Ukraine Gets $1.5 Billion From IMF, Told to Stick With Budget Reductions

The International Monetary Fund agreed to disburse $1.5 billion to Ukraine and urged the government to stick to planned budget cuts after reviewing the country’s progress in meeting terms of a $15.3 billion loan.

“Fiscal adjustment remains at the core of the program,” First Managing Director John Lipsky said in an e-mailed statement after a meeting today by the IMF board. “Swift approval of the 2011 budget consistent with program targets, along with tight control over budget execution and efforts to improve tax administration, will be crucial.”

The IMF agreed in July to provide a 29-month loan to Ukraine, the country’s second bailout in two years after the global financial crisis cut demand for its exports and the economy shrank 15.1 percent in 2009.

The government agreed to narrow its budget deficit to 3.08 percent of gross domestic product in 2011 from 5.5 percent this year and pledged to raise the retirement age over the next decade, according to a draft law submitted by the government to the parliament.

Changes to the pension system, public administration and state-owned companies will be key for longer-term fiscal sustainability, Lipsky said.

Ukraine should “expedite the implementation of measures necessary to tackle the problem of sizeable impaired assets in the banking system” hindering the financial sector’s support to “a sustainable economic recovery,” he said.

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net.

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