Ukraine plans gas price hike to secure vital $14.9bn IMF loan

UKRAINE’S GOVERNMENT plans to raise heavily subsidised gas prices to secure a vital loan from the International Monetary Fund, despite opposition leader Yulia Tymoshenko’s vow to block a move that she says will hurt the country’s poor.

“We have to tell people the truth. In these circumstances, we had no other choice than to agree with the IMF on financial support,” said prime minister Mykola Azarov, who is a close ally of president Viktor Yanukovich.

“In talks with the IMF, the government defended its own vision of ways to combat the crisis and protect the people. But the creditor’s position is always stronger than that of a weakened country in need of support,” Mr Azarov added.

Ukraine has won the IMF’s preliminary backing for the standby $14.9 billion (€11.7 billion) loan and hopes later this month to win final approval from the fund, which agreed a $16.4 billion emergency bailout for the country in 2008 as it plunged into a crippling recession.

Payment of that loan was suspended last year after former premier Ms Tymoshenko and ex-president Viktor Yushchenko squabbled over spending plans and failed to fulfil promises to impose tough cutbacks.

The IMF is demanding that Ukraine sharply reduce its budget deficit as part of the new loan deal, and the government has already unveiled plans to save some $2 billion by scaling back investment in industry and reforming the state pension fund.

Kiev has proposed reducing its deficit to 4.99 per cent of gross domestic product from 5.3 per cent this year, and shrinking it to 3.5 per cent next year. The IMF wants Ukraine to limit its consolidated budget deficit to less than 5.5 per cent of GDP this year.

The consolidated figure includes subsidies to state energy firm Naftogaz, which are estimated at up to 1 per cent of GDP this year. Ms Tymoshenko said the planned 50 per cent hike in gas prices was “unfounded and immoral” and constituted the “financial and economic murder” of Ukraine’s poorest people.

“If, God forbid, they take this step from August 1st, then we will go to court and fight to stop them raising the price of gas,” she said.

Ms Tymoshenko claimed the price rise was a way for Mr Yanukovich and the government to channel money to their political backers: an arbitration court ruled last month that Kiev must pay to settle a dispute with a gas trading firm called Rosukrenergo, whose owners are seen as supporters of the current authorities.”