KIEV, June 3 – The government split sharply on whether Ukraine needs to immediately resume borrowing from the International Monetary Fund, adding a new line of confrontation to already existing disagreement with the National Bank of Ukraine.
Prime Minister Mykola Azarov said Ukraine does not need an immediate resumption of borrowing from the IMF, and that’s why it has time to negotiate a slower hike in natural gas tariffs.
But Deputy Prime Minister Serhiy Tyhypko said the failure to resume the borrowing would have catastrophic consequences, including the possibility of default.
Tyhypko’s warning echoes the recent warning made by Serhiy Arbuzov, the governor of the NBU, who had urged Azarov and the government to speed up reforms to secure the IMF lending.
The IMF suspended its $15 billion lending program for Ukraine since March delaying its installments after the government had refused to hike gas prices for households by 50% on April 1 and also postponed the pension reform that increases retirement age for women.
Tyhypko said the failure to resume the borrowing would increase the costs of commercial borrowing for both, the government and businesses, making it harder to repay their earlier debts.
“I can tell you that in one of two such [commercial] borrowing we can come to a point that we will be facing a pre-default situation,” Tyhypko said in an interview with Inter television on Friday.
“And then we may see a situation that happened with Greece,” Tyhypko said. “We really would not want this to happen in Ukraine.”
Greece may require up to 100 billion euros in financial assistance package from the IMF, the European Union and other organizations to resolve its mounting debts problems, industry analysts said.
President Viktor Yanukovych last week also compared Ukraine with Greece when he had urged the government to accelerate economic reforms.
Meanwhile, Azarov continues to insist that Ukraine will be fine even without money from the IMF, a position that complicates talks with the Washington-based lender.
“We do not have any need to immediately receive loans from the IMF,” Azarov said Friday. “We have enough resources to be able to pay our foreign debt obligations.”
Arbuzov, in the letter to Azarov, said Ukraine may fail to receive an estimated $9 billion this year, including $6.2 billion from the IMF and $850 million from the World Bank, but added that final implications may be far greater, potentially leading to economic disaster.
“In conditions of continued current account deficit, this may lead to a considerable reduction of the foreign exchange reserves,” Arbuzov said.
The NBU’s foreign exchange reserves are currently estimated at about $35 billion, but may be soon start shrinking as Ukraine is due to repay debts, both state and corporate, by the end of the year.
The failure to resume cooperation with the IMF would “worsen Ukraine’s sovereign credit rating, increase foreign borrowing costs, reduce foreign direct investments, and increase demand for the hard currency,” Arbuzov said outlining the negative scenario. (tl/ez)