Europe

Ukraine economy: MPs to vote on controversial reforms

Media playback is unsupported on your device
Media captionThe BBC's David Stern meets Ukrainians struggling with rising costs

Ukraine's parliament is expected to vote on a package of reforms that could determine whether it will avoid economic meltdown in the coming weeks.

Prime Minister Arseniy Yatseniuk says the measures will include changes to the tax and energy laws and the government's budget.

The IMF has demanded the reforms before it will approve a $17.5bn (£11.4bn; €15.6bn) assistance programme.

That could lead to around $40bn in total loans from other donors.

However the IMF will only give its blessing after parliament passes the wide-ranging reform package.

The fund's executive board will meet on 11 March, when it will make its decision. If it says yes, the first tranche of some $5bn will become available within days.

But Ukraine's path to fiscal stability is far from secure. The measures, which include strict cuts to social spending, are highly unpopular, and MPs, fearing a political backlash, could baulk at introducing them.

Image caption Protesters outside the national bank in Kiev have been demanding that the government takes action

This has already happened once. Deputies watered down the original budget when it was passed in a turbulent marathon session, just before parliament broke for the new year holidays.

'Backs to the wall'

The debate could again be stormy this time. But many observers expect the package to be passed, regardless.

"I expect that during the discussions in the parliament we'll see quite a bit of populism," said Tomas Fiala, chief executive of Dragon Capital, one of Ukraine's main investment banks.

"But there are enough votes to see this legislation passed.

"And the politicians are now with their backs to the wall. The alternative to approving this programme and receiving the support of the IMF would be devastating."

Quite simply, without international assistance Ukraine's economy will go off a cliff.

Media playback is unsupported on your device
Media captionArseniy Yatsenyuk tells the BBC's David Stern that he intends to press on with ''tough but necessary reforms'' in Ukraine

Ukraine's hryvnia is the world's worst performing currency. It lost half its value in 2014 and has plummeted even further since the beginning of the year.

Already suffering from a depression, the economy has been blasted by the war in eastern Ukraine, the centre of the country's steel and mining industries. Around two-fifths of export earnings come from the region.

As a result, the government's hard currency reserves have dwindled to alarming levels. Default on Ukraine's outstanding loans, a run on the banks and further devaluation of the hryvnia loom on the horizon.

Payments skyrocketing

In Kiev, conversations primarily seem to revolve around two subjects: the nightmare of the war in east, and the constantly devaluing hryvnia, which drops almost daily.

For those who receive their salaries in hryvnia, or have taken out loans indexed to foreign currency, the current state of affairs appears terrifying.

Image copyright Reuters
Image caption People walk past a board showing currency exchange rates in central Kiev at the end of February

In front of the country's national bank - amidst posters depicting bank governor Valeria Gontareva as a demon and a hryvnia note being eaten by caterpillar - a clutch of protesters has gathered to demand government action.

The crowd, numbering a few dozen, is small but emotional. They say they took out home-owner loans that were denominated in dollars, and now, with the rising exchange rate, their payments are skyrocketing.

"We can't pay our mortgages," said Maksym Bondar, a bank worker from the southern city of Odessa.

"There is a very big risk that we will lose our homes. We can't pay because our payments have increased by more than six times."

"Of course, I'm afraid," he added. "I live in my house with my family, and I don't want to be thrown out from my house and live I don't know where.

"And our government does nothing to help us."