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You're reading: Ukraine facing hard choices on the financing front

Ukraine appeared to deliver three of the four prior conditions required to unblock the fresh IMF bailout loans (related to developing an foreign exchange swap market, dealing with independence of the central bank and pension reform), stalled since March 2011. But Ukraine has still failed to deliver on the final prior action, hiking domestic gas prices.

The Fund had originally demanded a 50 percent natural gas price hike this year, but this was subsequently revised back to a commitment to hike by 20 percent in April and a further 10 percent in July. The increases were not delivered.

The Fund sees the price rises as key both to ensuring quasi-fiscal deficit targets are met (3.5 percent of gross domestic product, inclusive of state-owned natural gas company Naftogaz) and for driving through broader efficiencies in the gas market and use of energy.

The government is clearly mindful of electoral consequences … given that parliamentary elections are to be held October 2012.

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