Anti-crisis package approved: IMF money to come shortly

UKRAINE - In Brief 28 Mar 2014 by Dmytro Boyarchuk

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Yesterday IMF announced about positive results of technical mission. The Executive Board of the Fund was to decide regarding support to Ukraine. Though the message was positive, the main question was – what were the pre-conditions for the first wire? Given that the Cabinet promptly submitted to the parliament anti-crisis law and a revised state budget 2014, we assume that that was the key to the Executive Board positive decision. Though we anticipated radical changes to come, the proposed by Yatsenyuk Cabinet steps even exceeded our expectations. Among the most impressive measures we should mention large-scale layoffs in police (near 80000 policemen to be fired which is near 50% of law enforcement forces), less dramatic civil servants layoffs (near 24000, which is near 10% of administrative staff), taxation of large pensions’, abolished bonuses for top officials, judges and prosecutors, frozen minimum wages and minimum subsistence level, stopped indexation of pensions, social spending cuts, resurrected progressive income tax. Also the Cabinet approved increase in mineral extraction rent, excise duties, resurrected charges in foreign currency operations etc. Since the initiatives were impressively radical, the laws did not pass from the first attempt. Parliament voted in revised budget but anti-crisis law which created ground for spending cuts was approved only late in the evening after long internal negotiations. So now we have state revenues’ target at UAH 372.9 billion level (+10.0% y/y) and spending at UAH 436.8 billion (+8.3% y/y). Deficit was targeted at UAH 63.8 billion (4.2% of GDP). The target is still ambitious; however, in light of hryvnia decline and strengt...