IMF wants agri-land market, better subsidy targeting for next loan

The IMF finally published on Oct. 3 its memorandum with Ukraine, signed in early September, revealing that Ukraine is expected to receive its next loan tranche of USD 1.3 bln after a mid-November 2016 program review and USD 2.0 bln after a mid-February review. Overall, Ukraine might receive an additional USD 9.7 bln in loans within the program by the end of 2018, including USD 5.4 bln in 2017 and USD 2.9 bln in 2018. Ukraine has received three tranches at a total amount of USD 7.6 bln since the External Funds Facility was approved in March 2015.

For the next review in mid-November, the IMF mentioned two requirements that should have been completed by the end of September. The first one requires a bill on an agricultural land market to be submitted to parliament and the second one requires a utility-related public assistance program adjustment that “ensure that benefits remain within the allocated fiscal envelope.” For further cooperation, the IMF demands strengthening the role of the National Anti-Corruption Bureau of Ukraine (NABU), adjusting the retirement age and tightening criteria for minimum pensions, further privatization, merging the customs and tax administration, strengthening management over state-owned enterprises, and making public the asset and income declarations of high-level officials by end-October.

Ukraine has also committed to privatize fertilizer producer Odesa Portside in October; power distribution companies Kharkivoblenergo (HAON UK), Zaporizhiaoblenergo (ZAON UK), Mykolayivoblenergo (MYON UZ), Khmelnytskoblenergo (HMON UK) and Ternopiloblenergo (TOEN UK) by the end of 2016; as well as power generator Centrenergo (CEEN UK) by end-1Q17.

Alexander Paraschiy: The list of the IMF demands is not so extensive this time but it looks quite ambitious. In particular, the plans for a land market emerging anytime soon are unrealistic given the wide resistance among the public. The Agrarian Ministry had drafted a bill to allow the sale and use as collateral of long-term land leases, but it’s not clear whether this approach is exactly what the IMF is looking for. And this bill has not been submitted to the parliament yet. The public assistance utility adjustment requirement calls for better targeting of needy recipients, which is still a problem in Ukraine and can’t be easily implemented by the currently weak Social Policy Mnistry.

In all, we have doubts about the next IMF loan tranche arriving this year. At the same time, it’s apparent that Ukraine still needs the IMF loans and we expect it will continue to cooperate with the Fund, with the possibility of receiving at least one tranche next year.