An Honest Anti-Corruption Campaign
The traditionally silent summer has taken an unexpected turn. The activities of the prosecutor’s office have led to intense developments, while the murder of famous journalist Pavel Sheremet shook society. Even two years after the Revolution of Dignity, the fight between old and new Ukraine is hotly contested. And the end of this story is far off.
The prosecutor’s office and new anti-corruption prosecutor have intensified their activity: a major anti-corruption campaign has been publicly rolled out, and suspected corrupt officials and powerful figures in Ukraine are appearing regularly in the headlines. The first prominent case involves Oleksandr Onishchenko, a compatriot of former prime minister and Viktor Yanukovych-era political prisoner Yulia Tymoshenko. Other important cases are tied to Oleksandr Katzuba, the former deputy head of Naftogas, and Oleksii Tkachenko, former deputy head of the National Bank of Ukraine. There was also noticeable progress in the investigation into the lethal shootings of the Maidian protestors in 2014. We must recognize that such concerted anti-corruption efforts have never before been seen in Ukraine.
The latest IMF tranche has been delayed once more, though it is not clear why, after IMF communications director Gerry Rice stated openly that “the next tranche won’t depend on the efficiency of the Ukrainian Parliament,” which has yet to approve 19 draft laws linked to the IMF deal. Rumors have circulated about two points that may stand behind the delays. First, a July 7th law imposed a moratorium on debt collections for the debtors of Naftogaz. The Fund has demanded that the president veto the law. Second, there is talk about a problem with Privatbank (owned by Igor Kolomoyskiy) that has ignored the demands of the Central Bank for recapitalization. We consider these issues less painful than raising gas tariffs, and are confident that the next tranche will arrive soon.
Economic figures released in June showed much variability. Industrial output dropped 3.4% y/y (+2.0% y/y for H1) due to a ban on railway traffic in the occupied territories. The new head of the state railway company Ukrzaliznytsia moved control of the regional railway operations from the occupied Donbas to Ukrainian-controlled territory, and blocked all railway traffic from separatist-controlled areas. Budget revenues in June jumped 21.5% y/y (from +18.8% y/y in May). A key reason was the decision to halt VAT reimbursement payments. State collections remain in good shape, and we see good chances for authorities to meet 2016 revenue targets. The current account maintained a surplus of $241 million in June, benefiting mainly from an improved balance of incomes, while the trade balance worsened, due to a drop in exports. Energy imports are sluggish, due to delayed natural gas imports. Since a rebound in energy imports is expected in H2, we keep our 2016 CAD forecast at $3.8 billion, or 4.3% of GDP.
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