KYIV, Jan 28 – The International Monetary Fund extended for 10 days talks with Ukraine on whether to resume $5 billion stand-by loan after the government’s recent decision to cut natural gas prices, Finance Minister Serhiy Marchenko said Thursday.

The government is committed to resuming cooperation with the IMF, but the gas price cut and introduction of state controls in the energy sector is reflecting the health crisis caused by the coronavirus pandemic, he said.

“We are now in an active stage of negotiations,” Marchenko told Ukraine-24 television. “We have the talks extended for 7-10 days.”

"Launching the gas market is one of our commitments that we have made. Therefore, because of these changes with the gas price, of course, our partners have questions,” Marchenko said.

“They tell us: Propose a clear model of how you see such situations have not happened again in the future,” Marchenko said.

At the same time, they understand that our decision is quite urgent in terms of protecting citizens. This is in the process of discussion, there are active consultations.”

The IMF delayed release of $1.4 billion in two loan installments to Ukraine after disbursing $2.1 billion in June 2020 amid concerns the government had postponed economic reforms. These concerns have further exacerbated after the government had recently decided to reduce gas prices for households despite earlier assurances to keep market prices for all participants.

An IMF team held online talks with the government December 21-December 23 2020 and then resuming again after Christmas and New Year holidays on January 11. The talks take twice as much time as they would have normally taken due to online sessions as the IMF team has stayed in Washington due to the coronavirus pandemic.

Now, with further extension of the talks for 10 days this suggests that any possible resumption of lending will also be delayed while the government desperately needs cash.

Ukraine is due to make $11 billion in foreign and domestic debt payments within the next six months, according to the Finance Ministry. This amount rose a whopping 23.6% over the past 30 days due to the massive short-term borrowing in December.

Ukraine’s economy was hit hard by the coronavirus pandemic in 2020 and the government has been seeking to borrow more money to make sure the economy can be restarted after the second wave of the pandemic.

Ukraine’s natural gas industry was one of the most corrupt sectors of the economy before the government started to liberalize the sector in 2015. Existence of two sets of prices – market price and price set by the government – creates ample opportunities for corruption.

The government earlier this month agreed to set the gas price at 6,999 hryvnias per 1,000 cubic meters, down from about 10,000 hryvnias/1,000 cu m that regional gas companies have been charging households in January.

It was the pressure from the IMF that has forced Ukraine to start energy sector deregulation in 2015 in exchange for $17.5 billion bailout package. (tl/ez)