Although the International Monetary Fund has praised Ukraine’s economic reforms, it is also warning more needs to be done otherwise there is a risk of a greater slowdown in the country’s growth.
The IMF also continues to urge Ukraine to significantly increase gas prices for domestic consumers if it wants to get more bailout money.
Max Allier, the IMF representative in Ukraine, said that is the only way forward: “Our conditions are clearly known, we believe they are very important. These are conditions on the energy sector, related to gas prices, we also see important fiscal and budget conditions, because we believe it’s important that to sustain growth Ukraine has a budget that is consistent with medium-term fiscal sustainability.”
But with a parliamentary election due in October, the Ukrainian government is baulking at angering voters by raising domestic gas prices by the up to 50 percent that economists have said is needed to put public finances on a more sustainable track.
Ukraine blames Russia on which it depends heavily for gas imports. A recent meeting between President’s Putin and Yanukovich brought no revision of a 2009 deal which Ukraine argues set an exorbitant price for gas.
Ukraine’s Prime Minister Mykola Azarov said that is undermining growth: “High gas prices are absolutely slowing down our economic growth. Faced with conditions of intense competition they’re making some areas very vulnerable – such as metallurgy, our chemical industry, and agriculture because of expensive fertilisers.”
In order to get a discount on gas prices, Moscow insists that Ukraine must either let Russian energy giant Gazprom take over its gas pipelines – which carry Russian gas to Europe – or join a Russia-led Customs Union, a post-Soviet trade bloc.