Ukrainian Social Policy Minister Andriy Reva said that the International Monetary Fund (IMF) offered Ukraine to refrain from raising the minimum wage within the next three years.
”If we raise the minimum pension by 10% this year, we should increase the minimum wage for at least 15%. What can we see in the draft Memorandum [with the IMF]? [We have to] freeze [minimum] wages for three years. What does that mean? That the minimum pension will increase, while contributions to the Pension Fund will drop. We will once again increase the deficit of the Pension Fund, for which the IMF is scolding us. Please, explain to me this phenomenon so I could get it… But there is no answer,” Reva said in interview with Realist.
The Minister said that the minimum wage would not be frozen at the level of UAH 3,200. According to him, any further rise of the minimum wage will not happen abruptly.
”I do not think that the minimum wage will grow by leaps and bounds as it has last time. It has not grown for three years. The ratio between the average and minimum salaries deteriorated twofold in three years. We just leveled the ratio,” Reva said.
In September 2016, after more than a year`s break, Ukraine has resumed cooperation with the IMF on the four-year Extended Fund Facility (EFF) worth $17.5 billion. Under this program, Ukraine has already received three loan tranches, totaling $7.62 billion. Ukraine expected to receive the fourth $1 billion tranche by the end of 2016, having fulfilled the key requirements, namely the adoption of the budget for 2017 and nationalization of the country`s largest bank, PrivatBank.
However, the IMF Executive Board meeting on the Ukrainian issue and allocation of money was delayed several times. Meanwhile, it order to hold such a meeting, Ukraine and the IMF are required to sign a letter of intent, followed by a memorandum, which would identify key beacons of the reform program implementation for the coming months. These beacons are expected to be land and pension reforms.
Pension reform is part of the reform program approved by the International Monetary Fund. However, the memorandum signed between the government of Ukraine and the IMF management in September 2016 does not contain strict rules for raising the retirement age. It provides only recommendations for narrowing the Pension Fund`s deficit because it is covered with budget funds at the moment. The subsidies the Pension Fund plans to receive from the national budget in 2017 exceed UAH 140 billion, or about $5.18 billion. The Ukrainian authorities and the IMF continue discussing this issue.
At the moment, the government and the IMF are developing a model of pension reform without an obligatory increase in the retirement age.
The regulation that doubled the minimum wage up to UAH 3,200 came into effect in Ukraine on January 1, 2017. Additional budgetary costs for this move will be over UAH 40 billion, according to government estimates. In addition, the legislative norms providing for a fine of 100 minimum wages for the payment of salaries ”in an envelope” (untaxed) came into force early this year too.