IMF close to agreeing aid package for Ukraine

Anti-government protests came to a head in February

The International Monetary Fund (IMF) is close to agreement with Ukraine on financial assistance worth $14-18bn (£8.5-£11bn) over the next two years.

An agreement still needs approval by the full board of the IMF.

The stand-by arrangement comes at the end of a three-week visit by IMF officials to the country.

The deal is expected to unlock a further $10bn in loans for Ukraine from the European Union and the US.

"Following the intense economic and political turbulence of recent months, Ukraine has achieved some stability but faces difficult challenges", the IMF's Mission Chief for Ukraine said in a statement.

'Edge of bankruptcy'

The deal goes hand in hand with a reform programme for Ukraine's ailing economy.

A cut in energy subsidies to consumers has been one of the conditions of an international rescue deal and on Wednesday Ukraine's interim government agreed to raise domestic gas prices by 50% in its effort to secure the IMF aid package.

Ukraine's ousted President Viktor Yanukovich had refused to take this unpopular step.

But the country's new Prime Minister Arseny Yatsenyuk told parliament that Ukraine was "on the edge of economic and financial bankruptcy".

He said that without the austerity measures proposed by the IMF, the economy could contract by as much as 10% this year.

'Reduce costs'

The IMF says a key part of Ukraine's reform programme will focus on the country's state-owned energy company, Naftogaz, which imports gas from Russian energy giant Gazprom.

Russia has already said that the discounted gas prices Ukraine gets from Gazprom will come to an end next week.

"Over time the programme will focus also on improving the transparency of Naftogaz's accounts and restructuring of the company to reduce its costs and raise efficiency," the IMF's statement added.

According to the IMF, Naftogaz's deficit in 2013 amounted to close to 2% of national GDP.

Last week the firm's chief executive was arrested in connection with a corruption investigation.

The IMF says it will undertake a review of the country's anti-corruption framework, the way its laws and regulations are implemented, and the effectiveness of its judiciary and tax administration.

In 2013 Ukraine was ranked 144 out of 177 in Transparency International's Corruption Perceptions Index. The index measures perceived corruption among a country's public sector officials.

Payment system

The White House has welcomed the promise of a deal between the IMF and Ukraine, saying such a move would help to "stabilise and grow" the country's economy.

As US and Russian positions become entrenched over the situation in Ukraine, Russia has reacted to the boycott by Visa and Mastercard of some Russian banks by saying it will launch its own payment system.

Last week the two credit card companies blocked services to some Russian bank customers, after US sanctions imposed in response to Russia's annexation of Crimea.

The sanctions affected banks seen by the US as being close to the Russian leadership.

On Thursday President Vladimir Putin told members of Russia's upper house of parliament that the government and central bank were working on a national payment system.