22:47 PM Friday, September 21, 2018
Ash: Household Gas Prices Not to Go Up, Violating IMF Accord
With money in the bank and Presidential elections in 18 months, government is losing interest in complying with IMF reform program
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Energy ministry submits own vision of gas price formula for households to govt - minister

KYIV (Interfax-Ukraine) - Ukrainian Energy and Coal Industry
Minister Ihor Nasalyk has said that his ministry submitted its own vision
of the gas price formula for households to the Cabinet of Ministers.

"The Energy and Coal Industry Ministry has submitted its vision for
calculating the price formula. Now the Cabinet of Ministers is to consider
it," the press service of the Cabinet reported, referring to Nasalyk.

The minister said that at present, there are no grounds for
increasing the price of gas for households.

Energy Minister Ihor Nasalyk, is a lifelong politician who has been in and out of the Rada since 1998. Here he appeals to Rada members at a session last April, (UNIAN/Aleksandr Kosarev)

Timothy Ash:

Ihor Nasalyk, Minister of Energy and Coal Mining, confirmed today what we all had assumed: Ukraine’s government is not going to hike gas prices as per the prior agreement with the IMF, reached in April, during the 3rd review of the EFF.

Nasalyk indicated that under the Ukrainian’s government’s calculation method – which seems to be different to the one previously agreed with the IMF -- there is no longer a justification for gas price hikes. This has been the message for some months now from various ministers in the government. It suggests the Poroshenko administration is increasingly focused now on elections due in 2019, or earlier, and less willing to toe the line on the IMF program.

IMF to be Sour

I doubt the IMF will be too thrilled with all this. There is nothing worse than going back on prior agreements. Having already drawn and spent the IMF cash ‘on a promise’, this means little chance now of an IMF mission to start work on the 4th review of the EFF, this side of the IMF annual general meetin towards the end of next week.

This session in Washington is shaping up to be something of a high noon event. The IMF likely wants to know where all this leaves their program. Is the government serious now of continuing with the reform effort, or just playing the IMF, and the markets, for fools. If no gas price hikes, what about pension reform, the anti-corruption agenda and also land reform? Plus still no confirmation of a new National Bank of Ukraine governor, with Yakov Smoliy presumably still heading to Washington in acting capacity.

Maybe Poroshenko will throw a bone to IMF Managing Director Lagarde, having dropped the previous “anointed” candidate, the IMF-favorite, Lavrenchuk. Smoliy is a good guy, but not the “promised” Lavrenchuk.

Finances in Good Shape

The good context here is provided by budget data for the period to the end of August. This showed a record surplus of UAH38.5bn, up from the deficit of UAH42.9bn for the year earlier period.

For the period January through August, revenues were 46.1% higher, and spending up by “just” 21.3%. Revenues seem to have been boosted by real GDP growth, above plan inflation, increased tax compliance, NBU profits and Naftogaz dividend transfers.

Cash for Pre-election Spending

All this – meant that the single Treasury account had around $60 billion in the bank, with another $1 billion at least at the NBU, plus proceeds of the recent Eurobond issue. This is a hefty war chest. With the recent re-establishment of market access, Ukraine no longer is forced to go cap in hand to the IMF. It has leverage.

The risk is that the Poroshenko government no longer has to follow the IMF script. It can play hard ball with the Fund. It has the cash now to partake in some substantial fiscal pump priming this side of elections – or at least until the next crisis hits.

Opportunities Will be Missed

That is a shame. It likely means that key structural reforms will be put on the back-burner, in the short term electoral interests of the Poroshenko administration.

It’s a shame. First, there seems to be a window in the East, with Russia on the back foot, to push on with difficult reforms. Second, these reforms should make a meaningful impact in the country’s long term growth prospects, and particularly attract inward investment. But, we have been here many times before in the 26 years since Ukraine became independent.

Not sure what the IMF can do when a member/lender is intent on just going through the motions, trying to keep the IMF and markets’ warm, but stalling on pushing on with reform. We have been there so many times in the past with Turkey in 2009-2010, Hungary 2011, Zambia now, and Ukraine back in 2011-2013, et al, et al.

Timothy Ash is senior sovereign strategist for emerging markets at BlueBay Asset Management in London.

IMF May Delay Next Tranche to Ukraine to ’18: Morgan Stanley

By Daryna Krasnolutska

(Bloomberg) -- “The overall impression is that in its

relations with the IMF Ukraine has moved from ‘push’ to ‘pull’
mode,” Morgan Stanley’s economist Alina Slyusarchuk says in
emailed note.
* “Now Ukraine has stopped progressing, gradually shifting focus
to the 2019 elections, and the IMF has to pull it to stay on
* Delay is caused by disagreements over pension reform, gas
price increase and slow anti-corruption progress
* NOTE: Morgan Stanley previously expected tranche in 4Q of 2017
* Ukraine will still stay within IMF’s program as “its macro
stabilization is dependent on continuing reform efforts. The
lack of FDI inflows shows that the preconditions for higher
potential growth are not there yet”
* NOTE: Visit of IMF’s Lipton Highlights Long To-Do List for

To contact the reporter on this story:
Daryna Krasnolutska in Kiev at

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