Ukraine will not reduce its budget deficit “without consequences and hardships”, Anatoly Maksiuta, deputy minister of economy and trade, warned yesterday.
Plans to hike tariffs for municipal services including gas, electricity, heat and hot water “are not met with total understanding by the population, of course”, Maksiuta admitted to a seminar at the EBRD annual meeting in Astana.
Pension reform had been “long postponed”, and would now have to be undertaken “more rapidly than would have been ideal”.
Since Viktor Yanukovich took over as president in February last year, the government and president’s office have coordinated their reform efforts, Maksiuta said. That was not the case in 2008-10 when the rift between president Viktor Yushchenko and prime minister Yulia Timoshenko slowed legislative and executive activity to snail’s pace.
“There is political will now. But that’s not sufficient on its own. It remains to carry through the reforms, to get concrete results.”
Maksiuta emphasised that the government was “unwavering” in its determination to push reforms through and that “we are in discussion with the IMF”.
There are, however, outstanding differences on the timing and details of implementation. When the IMF put its stand-by programme for Ukraine in place in October 2008, it demanded specific commitments on raising the municipal service tariffs, on pension reform, and on recapitalization of the banking sector.
The Fund in recent months delayed disbursement of the 1 billion SDR ($1.6 billion) third tranche of its stand-by programme, initially due in March. Emerging Markets understands that the delay is related to the government’s failure to stick to agreed timetables for reform implementation.
In mid-March, ministers, emboldened by higher tax receipts and alarmed by 10,000 teachers who picketed their offices in Kiev, hiked public sector wages by 20% and put the brakes on some reforms. A 50% increase in gas tariffs originally scheduled for April is now to be introduced in three smaller stages throughout the year.
Iryna Piontkivska, economist at Troika Dialog in Kiev, told Emerging Markets that a shift in the external environment could force the government to change tack. “Commodity prices are as high as in early 2008, and this makes things look good for Ukraine – but a correction will come at some point”, she said. “For now, the good start to the year [economically] seemingly suppressed the authorities’ strong intentions to implement reforms, including those agreed upon with the IMF.”
In Astana – where Kazakh speakers have underlined that the government here is actively working on proposals to turn the Customs Union with Russia and Belarus into a “single economic space” – Maksiuta reacted cautiously to Russian prime minister Vladimir Putin’s suggestion that Ukraine join the Customs Union.
Maksiuta said that Ukraine would “of course continue to cooperate” with the Customs Union, and particularly Russia as Ukraine’s largest trading partner. Membership is not under discussion.