The International Monetary Fund's mission to Ukraine has come and gone, and will return in March. Experts, however, expect a deal no sooner than the end of April, when the end of the heating season will make raising gas tariffs – a key IMF demand – politically easier.
The IMF
delegation has been in Kyiv since Jan. 29, discussing the possible renewal of a
$15 billion lending program to help Ukraine deal with its record $9 billion
debt repayments this year, two-thirds of which is owed to the international
lender.
A previous
$15 billion program was aborted in early 2011 after Kyiv failed to make good on
its commitments, most importantly raising gas prices for household consumption.
This
continues to be a sticking point, as the IMF has made clear that no new money
will come unless Ukraine ends the expensive de facto gas subsidies to
households. It is also asking for a liberalization of the currency regime (the
hryvnia has been strongly pegged to the dollar), and more realism in
macroeconomic planning.
There has
been some positive news of late, most recently in the form of an announcement
by President Viktor Yanukovych at the World Economic Forum in Davos that state
gas behemoth Naftogaz will be unbundled and privatized.
Experts
have for years complained about Naftogaz, which Andre Kuusvek, the European
Bank of Reconstruction and Development Ukraine country director, once pithily
described as “a huge drag on the state budget, a black
hole in terms of where the financial management is concerned.”
The IMF did
note that some progress is being made, with the mission chief Christopher Jarvis noting that “we have made significant progress
toward reaching understandings with the authorities,” but adding that “important
policy issues remain outstanding, and further technical work needs to be
completed.”
He also
pointed to the serious challenges facing Ukraine, which included a sharp
slowdown in economic activity in the second half of 2012, a rapidly widening current account deficit
and worsening fiscal account.
“Large subsidies on gas and heating for households continue to undermine
Ukraine’s budget and its balance of payments. In the absence of corrective
policies our forecast for 2013 is growth of 0-1 percent and a high current
account deficit that leaves Ukraine vulnerable to shocks,” Jarvis wrote.
Timothy
Ash, head of emerging markets research at Standard Bank, was blunter, writing
that “there are still significant policy differences between the two sides … gas prices, foreign exchange policy and macro assumptions
underlying the budget. The government is still banging the drum that real GDP
growth can come in at 3 percent this year, which seems like ‘pie in the sky’ at the
moment, and the IMF at talking about nearer to 0-1 percent, which might even
be a best case.”
The
inconclusive results were expected
by analysts after
Ukraine hastily issued a $1 billion Eurobond in the middle of talks, enough to
covering the bills falling due.
According
to Olena Bilan, macro analyst at Dragon Capital, the lack of major redemptions
until end-April (only $0.5 billion are due by that date), means talks and tough
decisions could be further postponed.
“This gives
the authorities some room for maneuver and suggests that the next round of
negotiations with the IMF may be potentially postponed until early or
mid-April,” she wrote in a note to investors, adding that the domestic heating
season will be over by then, making a household gas tariff hike less painful
for the population.
Kyiv
Post editor Jakub Parusinski can be reached at [email protected]
