The government lacks the political incentive to raise household gas prices, a condition to receive the next IMF tranche, ahead of elections in October 2012, Ivan Tchakarov, chief economist for Russia and the former Soviet Union, said in a telephonic interview today. “The immediate urgency of winning IMF support is much weaker than in 2008,” he wrote in an e-mailed report today.
Ukraine received two tranches totaling $3.4 billion from the IMF after promising last year to reduce its budget deficit, its second rescue package in three years. The third installment was delayed as the Cabinet had not met its cost- cutting pledges to increase the retirement age and raise household gas tariffs. Last week, the parliament approved a revised pension plan raising women’s retirement age by five years to 60, ahead of an IMF mission next month.
The move will “not be enough to get IMF money” without raising gas prices, Tchakarov said by phone.
In the absence of aid, Ukraine’s gross reserves will decline from its current record high of $37 billion to $33 billion by year-end, he wrote, while 2012 will be “more challenging without IMF support” as reserves will drop to $22 billion.
Ukraine may adjust its economic policy to ensure it receives bailout money after the elections, but before the end of 2012, according to the note.
“Ukraine can survive without this money before the elections,” Tchakarov said by phone. “In the longer term, it’s clear they need IMF help.”
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