KYIV, May 13 - Ukraine’s parliament passed a banking reform bill on Wednesday, paving the way for a $5 billion aid deal with the International Monetary Fund to avoid possible default on debts.

President Volodymyr Zelenskiy’s government has trumpeted the prospect of securing new IMF loans to help counter concerns that its performance on reforms is slipping, Reuters reported.

“Ukraine is resolute on its reform path & remains a reliable partner for international financial institutions,” Foreign Minister Dmytro Kuleba tweeted after the approval of the banking bill, the last hurdle to securing the IMF aid.

The new legislation prevents the former owners of insolvent banks from regaining their assets. It is seen mainly as being aimed against the interests of Ihor Kolomoisky, a tycoon and an early backer of Zelenskiy’s 2019 election campaign.

Kolomoisky used to co-own Ukraine’s largest lender, PrivatBank, until it was nationalised in 2016. He has waged a long legal battle against the government to either recover it back or receive compensation.

Zelenskiy’s government had initially expected to receive $8 billion, but the IMF abruptly announced last week it was switching its deal offer to an 18-month Standby Arrangement, with fewer riders than the original agreement.

Addressing lawmakers before the vote, Prime Minister Denys Shmygal said he expected the first loan tranche to be disbursed by the end of May. The deal is also expected to unlock more aid from the World Bank and other overseas institutions.

Analysts welcomed the parliament’s move.

“Securing the IMF deal is critical for Ukraine, as it’s unlikely to be able to cope with the fallout from the pandemic and lockdown without the support of external financing,” said Makar Paseniuk, Founding Partner of the ICU brokerage.

Ukraine’s economy, one of Europe’s weakest, will contract by around 5% this year as stringent lockdown measures throttle businesses, according to government estimates.

The banking bill’s passage had been uncertain. Lawmakers, including some who used to work for Kolomoisky, had submitted more than 16,000 amendments to the legislation, which Zelenskiy’s party feared could mean months of delay.

The changed IMF program, and Zelenskiy’s decision to sack reform-minded officials this year including the prosecutor general and the finance minister, have raised questions about his government’s ability to drive reforms. (rt/ez)