IMF chief tells Ukraine to tackle pricey pension system

Dmitry ZAKS
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The International Monetary Fund has added a new type of aid to its toolkit, but one that involves no money, and instead solely provides a seal of approval on a government's economic reform program to help it to access private sources of financing

The IMF's chief to Ukraine told Kiev on Tuesday its pension system was unsustainable because it supported nearly a third of the population and must limit the number of retirees.

The International Monetary Fund has long pressed Ukraine to tackle its budget-draining social welfare programme for retired workers as part of a broader overhaul that could get future lending from the West back on track.

The issue has emerged as the number one stumbling block to the former Soviet country receiving future aid.

"The discussion of pension system reforms has been delayed for too long," Ukraine's IMF mission chief Ron van Rooden told the Ukrainska Pravda news website.

Ukraine is clawing its way out of a deep two-year recession that was fanned by heavy spending on fighting a Russian-backed eastern separatist insurgency in which Kiev's big industries fell into rebel hands.

But its needs foreign financial help to repay outstanding loans and pursue an economic policy that could temper inflation while achieving sustainable growth.

The Ukrainian government has strongly resisted raising its pension age -- which now stands at 57 for women and 60 for men -- because the measure is detested by voters who have already seen many of their social benefits cut.

Yet van Rooden said the pension system remained a considerable concern because it supported 30 percent of the population and was operating at a loss.

"Ukrainians retire much earlier than workers in other countries in this part of the world," van Rooden was quoted as saying.

"The average pension age for men is 58.5 years, and for women -- slightly more than 56."

He said both figures were about five years below the European Union average.

- Uphill struggle -

Van Rooden did not explicitly say that Ukraine must raise its pension age in order to receive future loan disbursements under a $17.5 billion (16.4 billion euro) programme agreed in 2015.

He suggested the number of pensioners could be reduced by limiting early retirements.

Van Rooden said the system could also be filled with more money by targeting companies and enterprises that avoid paying the pension tax.

Ukraine hopes to secure another $4.5 billion from the Fund this year.

But the IMF warned when releasing its last $1.0 billion tranche payment in April that Ukraine "has to do much more to recover the lost ground... and to build a modern market economy."

The reaction in Kiev to van Rooden's comments was swift and personal.

The IMF envoy's suggestions displayed "terrible unprofessionalism," Deputy Prime Minister Pavlo Rozenko wrote on Facebook.

"This person simply does not understand how (the pension system) works," Rozenko fumed.

A memorandum signed between Kiev and the IMF requires parliament to adopt pension system enhancements by the end of the month.

But the chamber is now in recess and will not resume work until May.