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IMF's Lagarde warns Ukraine it could lose vital aid


Ukraine is taking too long to introduce government reforms and fight corruption, the head of the International Monetary Fund warned Wednesday, adding that without new efforts, its financial aid program could end.

"I am concerned about Ukraine's slow progress in improving governance and fighting corruption, and reducing the influence of vested interests in policymaking," IMF chief Christine Lagarde said in a statement on Wednesday.

A year ago, Ukraine was given a financial lifeline by the IMF worth $17.5 billion with additional aid from the international community making a total aid package worth $40 billion. The financial aid has helped to prevent the country from falling into bankruptcy and political crisis.

IMF Managing Director Christine Lagarde
Saul Loeb | AFP | Getty Images

The government in Kiev has so far only received some small tranches of the loan and now getting the remainder is looking shaky after Lagarde said Ukraine, a country now mired by increasing internal political division, was not doing enough to fulfil its bailout conditions.

"Without a substantial new effort to invigorate governance reforms and fight corruption, it is hard to see how the IMF-supported program can continue and be successful," she warned.

As part of the IMF's aid program, designed to run over four years, Ukraine pledged to overhaul its economy, fight corruption and implement reforms such as privatization and austerity measures -- all of which were designed to restore credibility on the financial markets and growth.

The former Soviet republic, which has a continuing conflict with Moscow over its annexation of Crimea and encouragement of pro-Russian separatists in the east of the country, has had problems closer to home with politicians struggling to push through reforms, however.

Lagarde said Ukraine's government had to act now to prevent it repeating past mistakes.

"Ukraine risks a return to the pattern of failed economic policies that has plagued its recent history. It is vital that Ukraine's leadership acts now to put the country back on a promising path of reform," she added, concluding her statement.

Ukrainian Finance Minister Natalie Jaresko
Ukraine can see economic growth in 2016: FinMin

Lagarde's comments come after the surprise resignation of the country's economy minister last week, which has thrown the country's economic management into doubt. Economy Minister Aivaras Abromavicius alleged that corrupt practices and vested interests were harming his ministry and that it had become clear that "that any kind of systemic reform is decisively blocked," he said in a statement.

"It is more than the mere lack of support or political will. These are concrete actions aiming to paralyze our reform efforts, ranging from a sudden removal of my security detail to the pressure to appoint questionable individuals to my team or to key positions in state-owned enterprises," he said.

"I can only interpret these actions as a persistent attempt to exert control over the flow of money generated by the state-owned enterprises, especially NAK Naftogaz and the defence industry. I refuse to be part of this system. Neither me, nor my team are prepared to serve as a cover-up for the schemes, old or new, that have been set up in the private interest of particular political or business players."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow CNBC International on Twitter and Facebook.