Prime Minister Volodymyr Groysman said that Ukraine needs to raise gas prices, signaling that he may be willing to meet a condition from the International Monetary Fund for Ukraine to receive its next loan tranche.
At a press briefing in Lutsk on Aug. 23, Groysman said Ukraine recognizes its obligation to raise gas prices.
“The question of raising gas prices is very difficult,” he said. “There are obligations that gas prices will have to grow amidst the growth of the global gas prices. I have been holding back this situation for a year… However, now there is a question of another increase.”
According to the Vinnytsya-born politician, the increase in gas prices is the key to continuing raising funds in international markets.
“This requirement arose because we need to work with external loans,” he said.
The National Bank of Ukraine and the Finance Ministry had earlier anticipated $2 billion from the IMF in 2018.
“Receiving less than the planned amount will make financing budgetary spending more difficult,” the NBU stated on July 12, according to which the main risks Ukraine will face are “capital outflow, economic downturn, and high labor migration.”
And though Groysman did not specify the percent by which the gas price will up, it now may range from 30 to 60 percent, according to various estimates.
It remains unclear if the increase will bring gas prices in line with import rates, which is the change that the IMF has insisted on.
Only a year ago Groysman said there was no reason to raise gas prices as much as by 18 percent, the digit proposed by the IMF at the time to “reach the market level” price.
Price hikes generally seem to be an unpopular move, for it would have to be implemented before the heating season in Ukraine and might irritate people before the presidential elections in the spring of 2019, according to market players.
But there’s a separate logic to the price hike: Ukrainian oligarch Dmytro Firtash, fighting off extradition to the United States from Vienna, is accused of making billions in arbitrage off the difference in prices between household and industrial consumers. Prolonging the increase in household gas prices has allegedly allowed him to continue to accumulate cash off the scheme.
Ukraine’s economy needs the IMF money to keep afloat, analysts say. Ukraine has already received more than $13 billion in loans from IMF, and the government used it mostly to refill the budget ($5 billion) and the foreign currency deficit ($8 billion).
The gas price hike was also supposed to stimulate domestic production and prompt Ukraine to stave off dependence on Russian gas imports.
Groysman made the last gas price increase in April 2016, which equalized the amount Ukrainians were paying with import prices at the time. This decision, however, put pressure on households in Ukraine, which had grown accustomed to heavily subsidized rates. Now many people cannot afford to pay their utility bills; many receive subsidies from the government.
Ukraine received the last $1 billion loan tranche from IMF’s total $17.5 bailout program in April 2017. The halt in the program occurred amid various unfulfilled demands, including the anti-corruption court, budgeting issues, and the gas price issue.