Ukraine president reportedly offers concessions to the IMF

At a special meeting with top government authorities, Ukranian President Viktor Yanukovych proposed several steps to partially meet the most critical IMF requirements, the Dzerkalo Tyzhnia (zn.ua) website reported, citing anonymous sources. The president has offered to increase by 60% tariffs for households that consume more 3.5 tcm of natural gas per year. Other initiatives are cutting tax preferences and social benefits. The president also reportedly offered to increase the ceiling for the UAH/USD exchange rate to 8.5x.

Alexander Paraschiy: Firstly, we have to find official confirmation of the information disclosed by zn.ua. We hope they’re true because restarting IMF cooperation is clearly the optimal way out of Ukraine’s weak foreign currency liquidity. Yanukovych seems to be bargaining with the Fund by offering only a partially fulfillment of requirements, but we view such concessions as a considerable sacrifice for a politician on the eve of presidential elections and is therefore restricted in cutting social benefits.

Nonetheless, we do not believe the listed initiatives will help much. An increase in gas tariffs for some categories of households will not solve the problem of Naftogaz’s cash deficit (which is the ultimate aim of the IMF’s proposed gas rates hike) since the main source of Naftogaz’s gap is low gas tariffs for heat production companies, not households. Meanwhile, allowing the hryvnia to devaluate to UAH 8.5/USD looks also like a partial solution that is unlikely to be enough to balance Ukraine’s external accounts and prevent foreign currency outflow in the near future.