The government is unlikely to push through gas price rises to secure the next part of a $15.6 billion International monetary Fund bailout ahead of parliamentary elections next year, investment bank Renaissance Capital said.
Analysts from the bank wrote in a July 18 report that the drop in support for the pro-presidential Party of Regions and improving macroeconomic conditions will likely mean that the authorities will not raise household natural gas prices – a potentially unpopular move – in order to secure the next tranche from the Fund.
“The immediate urgency of winning IMF support is much weaker than in 2008,” analysts said.
Ukraine has already received two installments totaling $3.4 billion after pledges to cut the budget deficit. The third tranche was delayed after the government stalled on increasing the retirement age and raising household gas prices.
Parliament voted this month for pension reforms, including a rise in retirement age for women. But Renaissance Capital said it is unclear whether the government would go ahead with the gas price rises that will help state gas company Naftogaz to balance its books.
“The key to understanding the current and future policy and economic dynamic and, by implication, the all-important relationship with the IMF is, in our view, the juxtaposition of the party approval ratings and the external financing gap for this year and next,” the bank wrote.
Ukraine can survive without this money before the elections. In the longer term, it’s clear they will need IMF help.– Ivan Tchakarov, chief economist for the bank Russia and the former Soviet Union
Without further IMF support, Ukraine’s reserves will drop to $33 billion by the end of 2011 from the current $37 billion, before falling to $22 billion in 2012, the report said.
“Ukraine can survive without this money before the elections,” Ivan Tchakarov, chief economist for the bank Russia and the former Soviet Union, told Bloomberg news agency. “In the longer term, it’s clear they will need IMF help.”
Analysts said the government would likely adjust policies to secure an IMF disbursement after the elections, before the end of 2012 in order to replenish reserves.
