Government admits IMF program to stay frozen until elections

First Deputy PM Valeriy Khoroshkovsky admitted yesterday in an interview with the Dow Jones news agency that Ukraine’s stand-by loan program with the IMF can only be unlocked after October’s parliamentary elections. He added that the government would need 5-6 months to meet one of the IMF’s key requirements (raising gas and heating tariffs for households) in order to implement a mechanism for subsidizing socially sensitive layers of the population.

Svetlana Rekrut: This is the first time a high-ranking Ukrainian official has so blatantly admitted the loan program is frozen until after the elections. We don’t foresee Ukraine experiencing difficulties servicing its IMF debt in 2012 (USD 3.4 bln), but that, along with FX sales to the open market, will deplete central bank reserves to an estimated USD 22 bln (-30% yoy) by end-2012. Even without new IMF loan disbursements, we believe the government will be able to raise debt from international public markets or attract bilateral loans, although with a hefty risk premium and punitive interest rates. The news looks neutral in terms of debt markets: the market expected little progress on the IMF front this year after the government made clear several months ago it wouldn’t give in to IMF requests until after the election.