Ukraine's parliament on Thursday successfully voted to establish an anti-corruption court, a key requirement of unlocking a $17.5 billion International Monetary Fund (IMF) relief package designed to bolster the country's struggling economy.
But the international lender has yet to greenlight the funds, as it remains to be seen whether the law for the anti-corruption court is, in fact, IMF compliant.
Tensions ran high in the lead-up to the vote amid political infighting between Ukraine's finance minister and Prime Minister Volodymyr Groysman, the latter of whom asked parliament on Wednesday for the former to be fired. The IMF bailout fund has been frozen since last year and its disbursement delayed multiple times as Ukraine fell behind on its reform requirements.
Corruption has plagued the eastern European country's economy and remains practically undented since popular protests unseated the pro-Moscow government of Viktor Yanukovych nearly four years ago. It remains burdened by $20 billion in outstanding dollar debt, and its ability to tap capital markets — now made harder due to rising interest rates in the U.S. — will rely heavily on the IMF's support and its ability to effectively reform.
The breakthrough, which saw 315 of 450 parliamentarians voting in favor, likely gave some relief to investors holding Ukrainian debt. The yield on the country's dollar-denominated 2027 bond fell 17 basis points while that on the 2019 bond fell 12 basis points.
But Ukraine has tried to push through legislation before in attempts to placate IMF demands and unlock funds, only to slip in items that went against the lender's rules. A previous attempt at setting up an anti-corruption court failed after the IMF deemed its appointed judges as not sufficiently independent.
"While most people are in favor (of the bill), some of those in favor only want a court they can strip all power from," cautioned Max Hess, senior political risk analyst at London-based consultancy AKE Group. "They want the benefits that will come with passing it, being able to claim they are pushing through reforms to appeal to voters, when in reality they are just obstructing."
Timothy Ash, senior emerging markets strategist at Bluebay Asset Management, said that there was so far zero visibility as to the law's IMF compliance.
"My sense is that the IMF will want to read and study the final text very carefully before committing, to make sure no funny business was included at the last minute," he said.