Analyst: “For the fifth IMF tranche to be achieved, we believe the launch of the agri-land market, the creation of the state service of financial investigations and boosted pension requirements will be more than enough. However, the memorandum's deadlines are not realistic. Given Ukraine's difficult history with this loan program, we think the next tranche will arrive no earlier than autumn.
KYIV, Apr 7, 2017 (UBO) – Concorde Capital informed its clients that the IMF published on April 4 its latest memorandum with the Ukrainian government, which was drafted after the third review of its USD 17.5 bln Extended Fund Facility program. Among the structural benchmarks introduced are the creation of an anti-corruption court, a new civil service to replace the tax police, and a centralized database of social assistance recipients, as well as the monetization of utility subsidies. The IMF is also continuing to require pension reform, the introduction of an agricultural land market, housing subsidies targeting, the privatization of state enterprises and the strengthening of the National Anti-Corruption Bureau of Ukraine (NABU).
In particular, for the first half of this year, the IMF is demanding (a) legislation merging the customs and tax services (by end-March), (b) the selection of a reputable international firm for an independent loan review of Privatbank (end-April), (c) parliamentary approval of pension reform (end-April), (d) a new civil service to replace the tax police (end-April), (e) legislation that strengthens NABU (end-April), (f) parliamentary approval of a law on agricultural land circulation (end-May), and (g) parliamentary approval of legislation to establish an anti-corruption court (June 15).
Concorde analyst Alexander Paraschiy added: The released list of structural benchmarks is very close to what was discussed in the local media for several months. We see at least three points that look more or less realistic in the current political layout. Firstly, the selection of a firm to audit Privatbank is more of a technical exercise and should not pose problems. In addition, the Cabinet has already submitted a draft law creating a state service of financial investigations to replace tax police functions. President Petro Poroshenko supports this initiative and we anticipate the endeavor will be accomplished.
Thirdly, a bill to create an agri-land market is currently being discussed among experts and stakeholders. The prime minister is advocating for land reform and we see a 50/50 chance for parliamentary approval this year, with fierce opposition from populists. Pension reform will be aimed at increasing the number of years of employment for pension eligibility. Though that's better than the highly unpopular idea of raising the minimum age requirement, it will also be fiercely opposed by populists.
We believe the remaining structural benchmarks will be postponed for beyond autumn, including privatizations, the creation of the anti-corruption court, strengthening NABU, improving housing subsidies targeting, monetizing utility subsidies, and the creation of a social assistance recipients’ database.
For the fifth IMF tranche to be achieved, we believe the launch of the agri-land market, the creation of the state service of financial investigations and boosted pension requirements will be more than enough. However, the memorandum's deadlines are not realistic. Given Ukraine's difficult history with this loan program, we think the next tranche will arrive no earlier than autumn.