Ukraine Markets Daily (February 10, 2017)

Market news

  • IMF loan to Ukraine is expected shortly, pension reform is on the table for 2017

Market comment

The UX index increased by 3.7% Yesterday, and the PFTS index grew by 0.3% (in UAH term). The WIG-Ukraine index was up by 1.9%. On the interbank exchange market, the USD/UAH was down up 0.5% to UAH 27.06 (mid price), according to Bloomberg. The official exchange rate reported by the NBU was UAH 27.02.


IMF loan to Ukraine is expected shortly, pension reform is on the table for 2017

The issue of the next tranche from the International Monetary Fund (IMF) under the EFF program to Ukraine has not been put on the agenda of the meetings of the IMF Executive Board for the period up to February 17, 2017, according to information on the Fund’s official page. Nevertheless, officials from the negotiating parties claim that the issue will be put to consideration by the Board soon. “We are in discussions with the authorities on the third review of the program that Ukraine has with the IMF. What I am saying now is that we expect that the Article IV report will be presented jointly with the third review when that comes to the Board, and we are expecting that soon”, Gerry Rice, Communications Director at the Fund said at a press briefing on January 9, 2017. Good progress has been made in the policy negotiations, the IMF official maintains. However, some issues still need to be resolved, associated with the finalization of the Memorandum on the Economic and Financial Policies, as well as on the timing of some upcoming measures. “Assuming that those remaining issues can be resolved, we expect to propose the completion of the third review to our Board in the coming weeks”, Gerry Rice asserted. The Ukrainian Finance Ministry assumed the remaining issues to be barely technical. Meanwhile, the issue of pension reform seems to remain a major hurdle towards the longer-term cooperation between the Fund and the Government of Ukraine. The Social Minister has expressed opposition or disagreement with the IMF urge to review the retirement age in Ukraine. However, the Ukrainian authorities agree on the need for comprehensive reform “to ensure the sustainability of the pension system, and to be able to provide better viability of the pension system and to be able to provide better pensions to retirees”, Gerry Rice assures. “This includes the consideration of all options to move toward a more modern and fairer system with clearer rules that provide incentives for longer employment and later retirement”, the IMF speaker says. The Government intends to present changes to the pension system over 2017, which should provide impartiality and increased pension payment capacities to the pension system, the Prime Minister Volodymyr Groysman stated at the sitting of the Cabinet of Ministers on January 8, 2017. “We have all grounds to claim that the pension system will be transformed in 2017, and it will be just, whereas pensioners will benefit from increase in pension provisions”, Groysman said. The Ukrainian pension system needs radical transformation, the Prime-Minister emphasizes.

Our view:

Despite official assurance that Ukraine has met all the prerequisites for the disbursement of the next IMF credit tranche, we think that uncertainties about the future government policy still restrain the finalization of the current Program Review. Nevertheless, we think that the parties are considering an interim solution supposing the disbursement of a limited financial assistance currently, while requiring the adoption of a short-to-medium term fiscal reform program, aimed at securing budget sustainability. We think such program to encompass all sources of budget financing, including tax, customs, and other mandatory payments, as well as privatization and efficiency of state companies. The measures should allow coming to a softer approach to the reform of the pension system, as the Government is striving for.