## IMF Survey : Ukraine Unveils Reform Program with IMF Support

_IMF News, April 30, 2014_

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**Canonical URL:** [IMF Survey : Ukraine Unveils Reform Program with IMF Support](https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew043014a)

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## Bibliographic details
- Published: April 30, 2014

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### Overview and financing
- IMF Executive Board approved a $17.01 billion loan on April 30.
- Loan is under a two-year Stand-By Arrangement.
- $3.2 billion made immediately available; the remainder subject to frequent reviews.
- Stand-By Arrangement entails exceptional access amounting to 800 percent of Ukraine's IMF quota.
- Program expected to unlock additional international official assistance and restore private investor confidence.

### Program objectives
- Restore macroeconomic stability.
- Promote sustainable growth.
- Strengthen economic governance and transparency.
- Address deep-seated structural problems and vulnerabilities.
- Emphasize capacity building to improve policy design and implementation.

### Key reform areas and commitments
- Exchange rate and monetary policy
  - Maintain a flexible exchange rate to restore competitiveness and foster accumulation of reserves.
  - Focus monetary policy on domestic price stability.
  - Keep public and minimum wage increases in line with productivity growth.

- Financial sector and banking
  - Maintain confidence in the financial system.
  - Strengthen infrastructure for financial regulation and supervision.
  - Ensure banks strengthen their balance sheets as necessary.

- Fiscal policy and public finances
  - Meet near-term fiscal obligations and gradually reduce the fiscal deficit.
  - Stabilize budget revenue and embark on a medium-term fiscal adjustment path that distributes the burden equitably.
  - Public debt placed on a declining path from 2015 on.

- Energy sector
  - Achieve a self-sustained energy sector and reduce its fiscal drain.
  - Eliminate Naftogaz’s deficit by 2018 as a key benchmark toward energy independence.
  - Raise Naftogaz revenue and reduce costs, increase gas and heating retail tariffs gradually, and implement structural and governance reforms in Naftogaz.

- Governance and structural reform
  - Implement comprehensive structural reforms including public procurement and tax administration.
  - Reduce corruption, improve the business climate, and support high and sustainable growth.

### Fiscal measures to reduce the deficit
- Expenditure-side measures (emphasis)
  - Suspend unaffordable wage and pension increases planned by previous government.
  - Reduce public employment through attrition.
  - Achieve savings on government purchases enabled by a new procurement law.
  - Rationalize social assistance spending through better targeting and means testing.

- Revenue-side measures
  - Eliminate fraudulent tax evasion schemes.
  - Shift to uniform excises on fuel.
  - Increase excises on alcohol and tobacco.
  - Close value-added tax loopholes.

- Rationale and sequencing
  - Without measures, combined deficit of government and Naftogaz would have reached 12 percent of GDP in 2014.
  - Program targets a moderate structural fiscal adjustment; the budget deficit will increase between 2013 and 2014 taking into account the weaker economy.
  - Emphasis in 2015-16 on gradual expenditure-led fiscal consolidation combined with measures to enhance public sector efficiency.

### Energy prices, tariff increases, and social protection
- Baseline energy subsidy and price facts
  - Overall energy subsidies estimated at 7½ percent of GDP in 2012.
  - Current gas price for households in Ukraine is $85 for one thousand cubic meter.
  - Russia household gas price is $158 for one thousand cubic meter.
  - January 2014 regional prices: Romania $ 414, Moldova $ 432, Poland $ 687 for one thousand cubic meter.
  - Prices in Ukraine are 4 to 9 times lower than in neighboring gas-importing economies.

- Tariff policy and impacts
  - Envisaged gas and heating tariff increases are gradual but meaningful and broad-based.
  - Even after programmed increases in 2014, household prices will remain several times lower than in other gas-importing European countries.
  - Increases will lead to comparatively moderate increases in the share of household budgets spent on utilities.

- Protection for the vulnerable
  - Government launching a new social protection program: eligible families receive a benefit equal to the difference between pre- and post-increase gas and heating bills.
  - 4.5 million families—about 27 percent of the total—will receive government support through existing and new social assistance schemes.
  - In cooperation with the World Bank, social assistance benefits will be re-prioritized to a well-targeted means-tested framework.
  - For a fraction of the cost of existing utility subsidies, the government could fund additional social assistance programs that would substantially reduce poverty.

### Governance, transparency, and anti-corruption measures
- Policy measures include:
  - Adoption of a new procurement law to reduce exemptions from regular competitive procedures.
  - Measures to facilitate value-added tax refunds for businesses.
  - High-frequency audits of Naftogaz’s accounts.
- IMF will prepare a comprehensive diagnostic study to assess governance arrangements, identify areas for strengthening, rank priorities, and propose remedial measures and time frames for implementation, likely supported under the program.

### Risks, ownership, and implementation capacity
- Context and risks
  - Ukraine experiencing its second major economic crisis in six years.
  - Vulnerabilities included an overvalued exchange rate, loose fiscal policy, sizable Naftogaz losses, large twin deficits, rising indebtedness, recurrent external financing difficulties, and reserve depletion.
  - Considerable uncertainties and risks exist from outside (e.g., geopolitical tensions) and within (vested interests).

- Ownership and capacity
  - Authorities have taken strong ownership of economic reforms and implemented upfront actions demonstrating commitment.
  - Success hinges on unwavering commitment despite resistance from entrenched vested interests.
  - Program design includes measures to mitigate identified risks.

*IMF Survey: Ukraine Unveils Reform Program with IMF Support — April 30, 2014*

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## Content in this bundle

- [Cr14106pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2014/_cr14106pdf.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [In The News](https://www.imf.org/en/news/search)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read Press Release](http://www.imf.org/external/np/sec/pr/2014/pr14189.htm)
- [Blog: Stabilizing Ukraine](http://blog-imfdirect.imf.org/2014/04/30/stabilizing-ukraine/)
- [Ukraine and the IMF](http://www.imf.org/external/country/UKR/rr/index.htm)
- [IMF quota](http://www.imf.org/external/np/exr/facts/quotas.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew043014a_