IMF, Ukraine discussing how to achieve 2.5% of GDP deficit in 2018

Ukrainian authorities and the International Monetary Fund
(IMF) are continuing to discuss the necessary 2018 budget parameters to achieve
a 2.5% of GDP budget deficit in 2018, reported the Interfax-Ukraine news agency
on Nov. 20.  “Discussions will continue in the coming weeks to ensure that
the approved budget is consistent with the 2.5% of GDP deficit target agreed
under Ukraine’s IMF-supported program,” the news agency said, citing the
press release the IMF distributed after visiting Kyiv on Nov. 9-17.  On
Nov. 14, parliament approved the 2018 draft budget in the first reading with
more than 800 amendments from MPs to be considered. 

Previously, Goesta Ljungman, the IMF resident
representative in Ukraine, told the media that the Fund anticipates four steps
to be completed for the fourth review under the Extended Fund Facility (EEF)
program. They included a new privatization law (approved by parliament in the
first reading), pension reform (approved by parliament), legislation creating
an anti-corruption court (pending in parliament), and adjustment of natural gas
prices to import parity (rejected by the Cabinet).

Alexander Paraschiy: We believe
Ukraine’s Finance Ministry is absolutely committed to keeping the budget
deficit below 2.5% of GDP, but concessions might be needed in parliament to
gain approval for the budget. After all, the 800 amendments pose a risk and the
Fund will wait until the final 2018 budget to draw any conclusions.

Nonetheless, a budget deficit below 2.5% of GDP by
itself will not secure the next loan tranche. Natural gas prices remain an
issue and it’s not clear what other reform can satisfy the IMF in awarding
another tranche. The next wire could arrive in spring 2018 but not without some
serious measures.