16 May 2014, 11:28

IMF financing entails harsh austerity measures

IMF financing entails harsh austerity measures
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In the first four months of this year, Ukraine's budget deficit was at 1.5%, or around UAH 13 billion, the country's Finance Minister Oleksandr Shlapak said at a briefing this week.

The figure includes the state oil and gas company Naftogaz Ukrainy. The minister added that the expense target of the national budget over the period was fulfilled by 92%. Payments by the National Bank of Ukraine (NBU) to the national budget secured the over-fulfillment of the revenue target in January-April by 0.3%.

This comes after the country received the first tranche of the IMF bailout package last Wednesday totaling $3.2 billion. However, in return the fund is requiring implementation of quite a few reforms, which analysts say will turn out to be harsh austerity measures.

“Ukraine authorities would be forced to provide special measures to move budget to austerity path as this is one of the most important prerequisites for attracting IMF financing,” said Oleg Kouzmin, an economist at Renaissance Capital in Moscow.

Regarding fiscal deficit, there are only two requirements in the list of those provided by the IMF to the Ukrainian government, but they're quite illustrative.

Ukraine has first, to reduce the budget deficit by about 2% of GDP each year from 2014 to 2016, mainly by cutting spending; second, to scrap wage and pension increases for the public sector scheduled for July and October, and keep a hiring freeze for government workers.

Thus, though the funds were meant to pull people through, at least in the short term it's going to bring in more troubles for the average person. Currently, the volume of Ukraine's external debt is planned at more than UAH 190 billion, which totals $18 billion.


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