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Without reforms Ukraine to default in 2014

Published time: March 27, 2014 11:34
Edited time: March 27, 2014 13:40
Ukraine's Prime Minister Arseniy Yatsenyuk (Reuters / Yves Herman)

Ukraine's Prime Minister Arseniy Yatsenyuk (Reuters / Yves Herman)

Kiev must impose tough reforms and austerity, otherwise even with billions of dollars of aid Ukraine will default in 2014, the coup-imposed Prime Minister Arseniy Yatsenyuk warns. It comes after the IMF agreed a bailout package worth up to $18 billion.

“Our forecast predicts a 3 percent drop in GDP, provided we pass the stabilization package of laws the government proposes. If the laws are not passed, we forecast a default, and a 10 percent drop in GDP,” Yatsenyuk told the parliament on Thursday.

Ukraine will be short about $28 billion in 2014 due to a ballooning fiscal deficit. The country will also see inflation of 12 to 14 percent, depending on how much the national currency devalues, Yatsenyuk said. The government is not planning to raise minimum wages in response to inflation.

Ukraine's national debt has climbed to $75 billion, which is 53 percent of the country's GDP, the coup-appointed PM said.

The government's solution to the looming default is to cut budget spending, raise taxes on agriculture and oil and gas companies, as well as introduce a progressive scale for income tax. Excise taxes for tobacco and alcohol will also rise.

Collecting the taxes may be a challenge for the authorities. According to Yatsenyuk, Ukrainian businesses owe some $13 billion in unpaid tax.

Another point of economic pressure on Ukraine is the forthcoming raise of gas price to consumers. Starting in May, gas would cost 50 percent more for households, while in July businesses will have to pay 40 percent more for what they use, Yuri Kolbushin, representative of Ukrainian gas monopoly Naftogaz, said on Thursday. There will be further price increases until 2018.

The hike was required by the International Monetary Fund before it agreed to grant Ukraine between $14 billion and $18 billion in stabilization loans.

Earlier the Ukrainian government said it needed to borrow $35 billion to avert default.