New Cabinet Increases Gas Prices in Line with the IMF Demand

UKRAINE - In Brief 28 Apr 2016 by Dmytro Boyarchuk

Starting May 1st the Cabinet increases gas prices for households by more than 60%. This decision definitely will be welcomed by the IMF. This gas prices’ increase was scheduled for April but Arseniy Yatsenyuk canceled this decision before his resignation leaving some dirty work for his successor. Thus it was a test for Volodymyr Groysman to show his readiness for reforms. Nevertheless, we can hardly anticipate this step to be decisive in terms of resuming cooperation with the Fund. Now much more serious issue – corruption – is on agenda. We anticipate the IFI’s insisting on anti-corruption measures to be arranged prior to any payments to Ukraine. According to Vice-prime minister Stepan Kubiv Kyiv plans to finalize revision of the second memorandum with the IMF by the end of 2Q 2016. However, also he mentioned that 19 laws should be approved before any funding arrives. So far we can hardly tell whether Groysman is just sending positive signals to build good image or he is indeed planning to start systemic changes. Western donors, probably, have similar impression from his first steps. Against this backdrop we can hardly anticipate funding from the west resuming fast. The base-case scenario looks like IFI's will be just watching what is happening without any clear decision till mid-summer.

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