This might hurt a bit: The downside of Ukraine’s IMF loan

Two major developments regarding Ukraine were announced Thursday. The first is a fragile ceasefire with the pro-Russian separatists in Eastern Ukraine, and the second is an expanded loan program from the International Monetary Fund. 

“If you asked me which of the two deals are more important, it’ s probably the IMF deal, because the IMF deal is more likely to stick,” says Ian Bremmer, president of the Eurasia Group, a research and consulting firm.

The package requires difficult reforms to combat corruption, reduce public spending and – most critically – reform the country’s energy sector. Many of these conditions will have to be met up front, and approved by Ukrainian legislators, says Anders Aslund, a senior fellow at the Peterson Institute for International Economics and a former economic adviser to Russia and Ukraine.

The most difficult conditions concern reforming the state-owned natural gas company and reducing its generous subsidies. Those subsidies keep gas for residential heating cheap, but also cause the company to lose about $4 billion a year, according to Thierry Bros, senior analyst for European gas and energy markets for Societe Generale.