Tim Ash comments on Ukraine’s possible passage of pension reform

2017/9/13 13:17:32

“The big inducement is that the current pension draft includes a big hike in pensions from October, so in the current populist mood in Kyiv and the Rada, I doubt that any Rada deputy will want to be left responsible for not getting the pension hike signed off on before the winter.”

 


LONDON, Sep 13, 2017 (UBO) – Responding to comments made by Finance Minister Oleksandr Danylyuk to Reuters that Ukraine is on track to pass pension reform "within weeks," noted financial analyst Timothy Ash of Bluebay Asset Management offered the following comments at 11:14 today:

 

Seems plausible to get the pension reform bill signed off over the next few weeks - assuming the Rada can focus amid all the furore around Saakashvili and the unification of the anti-Poroshenko opposition. The big inducement is that the current pension draft includes a big hike in pensions from October, so in the current populist mood in Kyiv and the Rada, I doubt that any Rada deputy will want to be left responsible for not getting the pension hike signed off on before the winter.

 

It is less clear cut in my mind in terms of the timing of the completion of the next review - this is still up in the air.

 

With pension reform likely signed off, the issues for the fund will still be energy price liberalisation (supposed to have been done by April 2017, but has yet to be completed, and the government seems to be angling for a delay), progress on the anti-corruption courts/chamber, and land reform, plus obviously the 2018 budget currently being worked up by the MOF ready for presentation to the Rada in mid-September. Likely the anti-corruption issues will be most difficult - as they are now the most pressing for the economy but at the same time most unpopular with Rada deputies and Ukraine's elites given that likely they have most to lose (meaning potentially serious jail time for many).

 

IMF deputy MD Lipton is in Kyiv this week, likely trying to encourage more reform momentum, and perhaps egging Rada deputies on to be more ambitious. Let's see where that goes. Land reform is likely not a focal point for this review - depending that is on how far the debate drags on (if this review gets delayed too year end, then it will be an issue for this review as well), but I think the Fund will want some kind of resolution/game plan before year end, and to prevent another year's extension on the moratorium on land sales. Recently President Poroshenko has been talking up the need for land reform, which is encouraging. In general, land reform has got a bad spin in the press, and by Ukraine's political elites, and hence opinion polls show negative perceptions. But no one has really made the positive case for land reform - and the assumption is that any land sale programme will just see Ukraine's elites ripping the general population off again.

 

In this reform, Ukraine's elites have plenty of form, so you can understand why ordinary Ukrainians think this way. Any land market reform will hence have to have plenty of safeguards to ensure a transparent and fair process. But potentially with 10m ha of agricultural land in state ownership, this could prove to be a huge cash earner for the state - likely much more than from any privatisation process.

 

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** Please note that any views expressed herein are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions. The views expressed do not reflect the opinions of all portfolio managers at BlueBay, or the views of the firm as a whole. In addition, these conclusions are speculative in nature, may not come to pass and are not intended to predict the future of any specific investment. No representation or warranty can be given with respect to the accuracy or completeness of the information. Charts and graphs provided herein are for illustrative purposes only.”

 

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