine

An International Monetary Fund mission said on Saturday it had agreed to recommend a loan of $14.9 billion for Ukraine in a deal to help fill the country's budget gap and boost investor confidence.

The deal commits the ex-Soviet republic to cut its budget deficit faster than it planned, to 3.5 percent of GDP next year, and the IMF said in a statement its board would consider the deal for approval at the end of July after Ukraine made agreed adjustments to its budget and financial sector.

Assuming approval by the IMF board, the program will last two and a half years.

The final amount was slightly lower than expected as the mission had been discussing a new stand-by facility worth up to $19 billion in negotiations that dragged on for months.

Policies under the program include fiscal adjustment to contain the 2010 consolidated general government deficit to 5.5 percent of GDP ... and 3.5 percent in 2011 with a view to setting public debt firmly on a declining path, it said.

The fiscal adjustment is to be achieved by tax and social security structural reforms, expenditure rationalization, combined with efforts to improve tax administration.

The statement came a day after Secretary of State Hillary Clinton said the United States hoped Ukraine would win the deal.

Implementing a stand-by agreement with the IMF will allow Ukraine to secure social and economic stability and development while it overcomes the crisis and carries out large-scale structural reforms in the economy and society, Ukraine's government said in a statement.

The IMF last year suspended Ukraine's $16.4 billion rescue program 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 percent of gross domestic product and said it would reduce the gap by 1 percentage point a year for the next five years.

Last year the budget deficit stood at 3.9 percent 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.

As well as providing much-needed cash, a new deal will help restore investor confidence and give a boost to Ukraine's $1.3 billion Eurobond issue planned later this month, analysts say.

(Writing by Olzhas Auyezov; Editing by Susan Fenton)