By Felix Innig: Subscribe to Felix's RSS feed
July 29, 2010 6:20 PM EDT
The government of Ukraine agreed to adopt unpopular reforms and austerity measures to gain access to a $15-billion credit line from the International Monetary Fund (IMF).
The IMF approved the two-and-a-half-year program late on Wednesday. The Ukraine expects the first disbursement of $1.89-billion within a few days, Deputy Prime Minister Sergey Tigipko said on Thursday.
The next payment is scheduled for December and subject to quarterly performance reviews.
To get the green light from the IMF, Ukraine had to commit itself to gradually cut its annual deficit, currently at around 5.5 percent of GDP, down to 2.5 percent by 2012. The overall public debt has to be reduced to below 35 percent of GDP by 2015.
The most painful immediate measure to be implemented by the government is probably the 50 percent hike in retail gas prices for households, as part of a program to cut unsustainable utility subsidies.
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The head of IMF mission to Ukraine, Athanasios Arvanitis, said on Thursday that gas prices should be continuously increased over the coming years, bringing them closer to the world market level.
“Ukraine is emerging from a difficult period during which the economy was severely hit by external shocks and exacerbated by domestic vulnerabilities,” said John Lipsky, first deputy managing director of the IMF.
He added that “the authorities are committed to addressing existing imbalances and putting the economy on a path of durable growth, through important fiscal, energy, and financial sector reforms. At the core of the authorities’ economic program is a comprehensive consolidation strategy to safeguard fiscal sustainability.”
The successful outcome of the IMF´s talks with the Ukraine are in stark contrast with the failure of such negotiations with Hungary just 10 days earlier. There, the Hungarian government refused to fully subscribe to the painful austerity measures requested by the IMF.
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