Ukraine, bowing to pressure from the IMF ahead of a new loan deal, will
take the painful step of raising gas prices for households from August,
the government has announced.
Prime Minister Mykola Azarov said
the 50 percent price hike, an unpopular move aimed at cutting the budget
deficit, was necessary to secure a new $14.9bn stand-by facility from
the fund.
“We have to tell people the truth. In these
circumstances, we had no other choice than to agree with the IMF on
financial support,” Azarov said at a televised government meeting.
“In talks with the IMF, the government defended its own vision of ways
to combat the crisis and protect the people. But the creditor’s position
is always stronger than that of a weakened country in need of support.”
Utilities such as gas supplies have benefited from Soviet- era
subsidies in Ukraine which have kept prices at an artificially low
level. Raising prices would reduce government spending on these
subsidies but was likely to cause some discontent against the new
administration of President Viktor Yanukovich.
The price hike
will affect about 18 billion cubic metres of gas a year gas used for
cooking in apartment blocks and heating in small houses. This represents
a significant part of the 47-50 billion cubic metres the ex-Soviet
republic consumes every year.
Tariffs for central heating, which
accounts for another big slice of annual gas consumption, have not been
changed yet.
Azarov said the government, which is committed to
fighting poverty in the country, would widen the list of poorer
households eligible for social security payments to partly offset higher
gas bills.
Ukraine reached a preliminary agreement with the IMF
on a new $14.9bn stand-by facility needed to plug holes in its budget.
Under the deal, it needs to reduce the consolidated budget deficit to
5.5 percent of GDP this year from the earlier projected 6.3 percent.
The Ukrainian government has to present a letter of intent to the IMF
which should lead to approval of the deal by the IMF board and the
unlocking of a first tranche of credit, possibly in August.