July 26, 2018 / 10:47 AM / 10 months ago

UPDATE 3-Ukraine keeps gas prices unchanged despite IMF demands

(Adds IMF comment)

By Natalia Zinets

KIEV, July 26 (Reuters) - Ukraine on Thursday extended a freeze on gas prices until at least Sept. 1, reducing its prospects of securing more money from the International Monetary Fund needed to keep its war-battered economy on a stable footing.

Ukraine must raise gas prices to market levels in order to qualify for more aid under a $17.5 billion IMF programme. It initially agreed to raise prices under a jointly agreed formula but has since postponed price rises a number of times.

The government may shy away from potentially unpopular measures like gas price hikes with presidential and parliamentary elections due next year.

Ukraine has received no IMF money since April 2017 due to a slowdown in reforms, putting the country in a more financially precarious position as it must repay around $15 billion of foreign currency debt in the next two years.

The government said talks with the IMF were continuing but signalled its reluctance to meet the fund’s terms.

“Negotiations are ongoing,” the government said in a statement. “The government of Ukraine stresses that the price of gas is too sensitive a topic to approach in a purely mathematical way.”

Ukraine earlier in July fulfilled another of the IMF’s conditions by passing legislation to set up a special court to try corruption cases, but that on its own is unlikely to lead to more IMF disbursements.

Asked for comment on Thursday’s decision, an IMF spokesman repeated that Ukraine had fulfilled its obligations on the corruption court and “discussions on other outstanding issues, including gas prices and the government budget, are ongoing”.

The country’s economy crashed following Russia’s annexation of Crimea in 2014 and the outbreak of separatist fighting in the Donbass region.

Ukraine plans to ramp up its borrowing in order to manage its debts and reduce its sensitivity to exchange rates, which arises from much of its debt being dollar-denominated, the finance minister told Reuters on Monday. (Reporting by Natalia Zinets and Pavel Polityuk; writing by Matthias Williams; Editing by Jane Merriman and Jan Harvey)

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