IMF arrives in Ukraine with tough demand for new loan

The IMF approved a $17.5-billion (15.8-billion-euro) rescue package for the war-scarred former Soviet republic in 2015 to help it recover from two years of savage recession and allow the pro-Western leaders to cut their dependence on Russia.
But Kiev has only seen $7.6 billion of that money due to foot-dragging by populist lawmakers in parliament over the deeply unpopular belt-tightening measures prescribed by the Fund.
The IMF last released a $1-billion tranche payment in September that Kiev had been hoping to see in 2015.
A Ukrainian central bank statement said the IMF mission was meeting with its top official and would likely remain in Kiev for another two weeks.
Kiev hopes to see a new $1.3-billion payment unlocked in December to help it cover the cost of pensions and outstanding bills to other lenders.
But Kiev’s representative to the European Bank for Reconstruction and Development (EBRD) has said that meeting the IMF’s demands would be tough.
Ukrainian media reports said the IMF has outlined five points that Kiev must meet in order to receive future payments.
The first involves obtaining the required capital needed for 12 large and systemically important banks to stay afloat.
An earlier central bank stress test found that 28 of 39 lenders checked lacked the required cash on hand to survive another potential economic crisis.
The Fund also wants the government to start gradually raising the cost paid by households for gas and heating to “market levels” starting in March 2017.
Ukraine has already slashed its utility subsidies and been rebuked by loud street protests from predominantly pension-age people who cannot afford the new bills.
But economists view Ukraine’s subsidisation of its energy sector as one of the largest state budget drags.
The IMF also wants the government to find a way 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It further would like to see Kiev speed up its privatisation efforts and simplify its outdated tax system.
National Bank of Ukraine’s deputy chief Dmytro Sologub said last week that the release of a new IMF payment would also help Kiev receive an additional 660 million euros from the European Commission that could help fill state coffers.
Ukraine’s cash and gold reserves have been slowly filling after slipping to under $6 billion in March 2015 — enough to cover imports for just three months.