Ukraine central bank says reform delays will slow IMF aid

KIEV (Reuters) - Ukraine’s central bank said on Thursday that the government’s delays in passing reforms mean Ukraine will probably receive $3 billion in aid from the International Monetary Fund this year instead of the $4.5 billion originally envisaged.

The government is trying to push contested legislation through parliament, including raising the pension age and lifting a ban on land sales, as part of a $17.5 billion bailout agreed with the IMF in 2015.

One tranche of IMF aid will likely be postponed until 2018, acting Central Bank Governor Yakiv Smoliy told reporters at a press conference.

“Due to the fact that the consideration of important draft laws, which were key when the IMF Board of Directors decided to allocate the next tranches, are delayed ... we expect that one tranche will be transferred to the next year,” he said.

Smoliy spoke as the central bank kept its main interest rate on hold at 12.5 percent, after two consecutive months of cuts, saying the step was necessary to keep its inflation targets on track amid a worsening economic outlook.

The bank cut its economic growth forecast for 2017 to 1.6 percent from 1.9 percent and said inflation had accelerated to 15 percent year-on-year in June, higher than predicted.

The central bank also said uncertainty hangs more generally over Ukraine’s ability to implement the IMF program and that it new economic forecasts hinged on cooperation with the Fund staying on track.

“The inefficient implementation of reforms can lead to a deterioration in the prospects for economic growth, which will have negative consequences for inflation and exchange rate expectations and will increase inflationary pressures,” the central bank said in a statement.

“Uncertainty remains regarding the implementation of macroeconomic policies and structural reforms necessary to maintain macrofinancial stability, increase the economy’s potential and continue the program with the IMF,” it said.

The central bank lowered its forecasts for forex reserves at the end of 2017 to $20 billion from $21.1 billion, and said the potential for an escalation in the separatist conflict in eastern Ukraine posed a significant risk to the economy.

However, the bank played down the impact of last week’s cyber attack on the Ukrainian economy.

Writing by Matthias Williams; Editing by Toby Chopra