May 28, 2012 / 9:01 AM / 6 years ago

IMF urges Ukraine to up gas prices

KIEV (Reuters) - Ukraine will have to make significant increases in the price of gas for domestic consumers to get funds flowing again under its suspended International Monetary Fund bailout, the head of a visiting Fund mission said on Monday.

With a parliamentary election in October, the Kiev government has baulked at taking the politically risky step of raising gas and heating prices for Ukrainian households by 30 to 50 percent, which economists say is needed to put public finances on a more sustainable track.

The government hopes to re-negotiate a cheaper price for deliveries of natural gas from Russia to circumvent the problem, though a compromise with Moscow has to far proved elusive and it has forfeited $6 billion in tranches of IMF money in the meantime.

Asked what Ukraine would have to do for the Fund to resume its aid program, IMF mission chief Christopher Jarvis said: “We recommend significant upfront (gas) tariff increases and regular increases thereafter as part of a time-bound plan to eliminate subsidies.”

On the national currency, the hryvnia, Jarvis said: “We continue to believe that greater rate flexibility can better serve Ukraine in adapting to changing economic circumstances and can provide a buffer for external shocks.”

The IMF is Ukraine’s main international lender though the ex-Soviet republic has also been helped to plug holes in its budget with a $2 billion loan from Russia’s VTB.

Jarvis, speaking to reporters, said the Kiev government had to act on energy policy and especially gas prices to meet its budget deficit target of 1.8 percent of gross domestic product.

“When the government is ready to take action in this area the IMF would be ready to resume discussion on the next stage of the (bail-out) program”, he said.

Reporting by Natalya Zinets; Writing By Richard Balmforth; editing by Patrick Graham

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