IMF insists on Ukraine raising household gas rate before loan resumption

The International Monetary Fund’s representative in Ukraine Max Alier said yesterday at a round table that the IMF still insists Ukraine raise household gas tariffs before resuming its USD 16 bln loan program, Interfax reported yesterday. Alier said that the government had pledged to raise rates by 50% in April and the IMF’s requirements have not changed since then. Alier also indicated that cooperation also hinged on the 2012 state budget – with the IMF asking for a deficit of 2.5% of GDP vs. 3.5% planned this year. Brad Wells: We expect pressure for cheap budget financing and a reputational capital boost (ahead of further Eurobond placements, etc.) to prompt the government this fall to reassess making the gas price hike (or hikes – in February, officials disclosed plans for a two-stage increase) that they have been avoiding. The government controls all the key levers to implement the change, but with parliamentary elections in October 2012 it has been lax to provoke the population with another tariff increase (it raised rates by 50% in August 2010).