UPDATE 1-Ukraine raises gas prices as PM warns of default

Ukraine announced on Friday it would raise household gas prices by nearly a quarter as Prime Minister Volodymyr Groysman warned that the country risked default if it crashed out of its International Monetary Fund aid programme.

Raising household gas tariffs is a key condition of IMF aid, but Kiev had until now refused to increase them.

"We have no other option to prevent extremely difficult events," Groysman said during a televised cabinet meeting.

"If we are not able to continue cooperation with our international partners," Groysman warned, then the country will not be able to service its debt.

"This may lead to the situation when Ukraine will be put into default," he said.

Ukraine's Eurobonds rose across the curve following the announcement.

Ukraine was obliged to raise household gas tariffs to qualify for more aid under a $17.5 billion IMF programme that expires next year when the country heads into two elections and must serve a rising debt burden.

IMF aid has been effectively frozen since April 2017 as Ukraine's performance on reforms slowed down and due to the government's refusal to raise gas prices, which have been kept artificially low since Soviet times, to market levels.

If Ukraine receives another tranche of IMF money, that would also allow the government to go to the market to issue new debt and would also pave the way for the European Union and other foreign donors to disburse more aid.

Groysman said household gas prices would be raised by 23.5 per cent from Nov 1.

(With inputs from agencies.)