Ukraine will resume talks with the International Monetary Fund next month over a third bailout in four years after the lender cited “serious challenges” following a two-week visit to the former Soviet republic.
IMF representatives will return to the capital, Kiev, in March, the Washington-based lender said an e-mailed statement today. While talks yielded “significant progress” toward policies to narrow the budget and current-account deficits, strengthen reserves and create jobs and growth, “important” policy issues remain, said Christopher Jarvis, the fund’s mission chief.
Ukraine is seeking financial aid as it faces a shrinking economy, a widening current-account gap, foreign reserves that have dipped below three months of imports and $10 billion of debt payments scheduled for this year. While efforts to lower natural gas prices from Russia have so far failed, the government has retained access to foreign debt markets, selling $1 billion of Eurobonds last week.
“Large subsidies on gas and heating for households continue to undermine Ukraine’s budget and its balance of payments,” Jarvis said in the statement. Without “corrective policies,” the economy may grow between 0 percent and 1 percent this year, less than the government’s 3 percent forecast, he said.
The yield on Ukraine’s government dollar bonds due 2022 rose to 7.541 percent as of 5:15 p.m. in Kiev from 7.539 yesterday, data compiled by Bloomberg shows. The hryvnia declined to 8.1110 per dollar from 8.1100.
The eastern European nation wants to borrow about $15.4 billion on the same terms as its last aid package, which expired in December. The two sides agreed on that deal in 2010 and, while officials met demands to raise the pension age, they refused to increase domestic heating tariffs, a condition designed to narrow the budget gap. Disbursements were frozen in 2011 as a result.
The government may raise utility tariffs for the wealthy, Prime Minister Mykola Azarov said last month, without providing details. The IMF sought an across-the-board price increase of at least 30 percent in 2011.
Last year’s budget deficit widened to 53.34 billion hryvnia ($6.6 billion), exceeding the 38.8 billion official target, according to the Finance Ministry.
The economy contracted a preliminary 0.9 percent in the fourth quarter from the previous three months after a 1.2 percent decline in the July-September period, confirming the country’s second recession in four years.