The IMF executive board completed the combined fifth, sixth and seventh reviews of Cyprus's program and approved the disbursement of 278.4 million euros
Kiev (AFP) - Ukraine on Thursday said it would begin negotiations with creditors on restructuring the conflict-torn country's debt, a move called for in its high-stakes multibillion-dollar bailout from the International Monetary Fund.
Finance Minister Natalie Jaresko said she expected the first $5 billion tranche of the new $17.5 billion IMF loan by Friday, with another $5 billion later in the year.
The IMF said that major risks remained in Ukraine's economic recovery, the main one being the resumption of fighting in the east, where a ceasefire between government forces and pro-Russia rebels is largely holding but skating on "thin ice", according to monitors.
"The programme faces exceptionally high risks," the IMF said in its analysis. "Creditors may balk at the terms being offered."
Speaking at a briefing in Kiev, Jaresko said Ukraine would start consultations with creditors on Friday with the goal of "easing pressure" on the budget and saving $15 billion over the next four years.
"We will listen to their point of view over several weeks," she said. "We have to find solutions... I hope we find a solution within two months," to meet the June deadline set by the IMF.
Ukraine is bracing for a 5.5-percent contraction of its economy this year and is also battling to keep its currency afloat. The hryvnia lost over two-thirds in value over the past year.
The IMF estimates that Ukraine's debt-to-GDP ratio will hit 94 percent this year but then decline to 71 percent by 2020.
Jaresko did not specify on which debt she wanted to renegotiate terms, but analysts said the move would likely target bondholders.
"As far as I understand the finance ministry will enter negotiations with private creditors," Oleksandr Valchyshen, chief economist at Investment Capital Ukraine, told AFP.
- $3 bn debt to Russia -
The IMF lifeline, part of an international rescue package expected to reach $40 billion, aims to support "deep and wide-ranging policy reforms," according to the fund's managing director Christine Lagarde.
Ukraine's debt is made up mainly of $17 billion in bonds, with up to $8 billion reportedly owned by Franklin Templeton, a US investment firm.
Russia -- which Kiev and the West accuse of fuelling the insurgency in the east, accusations Moscow denies -- holds $3 billion in Ukrainian bonds.
The two-year loan was agreed by former president Viktor Yanukovych in January 2013 and Moscow has warned that it could demand early payment because of its own financial woes.
Asked about the Russian money, Jaresko said that Kiev "does not distinguish between nationalities" of its creditors and would launch consultations with everyone.
"It remains to be seen whether Russia would agree (to a restructuring)," Valchyshen said. "Probably they would try to block it."
- Stability on 'thin ice' -
Ukraine is mired in a deep economic crisis, which has been exacerbated by the war in the east, bordering Russia.
Gross domestic product fell 7.0 percent last year.
The IMF's assistant director in the European department Thanos Arvanitis said the fund was "heartened that the ceasefire agreement of February 12 is holding."
The deputy chief of the OSCE's mission in Ukraine Alexander Hug said Thursday that violence has fallen off significantly along the nearly-500 kilometre frontline in the eastern Donetsk and Lugansk region, but that "relative stability is at the moment on thin ice."
The Organisation for Security and Co-operation in Europe decided on Thursday to double the size of its mission in Ukraine to 1,000 people in order to better monitor the implementation of the ceasefire on the ground.
Russia meanwhile launched drills in Crimea, the peninsula annexed from Ukraine last year which now borders the eastern Ukrainian region of Kherson.
Ukraine's President Petro Poroshenko indicated that Kiev has no illusions regarding the ceasefire inked in Minsk despite pledging to respect it.
"We follow two parallel processes: first process is we steadily carry out the demands of the Minsk memorandum. Second process is we actively and decisively increase the military potential of our armed forces."
Kiev also has to follow through on unpopular reforms adopted by parliament last week, including tripling the price of gas used by households and cutting pensions for people who work into retirement.
Part of the bailout money will go towards shoring up the hryvnia, which has rallied slightly over the past two weeks after hitting a record low of 33.75 to the dollar in February.