- The issue of pension reform is to be taken out of the current cooperation Memorandum with the IMF
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The issue of pension reform is to be taken out of the current cooperation Memorandum with the IMF
Ukraine and the IMF are at the final stage of the negotiations related to the updated cooperation Memorandum between the parties, the country’s Prime Minister Volodymyr Groysman announced during an agricultural exhibition on February 17, 2017. In his words, an extension of the retirement age is excluded, as soon as the IMF agreed to withdraw this requirement from the document. “We are working with the IMF. We are finalizing the work on the Memorandum… There is no word about increasing the retirement age in the Memorandum”, the Prime Minister emphasized. The Government knows how to cope with the deficit of the Pension Fund, currently standing at UAH 140 bn (c USD 5 bn), Groysman stresses, while contemplating the possibility of arriving to a deficit-less Pension Fund by 2024, if correctly handled. “The task for the current year consists, on one hand, in developing the economy and making the economy strong so that people could feel it, and on another hand implementing the reforms that should make the pension system equitable”. The Government pledges to present a comprehensive pension reform agenda shortly, which should receive the support of citizens and the Parliament. Meanwhile, the IMF proposes including a freezing of the wage level for three years in the new cooperation Memorandum, the Minister for Social Policy Andrey Reva says, according to the Government press service. However, the Government cannot understand the policy, because wage increase is a prerequisite for a full-fledged pension reform, Reva remarks. “Otherwise, the pension allowances will grow, whereas social contributions decrease, therefore increasing the deficit of the Pension Fund… If we increase the minimal pension by 10% this year, then we should increase the minimal wage at least by 15%”, Reva holds. “A serious work is currently undergoing … We intend to run the pension reform not for the IMF, not for the sake of the IMF, rather than in order to improve the quality of citizens’ life. Therefore we will not allow any step, which might be disadvantageous for Ukrainians, - neither an increase in the retirement age, or a lengthening of the retirement age, nor any other limitations on pensioners’ rights”, the Deputy Prime Minister Pavlo Rozenko holds.
Notwithstanding the optimistic feature of the government’s statements, we deem the development to be generally NEGATIVE, indicating a further extension of the transitional period, and therefore the uncertainties in the relations between the country and the IMF. Though conceding that the IMF may disburse the next credit tranche to the country by end of 1Q2017 under some provisional commitments of Government as to the pension reform, we see the longer-term cooperation with the Fund to risk slipping further away from the program schedule.