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Pension clash looms as Ukraine opposes IMF on retirement age

The National Bank of Ukraine
A sign outside the headquarters of the National Bank of Ukraine in Kiev.

Ukraine signaled a showdown is coming with the International Monetary Fund over a pension revamp that's needed to maintain disbursements from the country's $17.5 billion bailout.

The Washington-based lender is demanding that Ukraine raise the retirement age by 2027 to 63 from 60, to alleviate losses at the state pension fund, Social Minister Andriy Reva said in an interview. The government wants the thresholds to remain unchanged, instead seeking to widen the pool of contributors to eliminate the deficit — 145 billion hryvnia ($5.4 billion) last year — by 2024, he said.

“Today we have two absolutely different points of view,” Mr. Reva said Thursday in his office in Kiev. “I told them their stance was political and that there's no economic logic behind it.”

Mr. Reva's comments suggest there are more serious obstacles holding up the next tranche of Ukraine's IMF rescue than officials including President Petro Poroshenko have disclosed. Loan transfers have frequently been delayed as the government held up reforms, particularly those targeting corruption. The cash is important to maintaining recovery from a recession and replenishing central bank reserves as tensions in the eastern European nation's conflict with Russian-backed insurgents boil over once again.

Gross domestic product advanced about 2% last year, the Economy Ministry said Friday. That's more than analysts had predicted, and follows a contraction of more than 16% during the previous two years.

To improve the pension fund's finances, the government must increase the number of people paying the unified social tax from about 10.5 million of Ukraine's 16 million taxpayers at present, according to Mr. Reva. Raising the minimum wage further, contrary to IMF advice, would also help balance the pension fund, he said.

Ukraine has said the next slice of IMF aid, already delayed from November, may be about $1 billion. Talks between the government and the lender are continuing, according to Mr. Reva. His ministry's proposal is backed by the World Bank and, so far, by Prime Minister Volodymyr Hroisman, whose government must decide one way or the other this month, he said.

“It will be very difficult to push the pension law through the parliament,” said Mr. Reva, an ally of Mr. Hroisman dating back to the premier's stint as mayor of Vinnytsya. “But I'm ready to explain to the people, to lawmakers — I can convince them. What I don't understand is why we should raise the retirement age.”