December 6, 2012 / 10:01 AM / in 5 years

UPDATE 1-Ukraine govt reshuffle delays IMF loan talks

* Ukraine faces higher deficit, debt repayments in 2013

* IMF lending suspended since early 2011

* Govt reshuffle could make loan talks easier for Ukraine

By Olzhas Auyezov

KIEV, Dec 6 (Reuters) - Ukraine has asked the International Monetary Fund to put off talks on a new stand-by programme - which were expected to start this week - until the New Year after its government resigned following a parliamentary election, the Fund said on Thursday.

The Fund’s resident representative in Ukraine, Max Alier, said in a statement the mission scheduled to visit Kiev to discuss a stand-by loan agreement on December 7-17 would be put off until the second half of January.

“The Ukrainian authorities have indicated this will allow participation of the new Cabinet of Ministers, following the resignation of former ministers in early December”.

Ukrainian President Viktor Yanukovich accepted the resignation of Prime Minister Mykola Azarov’s government on Monday in an expected move after several cabinet members including Azarov were elected to parliament on Oct. 28.

Yanukovich has not indicated who would become the new prime minister although he has said he did not rule out re-appointing his long-time ally and government veteran Azarov.

It was unclear if Ukraine’s request for a postponement of the IMF visit meant an impending government shake-up or not.

Securing fresh funding from the IMF will be the first major task of the new government next year as Ukraine faces $9.1 billion in payments due to its foreign creditors, up from $6.5 billion this year.

The 2013 sum includes $6.4 billion owed to the IMF and Ukraine has said it hoped to refinance that debt.

The lame-duck parliament on Thursday approved the 2013 budget drafted by Azarov’s cabinet which would widen the deficit to 3.2 percent next year from 2.6 percent this year and requires a total of $15.4 billion in borrowing.

Underscoring Ukraine’s weakening finances, rating agency Moody’s on Wednesday downgraded its government bond rating by one notch to B3 from B2 with a negative outlook.

Moody’s said the downgrade was due to a downward revision of its assessment of Ukraine’s institutional strength, a shortage of external liquidity which has increased the risk of a currency and wider financial and economic crisis, as well as Ukraine’s comparatively weak economic outlook.

“The downgrade may be the last straw to push Ukraine into a more conciliatory stance vis-a-vis the IMF,” Ivan Tchakarov, chief Russia & CIS economist at Renaissance Capital, said in a note on Thursday.

The IMF stopped lending to Ukraine in early 2011 after Azarov’s government refused to raise household gas and heating prices, an unpopular move which the Fund says is key to cutting budget deficit.

Azarov repeated the pledge not to raise the prices in the run-up to the October election, prompting speculation he may now be replaced by someone more willing to make concessions to the IMF, such as central bank head Serhiy Arbuzov.

“As we have argued before, a new prime minister will (find it) easier to build rapport with the IMF as he/she will not be encumbered by previous statements about Ukraine’s lack of desire to implement the requisite measures to meet IMF conditionality,” Tchakarov said.

The new parliament, which must vote on a candidate nominated for prime minister by Yanukovich, will convene on December 12.

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