IMF team leaves Ukraine without new loan promise

Economic restructuring progress inadequate

KIEV:

The International Monetary Fund said yesterday its team had ended a visit to Kiev without seeing sufficient economic restructuring progress to release a new loan to Ukraine this year.

The impoverished and war-scarred former Soviet republic had been hoping to receive a $1.3-billion ($1.2-billioneuro) tranche payment in November from a rescue package of $17.5 billion agreed with the Fund in 2015. But Kiev has only seen $7.6 billion of that money due to foot-dragging by populist lawmakers in parliament over deeply unpopular belt-tightening measures prescribed by the Fund.

The IMF last released a $1-billion tranche payment in September that Kiev had expected to see last year. A statement from the Fund’s mission said the pro-Western government still needed “some time” to adopt all the economic prescriptions mandated under the fouryear program.

“While good progress has been made, the authorities need some more time to implement policies to ensure medium-term fiscal sustainability-including adoption of the 2017 budget consistent with program targets-safeguard financial stability, and tackle corruption,” the IMF team said.

“Discussions on these policies will continue in the period ahead.” Ukrainian media reported the IMF had outlined five points that Kiev must comply with in order to receive future payments.

The first involves obtaining capital to keep 12 large and systemically important banks afloat. An earlier central bank stress test found that 28 of 39 lenders checked lacked the required cash at hand to survive another potential economic crisis.

The Fund also wants the government to start gradually raising household bills for gas and central heating to “market levels” starting in March 2017. Ukraine has already slashed its utility subsidies and saw loud street protests from predominantly pension-age people who cannot afford the new bills.

But economists view Ukraine’s subsidization of its energy sector as one of the largest drains on the state budget. The IMF also wants the government to turn its loss-making state gas and oil company into a profitable venture by the end of 2017.

It further would like to see Kiev speed up its privatization efforts and simplify its outdated tax system.

Ukraine has pulled out of a dire twoyear recession by recording nine consecutive months of economic growth. But the Fund’s statement said that Ukraine’s gross domestic product “is still very low-just 20 percent of the EU average, the second lowest level of all central and eastern European countries.”

It also noted that “tangible results in prosecuting and convicting corrupt high-level officials and recovering proceeds from corruption have yet to be achieved”.