Ukraine’s parliament, the Verkhovna Rada, passed its pension reform package on October 3. The bill was one of several crucial reforms necessary for further allocations of funding under the $17.5bn funding programme agreed with the International Monetary Fund (IMF) in 2015.

The motion was supported by 288 lawmakers, well above the minimum level of 226 votes needed to pass the bill. However, Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, said in a note to clients the same day that it is still unclear if the document is IMF compliant.

"Last week, the IMF sent a letter to the Ukrainian authorities highlighting seven areas of concern," Ash added. "Comments from the World Bank director for Ukraine today [October 3] indicated one area was still outstanding."

The question has been raised as the Ukrainian government appears to be watering down several unpopular reforms imposed on it by the IMF in the face of its falling popularity ahead of presidential elections in 2019. The wilting political will to stick to the IMF’s recommendations was made possible after Ukraine issued a highly successful $3bn Eurobond in September providing it with an alternative source of funds. So far the IMF has only released $1.5bn this year to Ukraine. The government has already said it intends to raise another $3bn from the international capital markets next year. Hard currency reserves have risen to about $18bn or about 3.6 months of import cover, enough to ensure the stability of the national currency. 

In the face of this money Kyiv has been backtracking on its reform promises. The independent corruption court is almost certain to become a chamber in the Supreme Court that is under the control of the government. And Kyiv has refused to increase the gas price for the population as the heating season starts, as per its IMF deal, making any more distributions of IMF funding this year unlikely. The government was supposed to increase prices as of October if the calculated price exceeded the existing one by 10% or more. Based on various calculations, this should have raised retail gas prices by 18%-19%. Fitch warned in a note that while the Eurobond issues were good news, Kyiv will still need IMF help for the foreseeable future.

On October 3, President Petro Poroshenko said that the adoption of the pension reform will make it possible to raise pensions for more than 9mn citizens. "We congratulate our compatriots on the adoption of the long-awaited pension reform, which already makes it possible to raise pensions for more than 9mn Ukrainians," Poroshenko wrote on his Facebook page.

The main initiatives on changes to the pension system were presented back in May, by Prime Minister Volodymyr Groysman. The government intends to leave the retirement age unchanged at 60 years, while the effective age will be increased. In particular, the minimum requirement for years of service is suggested to grow to 25 years beginning in 2018 from 15 years now. By 2028, the years of service requirement will be increased to 35 years.

Those who do not meet the years of service requirement will get pensions only at age 63-65. The cabinet also suggested abolishing privileged pensions (for new pensioners) except for the military, as well as providing some benefits for late retirement.

Other cabinet initiatives include the introduction of uniform rules for pension calculation (removal of discrimination against pensioners depending on the period they retired) and stipulating a minimum amount of indexation of pensions, which will be a function of the inflation rate and the average salary (pensions have been effectively frozen for many years).

The government also suggests increasing the minimum pension by 10% from October 2017, ahead of the current December date.