Ukraine gets closer to IMF tranche, media report

Ukraine’s parliament
has reportedly resolved most of the remaining differences with the EU and the
IMF on the bill creating an independent anti-corruption court, the ukranews.com
news site reported on May 21, citing sources close to the talks. The only
disagreement left as of May 21 is the process of selection of judges to the
court, the article said. The West is demanding that an internationally
sponsored Public Council of International Experts (PCIE) will have
unconditional power to disqualify any candidate, while the Ukrainian side still
hopes that a local High Qualifications Commission of Judges (HQCJ) will have
the ability to overrule any such disqualification.

A possible
compromise may be reached in which a candidate disqualified by international
experts can be approved at a joint meeting of both commissions in a vote the
will require some of the international members to support such a candidate,
according to ukranews.com’s sources. For example, out of seven PCIE members and
16 HQCJ members, 18 should support a candidate for approval.

Recall, in order to
issue its fifth tranche under its current EFF program with Ukraine (up to USD
1.9 bln), the IMF is demanding both (1) approval of legislation on the High
Anti-Corruption Court in line with Council of Europe requirements and (2)
bringing natural gas prices for households closer to import parity prices.

Regarding the gas
issue, ukranews.com reported that PM Volodymyr Groysman opposes any decision
resulting in a price hike, a move that may significantly damage his political
image. As one of the solutions being considered, Groysman may resign so that
the IMF-required decision is approved by an acting PM, Stepan Kubiv, who is
currently first deputy PM and seems to have no political ambitions. In that
way, Ukraine can meet both key IMF requirements and receive the next IMF
tranche already in June.

Alexander
Paraschiy: This
scenario outlined by ukranews.com is one of several outcomes that may secure
the IMF tranche for Ukraine in mid-2018 (and unlock USD 1.4 bln in financing
from the World Bank and the EU). The IMF deal is critical for Ukraine to
accumulate enough reserves to ensure the smooth payment of state debts in
1H18-2019. So it will also be crucial for supporting Ukraine’s credit ratings
and its debt sustainability overall.

At minimum,
Ukrainian power brokers seem to understand the importance of the IMF tranche so
a successful deal with the IMF remains our base-case scenario. We also expect
Groysman’s Cabinet and the IMF will reach some compromise on a gas price
revision, providing all the issues surrounding the creation of an
anti-corruption court will be resolved. Moreover, we don’t think Groysman’s
resignation will be necessary to achieve that.