Ukraine parliament to consider finance minister dismissal

Ukrainian Prime Minister Volodymyr Groysman submitted
a request to parliament on June 6 to dismiss Finance Minister Alexander
Danyliuk, he wrote in his blog the same day. Danyliuk “allowed himself actions
which, in my opinion, are incompatible with his future as a member of the
Cabinet of Ministers,” Groysman commented.

He referred to a letter that Danyliuk wrote last week
to G7 countries ambassadors complaining about the president’s attempt to
appoint a loyal deputy finance minister, as well as Groysman opposing reforms
of the State Fiscal Service, which he alleged is led by the PM’s close ally and
sunk in corruption.

“The dissemination of distorted information among our
international partners on the eve of important negotiations with the EU could
jeopardize their results,” Groysman commented on that letter, adding that
Danyliuk “did not correct his behavior” after this incident.

Subsequently, the parliament’s budget committee approved
Groysman’s request to dismiss Danyliuk, which paves the way for a parliamentary
vote on the resignation today.

Alexander Paraschiy: It is very
likely that parliament will support Danyliuk’s dismissal. The key question is
whether such a move will spoil Ukraine’s chances to receive key loans from the
IMF and other IFIs expected this year. Our understanding is that there is no
risk for the IMF deal. Danyliuk’s likely substitute, his first deputy Oksana
Markarova (who is likely to gain the status of acting finance minister), will
continue talks with IFIs on the ministry’s behalf, and we expect that
negotiations will go on smoothly.

The key risk that stems from Danyliuk’s dismissal, however,
is the budget process. Without him, MinFin will be more prone to approve the
populist initiatives of the government, which will unavoidably emerge closer to
the election season of 2019. In turn, this increases the risk of a swelling
budget deficit and mid-term sustainability of fiscal policy.

All in all, we believe the reshuffling in MinFin
brings few positives, but the core thing – smooth cooperation with IFIs in the
short-term – looks beyond risk.