KYIV – I have been in Kyiv this week. It feels like little pressure/urgency to get sufficient IMF-related reforms signed off by time the Rada goes into summer recess. Holiday mood already prevails.
Hard to see IMF signing off on the next review on this basis any time soon -- or at least, by the earliest, the fall. I also don't see the Fund cutting the government much slack or slicing and dicing the next credit tranche.
Just don't see enough progress being made on the sum of pension reform, land reform, anti corruption, privatization, and on scheduled gas price hikes. Complacency seems to be setting in again on the structural reform agenda.
It feels like 2012-2013 when the then Yanukovych regime fell back on Eurobond financing and stalled on cutting a deal with the IMF. The rest is history. But that lack of focus on reforms eventually came back to bite Yanukovych and Ukraine.
There are some big dragons to slay in the field of land reform. Entrenched vested interests currently milking cheap lease contracts.
On anti-corruption fronts, I don't sense that Poroshenko is saddled up, ready take on the good fight there just yet. Guess he has only a weak coalition position in parliament and needs allies to sustain a working coalition for other stuff. Reform of ATO for some reason seems a bigger legislative priority.
I guess the positive is that by not pushing difficult structural reforms, there is likely less risk to the current political status quo. So Groysman endures in office.
Some of the preconditions for take off have been established in terms of macro stability. But structural reforms, or the second leg required for real take off, are still incomplete, and not sufficient yet to create the good mood story around Ukraine, which will sell the story to foreign direct investors.
There have been big structural wins around Naftogaz reform, Prozorro, NBU reform, banks and Privatbank in particular. But on the banks, reforms have only pulled the sector off life support, without yet creating the conditions for the banking sector to be an asset to the economy.
Structural reform is a work in progress, to be completed. The next steps, including land reform, healthcare reform, pension reform, anti corruption, privatization, corporate governance, etc., have still to be rolled out. I sense lots of vested interest opposition, with Poroshenko's political capital ebbing as we get closer to elections. Poroshenko's priorities are elsewhere.
I don't sense that the Rada is in the mood to address land and pension reform this side of summer vacation, with flights for deputies to the Maldives, etc., already booked. IMF-related reforms look set to drag to the autumn, if not later. This has a feel of 2012, where the market is forgiving and Ukraine drifts on reform, with increasing focus on elections looming in 2019.
In the near term this revision to the ATO agenda in the east might take priority for Rada deputies, with the focus on political/security related assassinations and cyberattacks.
Timothy Ash is a senior sovereign strategist for Blue Bay Asset Management in London.
Posted June 29, 2017