September 20, 2018 / 10:16 AM / a month ago

UPDATE 3-IMF leaves Ukraine without announcing aid deal, c.bank sees accord soon

* IMF mission leaves Kiev without announcing new aid deal

* IMF says talks still ongoing

* Ukraine cenbank official says “significant progress” made

* IMF wants Kiev to hike household gas prices

* Ukraine faces tight election races next year (Adds IMF quotes)

By Natalia Zinets

ODESSA, Ukraine, Sept 20 (Reuters) - An IMF mission has left Ukraine without announcing a deal on new aid but a top central bank official said on Thursday he expected an agreement “in the near future” that would help preserve financial stability during 2019, an election year.

Analysts expressed surprise at the lack of an IMF statement at the end of the visit, which ran from Sept. 6 to 19.

An IMF spokesman in Washington later said discussions were ongoing, without saying when they might be completed.

The IMF has been pushing Ukraine to raise household gas prices, which have been kept artificially low since Soviet times, to market levels. It was not immediately clear whether the two sides had made progress in their talks on this issue.

“There are productive negotiations on the new programme. Significant progress has been made. We expect results in the near future,” Deputy Central Bank Governor Oleh Churiy told Reuters, in the first public comments by a senior Ukrainian official a day after the mission concluded its visit.

“(There are) talks on a new IMF programme that will allow Ukraine to pass the election year freely and maintain financial stability,” Churiy said.

A new agreement would give the government some breathing space to manage its debt payments, which are set to peak over the next two years. It would help keep the currency stable and retain the confidence of investors and Ukraine’s foreign allies.

It would replace a $17.5 billion aid-for-reforms programme that has propped up Ukraine’s economy since 2015 through a sharp recession following Russia’s annexation of Crimea and the outbreak of separatist fighting in the Donbass region.

“We’ve had a staff team in Kiev, discussing with the Ukrainian authorities the continuation of our efforts to support policies and reforms, support macroeconomic stability and growth in Ukraine, and on possible financial assistance from the Fund,” IMF spokesman Gerry Rice told reporters.

“I don’t have any further detail on those discussions, which are ongoing as I said, and I don’t have a specific date for the conclusion.”

He did not say whether the IMF had offered Ukraine a new standby agreement or whether the conditions for such a deal would differ from the old one.

“BIT SURPRISING”

IMF aid has been frozen since April 2017 as Ukraine welched on commitments to raise household gas tariffs — a potential vote loser next year — and slammed the brakes on reforms to tackle entrenched corruption and modernise the economy.

“IMF leaving without a deal/statement.....bit surprising as I think most people assumed this was a done deal,” said Timothy Ash of BlueBay Asset Management in an email.

Ukraine-focused economist Anders Aslund called it “surprising and disappointing.”

A new deal would allow Ukraine to go to the markets to issue new debt and would also pave the way for the European Union and other foreign donors to disburse more aid to replenish the government’s coffers.

The IMF’s likely insistence on a tight budget deficit would help narrow the scope for populist spending measures ahead of tight presidential and parliamentary election races next year.

The head of Ukraine’s state-run firm Naftogaz was quoted earlier this week as saying the government and the IMF had reached an agreement in principle on gas prices, but the Fund has not corroborated the statement.

Analysts say the new standby agreement under discussion could be worth around $4 billion, double the size of the tranche Ukraine was expecting to receive under the old programme before it expires next March. (Additional reporting by Matthias Williams in Kiev and Marc Jones in London; Writing by Matthias Williams; Editing by Gareth Jones)

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