Running behind schedule, as usual, Ukraine's parliament on March 2 finally revised the budget for 2015 and introduced cuts to pensions. The austerity measures were meant to fulfill some of the key conditions for up to $25 billion in low-interest loans that Ukraine expects from the International Monetary Fund and other lenders over the next four years.
The budget was supposed to be completed last week. The situation is urgent because the economy is in recession and confidence is not high in the Ukrainian hryvnia, which has lost half its value in the last two months. IMF lending, which stopped last August, needs to be restarted again.
Despite criticism for the unrealistic currency rate of Hr 21.7 to dollar and 26 percent inflation rate, the government stuck by the estimates, even though the hryvnia is worth less and inflation could be higher. All in all, however, Ukraine’s government will raise and spend less than $20 billion this year, given the projected shrinking of the gross domestic product – somewhere in the neighborhood of $100 billion or so.
Some 273 lawmakers supported the decision, a clear majority.
Tough debate arose over cutting already meager pensions by 15 percent. According to the law, those who continue working after retirement, excluding servicemen and disabled, will be receiving 85 percent of their pensions, but no less than Hr 1,423 ($53 monthly) until 2016. At the same time, the pensions of working lawmаkers, judges and prosecutors will be cancelled.
Samopomich and the Batkivshchyna party faction, part of the ruling coalition of lawmakers, unsuccessfully fought the pension cuts. The bill was approved by 238 lawmakers, also a clear majority.
“Adoption of this package (of laws) and the decision of the IMF will give us the opportunity not only to get loans, but it also will bring $3.5 billion in investment in Ukraine,” Prime Minister Arseniy Yatsenyuk said at the session.
While a $17.5 billion loan the IMF and $7.5 billion one from G7 countries will be used to repay debts and replenish hard-currency reserves, investment from the European Bank for Reconstruction and Development and the European Investment Bank will go into roads, energy efficiency and other infrastructure projects.
The IMF board meets on March 11 to consider Ukraine’s loan request.
Ukraine’s Finance Minister Natalie Jaresko was pleased with March 2’s outcome.
“Tonight the Ukrainian Parliament supported necessary changes to the budget, tax code and pension system. These were changes that enable us to provide significant subsidies to households in need as tariffs on gas and heating are raised, significant subsidies to our 1 million internally displaced persons, and reduce our funding of state oil and gas company Naftogaz further,” Jaresko posted on Facebook. “We financed this through increased royalties on our state gas extraction company, increased royalties on the iron ore industry, and on ammonium transiting through Ukraine. Overall, we have shifted to a more transparent approach to the gas market and now come closer on the path to achieving an economically justifiable price in all segments and reduce corruption along the way.”
Additionally, Jaresko wrote: “We adopted important legislation regulating related party lending in the bank system which provides some justice in a system previously rampant with insider deals and fraud, which led to innocent depositors losing their savings as banks failed. Those who committed fraud or criminal activities leading to bank failures can now be brought to justice and held accountable.”
On March 5, lawmakers will get reports from National Bank of Ukraine head Valeria Gontareva and the Cabinet, parliament speaker Volodymyr Groysman announced at the session.
President Petro Poroshenko might soon consider reshuffles not only in the National Bank of Ukraine, but in the Cabinet, Ukrainska Pravda news website reported on March 2, referring to sources in the parliamentary coalition.
Oleksiy Ryabchyn, a member of the Batkivshchyna party faction, also says changes are possible.
“As far as I understand it will be considered only after the IMF loan is approved and the president will raise the issue not only about responsibility of Gontareva but also of the whole financial and economic bloc of the government and National Bank,” Ryabchyn told the Kyiv Post.
