IMF, Ukraine Discuss Implementing Pension Reforms

Nearly two-thirds of all retirees in Ukraine receive the minimum pension.

International Monetary Fund (IMF) Managing Director Christine Lagarde, and Ukraine President Petro Poroshenko met in Washington, D.C., last week to discuss helping Ukraine implement much-needed pension reforms.

Lagarde emphasized the importance of holding a balanced pension reform that will meet the interests of the state and the Ukrainian citizens, and guarantee fair high standards of social security, according to Poroshenko’s office. Meanwhile, Poroshenko briefed Lagarde on the outcome of a debate on a pension reform draft at a National Reforms Council meeting.  

The two also discussed privatization in Ukraine, proper functioning of the banking system, reform of the public finance sector, and augmenting their fight against corruption.

Ukraine has been working on a wide-ranging reform of its public pension system, which has been feeling the stress of an aging population with too many pensioners financed by too few workers. The IMF said this combination is “compromising the future viability of the pension system.” It also said that to gradually increase individual pensions to “more socially acceptable levels,” pension reform aimed at reducing the inflow of new pensioners into the system by increasing the effective retirement age is “a key element of the ongoing IMF-supported program.”

Last month, an IMF mission led by Ron van Rooden, the IMF’s mission chief for Ukraine, visited Kiev to initiate discussions on the fourth review of the economic reform program supported under the Extended Fund Facility (EFF) arrangement. When a country has structural weaknesses, and faces serious medium-term balance of payments problems, the IMF can help with the adjustment process with an EFF.

“The mission held constructive discussions with the authorities on reforms needed to improve productivity, attract investment, and continue to strengthen public finances,” said van Rooden after the mission. “Discussions focused on the pending pension and land reform, and on measures to speed up the privatization process and ensure concrete results in anticorruption efforts.”

In April, van Rooden called Ukraine’s pension system “inadequate and unsustainable.” He said that if changes aren’t made, “the pension fund will become increasingly financially unsustainable and will fail to provide living pensions to Ukraine’s aging population.”

Nearly two-thirds of all retirees in Ukraine receive the minimum pension, which is “barely above the poverty level,” according to the IMF. It also said Ukraine has the second-highest pension fund deficit in Europe, in proportion to a country’s economy.

However, during its mission in May, the IMF said that the Ukrainian economy continues to recover, with growth expected to exceed 2% in 2017, and fiscal and monetary policies on track to meet their 2017 targets. It also said gross international reserves had increased to $17.6 billion, and inflation was projected to fall below 10% by the end of the year.

Van Rooden also said that while progress had been made, “further technical work is needed in some areas” to help draft laws that meet the reform objectives.

“While the near-term outlook is positive,” said van Rooden, “decisive implementation of structural reforms remains critical to achieve stronger and sustainable growth that Ukraine needs over the medium term.”

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