Ukraine has won a financial lifeline from the International Monetary Fund.
Up to 13 billion euros in standby credit from the IMF will unlock further aid from the European Union, the United States and other lenders over two years.
In Ukraine’s parliament Prime Minister Arseniy Yatsenyuk explained the price for that aid will be tough economic reforms – including higher taxes on incomes, alcohol and tobacco; layoffs of government workers; and a 50 percent hike in people’s gas bills from the start of May.
Without the loans Ukraine is doomed Yatsenyuk said: “The country is on the brink of economic and financial bankruptcy. If these reform laws are not accepted we predict default and we predict a 10 percent decrease in GDP.”
He blamed the country’s economic state on mismanagement and theft by the government of ousted President Viktor Yanukovych.
No debt restructuring
The IMF said it does not see a need to restructure the country’s debt at this time.
“We don’t proceed with programmes if they’re deemed to be unsustainable,” IMF spokesman Bill Murray told reporters. “So the fact that we’re proceeding with the programme indicates we don’t envisage at this point a debt restructuring.”
Murray added that he believed Ukraine’s new government was committed to economic reforms.
“We’ve consulted widely in Ukraine across the political spectrum,” he said. “The Ukrainian authorities have voiced publicly and privately a keen interest in getting their economic house in order.”
The IMF’s two most recent programmes with Ukraine went off track because of the previous governments’ failure to follow through with politically difficult measures such as raising gas prices, which the IMF said was necessary to put the government’s finances in order.
Reform of the energy sector is a top IMF priority.
Ukraine’s Naftogaz, which imports gas from Russia’s Gazprom, will be closely looked at to improve the transparency of its accounts and with a view to restructuring the company to reduce its costs.
With the International Monetary Fund calling the shots, Ukrainians will also face higher inflation cutting their spending power.
The IMF considers the currency, the hryvnia, to have been “overvalued,” and has said a flexible exchange rate is needed to boost exports and economic growth.