July 5, 2017 / 12:43 PM / 20 days ago

Ukraine expects IMF tranche, market return in autumn

4 Min Read

LONDON (Reuters) - Ukraine expects long-awaited state pension reforms to be passed after its parliament's summer break, its finance minister said on Wednesday, meaning its next tranche of IMF aid and a return to borrowing markets will not happen before August.

Oleksandr Danylyuk told Reuters that the complexity of the pension reform plan, which is key to unlocking its next round of IMF financing, was the main reason why it would not be completed in the next couple of weeks, as it had hoped.

"It doesn't look like it is going to happen so they (parliament lawmakers) will have to finish the work in early fall (autumn)," Danylyuk said in an interview.

"We need to invest more time in communication ... both in the public domain but also within the parliament. Yes, the parliament is pretty much ready to vote for it but everybody needs to comfortable."

That would have the knock-on effect of delaying its IMF program. "Whenever we complete it we will get the (IMF) tranche," he said.

It will also affect the timing of its first return to debt markets since its 2015 bailout. Back in May, Danylyuk said it was eyeing a $1 billion bond sale but it appears like the ambitions have been scaled back somewhat.

"I think $500 million will go," Danylyuk said, although it could be higher. He added it would be "logical" to wait until pension reforms were finalised.

"For us it is important to be ready and we are ready. We are in a position to issue tomorrow, as by the way we could have done it back in April. The question is do we need it and if we expedite the process, what would we get from that."

Danylyuk said the nomination of a new central bank governor, another issue markets are following closely, was "pretty much imminent".

On the recent cost of cyber attacks that have hit the Ukraine's tax department, power firms and ministries, including the finance ministry, he played down estimates that it could be as much as 0.5 percent of Ukraine's annual GDP.

"I don't think it will be that high at all," Danylyuk said.

Ukraine's finance minister Oleksandr Danylyuk speaks to a Reuters journalist during an interview in London, Britain July 5, 2017.Hannah McKay

More broadly, Ukraine is still trying to recover from Russia's annexation of its Crimea region in early 2014 and tackle corruption that has long blighted the country.

The central bank said in March that the economic blockade of territory held by Russian-backed separatists in the east would drag 2017 economic growth down to 1.9 percent from an earlier estimate of 2.8 percent.

Privatbank

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Kiev has nationalized large parts of its banking system to try to stamp out corruption but keep the system running, as a number of international banks have withdrawn.

Ukraine is taking legal action to recover loans made by the country's largest, and now nationalized, lender, PrivatBank, many of which were paid out to businesses linked to former shareholders including tycoon Ihor Kolomoisky.

After a July 1 deadline to restructure the loans passed, the central bank said on Monday that the authorities had "moved to a legal procedure for the repossession (of the loans) ... the specific steps of which cannot be disclosed now."

"Given that the deadline for the restructuring is over...., now we will be much more active in pursuing it," Danylyuk said. "But how much we will get I don't know. It will not be easy, we know that."

Although there is scarce appetite from buyers at the moment, the longer-term goal will be to return the banks to private ownership at some point.

"We are building strategy from Privatbank and then we will come up with the view for the whole banking system. But the fundamentals are clear: reduce the (government's) share."

It currently owns 55 percent of the system via its various holdings but wants to slash that.

"There were some numbers - 25 percent... I do not justify 25 percent, it could be 10 percent. As a minister I am not looking to keep 25 percent of the banking system in state ownership, there is no justification for that."

Editing by Louise Ireland and Hugh Lawson

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