Ukraine to increase retirement age as part of $15bn IMF deal

Under the terms of the deal, Ukraine will introduce a raft of measures to keep people in the workforce for longer, including increasing the retirement age. In the longer term the IMF will work with the Ukranian government to draw up detailed plans for reform.

The IMF's resident representative in Kiev, Max Alier, said: "The pensions system in Ukraine has a deficit which now stands at 18% of GDP. This is clearly unsustainable and the problem needs to be addressed.

"One of the big problems is the number of pensioners to workers is increasing over time and we need to provide more incentives for people to stay in employment for longer, including increasing the age of retirement.

"Detailed reform now needs to be developed and we are currently in discussions with the government."

The loans will be given to the Ukraine over the next two and a half years, with around $1.9bn made available immediately, the Washington-based IMF said. "Subsequent disbursements [will be] subject to quarterly reviews", it added.

Ukraine is recovering from one of the world's worst recessions, which saw the economy shrink by 15% last year.

In 2008, the IMF extended a $16.4bn credit to Kiev, but payments were frozen when Ukraine passed a law raising minimum wages and pensions despite IMF opposition. President Viktor Yanukovych had made restoring relations with the IMF a major priority on taking office earlier this year.

"Ukraine is emerging from a difficult period during which the economy was severely hit by external shocks and exacerbated by domestic vulnerabilities," said John Lipksy, the fund's second in charge announcing the approval by the IMF executive board.

"The authorities are committed to addressing existing imbalances and putting the economy on a path of durable growth, through important fiscal, energy, and financial sector reforms.

"Fiscal adjustment will start in 2010 and deepen in 2011-12 backed by robust structural reforms of the pension system, public administration, and the tax system."

Ukraine's economy is expected to grow around 4.5% this year and 4.7% in 2011, helped by increased exports.