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By Natalia Zinets and Alexei Kalmykov
KIEV, April 4 The International Monetary Fund
warned on Tuesday that Ukraine's domestic politics could derail
vital reforms such as raising the pension age and tackling
corruption that are needed to crank up economic growth and tame
high public debt.
The Fund released $1 billion to Kiev this week as part of a
$17.5 billion aid-for-reforms bailout for the Ukrainian economy,
which plunged into recession following the Russian annexation of
Crimea in 2014 and the outbreak of separatist violence.
The extra funds paved the way for the central bank to
deliver an immediate boon to investors by cutting the amount of
foreign currency businesses are required to sell to 50 percent
of their overseas earnings from 65 percent.
Ukraine's international backers have mixed praise for the
country's return to macroeconomic stability with criticism for
Kiev's stop-start progress on tackling entrenched corruption and
modernising its laws and institutions.
Prime Minister Volodymyr Groysman, who took power a year ago
after the previous government collapsed, has a thin parliament
majority and has been unable so far to pass pension and land
reforms that are resisted by a noisy opposition.
Flagship anti-corruption schemes have also struggled to get
off the ground or been sabotaged by vested interests, most
recently in the case of a law forcing public officials and
lawmakers to disclose their assets online.
"The main risks on the domestic side stem from reform delays
due to the narrow majority of the governing coalition in
parliament and possible policy reversals as key reforms face
strong pushback from vested interests," said an IMF report.
Kiev expects three further aid tranches this year worth $4.5
billion in total. So far, counting the $1 billion disbursed on
Monday, it has received $8.38 billion under the programme
launched in March 2015.
Ukraine has one of the highest levels of pension spending in
Europe, while having one of the lowest levels of average pension
benefits, providing an old-age income of slightly more than $2
per day, the IMF said.
Ukraine has as many pensioners as workers who pay into the
pension system and many people shirk paying pension
contributions. That means Ukraine's pension deficit is estimated
at 6 percent of GDP, the IMF said.
The government has asked for more time to implement pension
reforms, promising to do so by January next year.
The IMF had delayed its decision on disbursing new aid from
March to assess the impact of an economic blockade Kiev imposed
on separatist-held territory. It now expects the economy to grow
by 2 percent, down from an earlier estimate of 2.9 percent.
(Writing by Matthias Williams; Editing by Hugh Lawson)