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Ukraine pension reform changes worry World Bank, IMF
September 22, 2017 / 12:10 PM / 3 months ago

Ukraine pension reform changes worry World Bank, IMF

KIEV (Reuters) - The World Bank and the International Monetary Fund are concerned about amendments to pending pension reform legislation needed to unlock further funding under a $17.5 billion IMF program, the World Bank’s Ukraine director said on Friday.

A draft law to put the buckling pension system on a sustainable footing passed a first reading in parliament in July, but the bill has been modified with scores of amendments ahead of a second round of voting.

“The revised draft law presented at the start of this week has been amended in a way that provokes significant concern at both the World Bank and the IMF,” the World Bank’s Satu Kahkonen was quoted as saying by news agency Interfax Ukraine.

From the quoted comments, it was not immediately clear which parts of the current legislation are not in line with the lenders’ expectations.

Ukraine, whose 12 million pensioners number almost as many as the working population, spends more on pensions as a percentage of gross domestic product than almost any other country.

Proposed changes have faced stiff opposition from populist lawmakers who say savings can be found without partial increases to the retirement age that the IMF says are needed to relieve pressure on the pensions deficit.

DEFICIT RISK

Prime Minister Volodymyr Groysman on Friday said the government proposed reform would prevent the deficit ballooning to more than 200 billion hryvnias ($7.6 billion) from the current level of 141 billion hryvnias.

“This reform is comprehensive, systemic and will lead to an increase in the size of pensions,” he told parliament.

In its original form, the draft law aimed to boost contributions to the pension fund by requiring citizens to work a set amount of years before retirement, starting Jan. 1.

It would also reduce the number of professions where workers can retire early, while raising the minimum pension, which currently equates to little more than $2 per day.

If carried out in line with IMF expectations, the reforms were estimated to create savings of at least 3 percent of GDP over the long term.

It is not clear how the latest amendments would affect the financial sustainability of the legislation.

Lawmakers were expected to debate and vote on the bill this week but delays mean it will not be addressed before Oct. 3.

Finance Minister Oleksandr Danylyuk on Friday said the 2018 draft budget was premised on approval of the pension reform. Consequently, parliament will be unable to vote on the budget until the pension legislation is passed.

Ukraine must enact sustainable pension reform, improve the privatization process to ensure it is conducted according to international standards and tangibly reduce corruption to receive a long-delayed next tranche of IMF loans.

Gas prices and the budget must also be in line with the program, which has been repeatedly delayed by stop-start reform efforts since it was agreed in 2015.

Ukraine has received $8.4 billion of the $17.5 billion program agreed with the IMF, helping it recover from a two-year recession following the 2014 annexation of Crimea by Russia and the outbreak of a Russian-backed insurgency in its industrial east.

Monday’s successful $3 billion Eurobond placement has raised concerns among reform advocates that the Ukrainian authorities may feel less pressure to honor promises to the IMF as Ukraine has secured an additional source of external financing.

Reporting by Natalia Zinets; Writing by Alessandra Prentice; editing by Matthias Williams and Jon Boyle

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