IMF, World Bank Tell Ukraine To Be 'Ambitious' With Reforms

KIEV, Ukraine -- The International Monetary Fund and World Bank urged Ukraine's political leaders to set more ambitious targets for narrowing the budget deficit and meeting inflation goals.

Max Alier, head of the IMF office in Ukraine.

"The proposal to reduce the budget deficit by 1 percent a year is not ambitious," said Max Alier, head of the IMF office in Ukraine, at a meeting of the economic reform committee headed by President Viktor Yanukovych in Kiev today. "It will result in growing public debt for several years before it stabilizes."

Ukraine should improve the pension system and raise energy tariffs "significantly" faster than planned in the reform program that the president and government presented today, said Martin Raiser, the World Bank's country director for Ukraine, Belarus and Moldova, at the same event.

Yanukovych seeks to lure investment and resume cooperation with the IMF to resuscitate economic growth after a 15 percent contraction last year, presenting a program of measures he said could achieve a 5 percent annual expansion.

Ukraine seeks to start a new program with the Washington-based fund after receiving $10.6 billion in several tranches since November 2008.

"I will do everything to resume cooperation with the IMF," Yanukovych said today. The IMF program is "the most acceptable" source of getting cheap, long-term credit to stabilize the state's finances, he said.

Yanukovych said Ukraine needs "justified" tariffs for energy and the government must provide targeted support for the poor while the rich "pay a fair price". Yanukovych also said he wants the government of Prime Minister Mykola Azarov to ensure stable finances of state energy company NAK Naftogaz Ukrayiny, a smaller deficit and an improved pension system.

'Not Ambitious'

Yanukovych said inflation in Ukraine will slow to 6 percent by 2014 and the deficit will narrow to 2 percent of gross domestic product in 2013 and 2014.

The deficit target should be an objective per se and not merely an indicator of success, Alier said, adding that the same concerns inflation expectations by the government. The inflation target of 6 percent in 2014 is "not ambitious" he said.

The inflation rate fell to 9.7 percent in April, according to the statistics office. Prices fell 0.3 percent on month.

Azarov's government approved a budget for this year with a 5.3 percent deficit.

Source: Bloomberg News