Nine beacons from IMF: Will Ukraine receive the next tranche?

Author : Olena Hetmanchuk

Source : 112 Ukraine

After receiving a portion of the money from its main creditor, Ukrainian government began to dream of a new one. The IMF requires a realistic budget, the law on the land market, and pension reform
12:09, 25 October 2016

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September 14, 2016 Ukraine received tranche of the IMF. The next day, Kyiv has entered into another period of waiting for a new tranche.

According to the preliminary schedule, the fourth tranche of $ 1.3 billion is planned to be received before the end of 2016.

The pledge of continued cooperation with the fund is balanced draft budget for 2017 and the implementation of "beacon" of the new memorandum. Terms of implementation of new beacons are reduced to the end of 2016. We analyzed how realistic is their implementation.

What's New

Running conditions of the memorandum for the third tranche was delayed for more than a year. Despite the long break between the tranches, Ukraine has failed to fulfill all that was required.

Related: IMF mission to arrive in Ukraine on October 26

It has not adopted pension reform does not set up a special anti-corruption prosecutor's office to monitor the investigations. The Parliament has not made amendments to the Commercial Code, Civil Code changes for the payment of debt on domestic transactions and the rules of arrest of bank accounts. Here is the list of beacons.

Related: IMF said cooperation with Ukraine largely dependent on fight against corruption

  1. Adjustment parameters of social programs relating to the payment of utility services to subsidy expenses did not exceed the budgeted figures. Deadline - end of September 2016.
  2. Submission of the draft law on turnover of agricultural land. Deadline - end of October 2016.
  3. Declaring dignitaries assets and revenues according to the rules of electronic declaration. Period - end of October 2016.
  4. Implementation of the interim mechanism of quarterly adjustment of tariffs for gas and heat, if they deviate from cost recovery levels of 10% or more. Deadline - end of October 2016.
  5. Adoption and publication of the classification to be uninsurable, and the privatization of state enterprises. Period - end of October 2016.
  6. Adoption of legislation that will allow National Anti-Corruption Bureau apply different methods of investigation, including the conduct undercover operations, intercepting messages, access to computer systems. Deadline - end of November 2016.
  7. Adoption of the law on the gradual change in the retirement age and reducing the individuals who have the right to do it ahead of time, establishing more stringent conditions to the minimum retirement age, the unification of pension legislation, presented today the 20-th law.

Branch co-payments to various categories of pensioners by pensions and transfer of their financing from the Pension Fund to the state budget. Deadline - end of December 2016.

Related: Pension reform, electronic declarations, privatization: What Ukraine promised to IMF

  1. Adjusting the law "On privatization". In 2016, Ukraine has committed to sell Kharkiv, Mykolaiv, Zaporizhia, Khmelnytsk, and Ternopiloblenergo, and the end of March 2017 - "Centrenergo." Adjustment Act should take place before the end of December 2016.
  2. Combining customs and tax in a single legal entity. Deadline - end of December 2016.

"Sometimes there are delays due to bureaucratic procedures, it happens that the amount of work required for the preparation of a reform, was initially estimated wrong," recognize the Ministry of Finance.

The most problematic moments

The obligations mentioned above are characterized by one of two evils: they have or require unpopular decisions, or do not coincide with the business interests of certain politicians. The majority of the "beacons" in these terms is now under threat.

The first risk is privatization. The last two years, the government announced plans to privatize key state assets, but did not do it.

Social Memorandum items is the second block of requirements that may be delayed. They all presuppose holding unpopular measures. Ministry of Social Policy has no plans to make to Parliament initiatives to increase the retirement age.

Related: IMF publishes memorandum with Ukraine

The position of the Ministry of Finance as follows: "The memorandum contains a beacon on the need for pension reform, rather than raising the retirement age. The need to balance the pension system due to huge expenses budget to cover deficit, in 2016 - 140 billion UAH."

In the budget package for 2017 the government submitted the bill for social change. The emergence of a new portion of reform initiatives depends on when and in what form they will be taken.

"We have 19.5 million pensioners, 7.5 million of whom do not have the minimum pension is not because they have not earned it, but because over the years has not been modernizing pensions. Recalculation of the formula in relation to the size of the growth of wages in the country. If we carry out, we will have 3.5 million people who can not qualify for the minimum pension," says Minister of Social Policy Andriy Reva. On the issue of raising the retirement age the government's position is clear: until the end of the year it will not be increased.

Related: Nalyvaychenko unveiled terms on which IMF provided new tranche for Ukraine

Third risky beacon is full operation of the system of e-declaration. Disruption of its launch in August, almost to suspend cooperation with the IMF. According to Deputy Prime Minister for Social Policy Pavlo Rozenko, there is a danger that because of the legal, organizational and technical issues of electronic declaration system could be turned into a fake.

In the eve of UNDP also stated that there are significant differences between the primary system, which UNDP provided NAPC, and the current operating software.

The reform of the simplified tax system is another unpopular and risky memorandum item. Previous attempts to transform accompanied by massive protests entrepreneurs.

No real solution

The lack of reforms in the country will make it impossible to obtain financing from the IMF, said the head of the Independent Association of Ukrainian Banks, Senior Advisor at Alfa Bank, Roman Shpeck.

Related: IMF demands to launch market of agricultural land in Ukraine. Is it good idea?

"The result of structural reforms is macroeconomic stabilization, which requires the IMF. Without it, no one will take the risk of lending to high inflation and a possible issue, which subsequently leads to the exhaustion of gold reserves and the rapid devaluation," he said.

According to his forecasts, the IMF will take this budget if he sees that Ukraine proposed measures, which will reduce costs throughout the year to repay the treasury of the Pension Fund deficit. Also, they should take measures to reduce costs in support of state-owned banks.

"Ukraine has no choice but to fulfill the assigned beacons, if it wants to maintain cooperation with the IMF and to prevent the deterioration of the economy, the growth of social tension," says the executive director of the International Fund Oleg Ustenko.

"Ukraine will not be able to fulfill all its obligations, but the implementation of most of them is real. Adoption of a law on the land market is doubtful. This is a very politically sensitive issue," the expert believes.

Recall the IMF technical mission begins its work on 26 October.

Related: "Kremlin lost" - Poroshenko's statement after Ukraine for IMF tranche

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