IMF confirms mission to return to Ukraine at end of August

A mission from the International Monetary Fund will visit Ukraine from August 29 to September 9 to continue discussions on the second review of the USD 16 bln standby loan program, the IMF’s Kyiv office confirmed yesterday, according to a statement posted on Bloomberg. The IMF green lit the last USD 1.5 bln tranche in December 2010, which brought total disbursements under the program to USD 3.4 bln. A scheduled USD 1.5 bln tranche was to have been disbursed in March, with the entire amount being directed to the central bank. Brad Wells: The return of an IMF mission is a welcome signal, though Ukraine’s actual progress on the key believed sticking points, pension reform and gas tariff increases, has been low. Pension reform legislation has already been passed by parliament, but is awaiting further tweaks by parliament when it returns from summer break before heading to the president’s desk for signature. In terms of the gas rates, Ukraine and the IMF have reportedly agreed to a softer phase-in to gas tariff increases, +30% in 2011, vs. +50% envisaged in prior agreements. In our view, the government is likely to sit on hiking gas tariffs for the time being. With privatization revenue already hitting their target and a pair of sovereign Eurobond placements earlier already this year to fill its coffers, the government already has its eye on its polling numbers and looks reluctant to needlessly provoke the population further (Yanukovych’s approval ratings plummeted to 11.3% in April vs. 40.9% a year earlier) with a rate increase in order to tap into the IMF’s purse unless it has to. Iryna Akimova, first deputy head of the presidential administration, said Ukraine hoped to “find understanding on gas prices” at a press conference yesterday. Ukrainian officials have said they hope to receive two tranches simultaneously totaling about USD 3 bln by end-September.