The International Monetary Fund (IMF) staff and the Ukrainian authorities have reached agreement on economic policies for a new 14-month Stand-By Arrangement (SBA), which will replace the arrangement under the Extended Fund Facility (EFF), approved in March 2015 and set to expire in March 2020. “The new SBA, with a requested access of SDR 2.8 billion (equivalent to $3.9 billion), will provide an anchor for the authorities’ economic policies during 2019,” the IMF said in a statement on Friday.
According to the statement, the agreement is subject to IMF management approval and approval by the IMF Executive Board. Board consideration is expected later in the year following parliamentary approval of a government budget for 2019 consistent with IMF staff recommendations and an increase in household gas and heating tariffs to reflect market developments while continuing to protect low-income households.
The IMF says that building on progress made under the EFF arrangement in reducing macro-economic vulnerabilities, the new agreement will focus in particular on continuing with fiscal consolidation and reducing inflation, as well as reforms to strengthen tax administration, the financial sector and the energy sector.
“The agreement reached today reflects the IMF’s commitment to continue to help Ukraine achieve stronger, sustainable, and inclusive economic growth,” the IMF said.
The Ukrainian authorities’ steadfast and effective implementation will be critical for the program to achieve its objectives, it added. According to the IMF, the new program has been developed in close coordination with the World Bank and the European Union, who have parallel operations to support Ukraine. As reported, the four-year-EFF program worth SDR 12.348 billion (about $17.46 billion at the current forex rate) was launched in March 2015 with a first disbursement of $5 billion. It originally suggested a quarterly review of the program, the allocation of three more tranches worth SDR 1.18 billion each in 2015 and a reduction in quarterly disbursements in 2016-2018 to SDR 0.44 billion ($0.61 billion).
Under the ongoing program, Ukraine has managed to receive a second tranche worth $1.7 billion early in August 2015 with a little delay, which was followed by a long break as Ukraine had failed to meet a number of conditions, which was aggravated by the political crisis and government reshuffles.
Talks on further financing resumed after the appointment of a new Cabinet of Ministers headed by Volodymyr Groysman in April 2016. However, the IMF decided to issue a third disbursement worth $1 billion only in the middle of September 2016 and a fourth one on April 3, 2017.
Since July 2017 Ukraine has been in a complicated negotiating process with the IMF on the gas issue. The IMF insists on raising the price of gas for the population, which, according to various estimates, may range from 30% to 60% due to rising prices in international markets, while the prime minister had previously pointed out the irrationality of such a sharp increase.
The Fund’s position is quite tough, as the government last year decided to raise gas prices that allowed Ukraine to receive a tranche from the IMF, but subsequently unilaterally refused to implement it. Only on Friday, October 19, the government decided to raise gas prices for the population by 23% from November 1, but their new level is still significantly lower than the prices for industry.
Ukraine has fulfilled a major part of conditions for receiving the first tranche of macro-financial assistance (MFA) from the European Union in the amount of EUR 500 million, acting Finance Minister of Ukraine Oksana Markarova has said.
“Most of the conditions for the first tranche have already been fulfilled. Some of them are in the process of implementation at the final stage. I think getting the first tranche is realistic enough,” she told Interfax-Ukraine on the sidelines of the 15th YES Conference organized by the Victor Pinchuk Foundation in Kyiv.
“The question is about reaching agreements with the IMF, which are also important for the MFA. We are working on this too, as soon as there is, I hope, a positive solution, then we will be able to [to get the MFA],” Markarova said.
Commenting on the specific conditions for the first tranche of the MFA, she said that the Finance Ministry had already approved seven general tax consultations since July.
“After we approved amendments to the Tax Code that enable the Finance Ministry to render these consultations, we did not actively use this tool. It’s my personal priority,” Markarova said.
She said that some legislative requirements are differently interpreted by tax offices in regions and courts, and the role of these generalized consultations is to provide equal interpretation, therefore, the ministry will use this tool.
Asked about the fulfillment of the requirement to ensure effective verification of information on beneficiaries in the public register, Markarova said that this requirement has already been practically fulfilled, as it is prescribed.
“This is a matter of changing the legal acts. There is already a clear understanding of what needs to be changed in the regulatory framework to make this possible. I think we will fulfill this condition,” the acting minister said, adding that there is no need for legislative amendments.
At the same time, she said that, in general, the verification of beneficiaries is a very complex issue. Markarova said that there is no country that can show how it works, in particular, this is a new experience for European partners of Ukraine.
The acting minister also said that the draft national budget for 2019 announced all the required funds for the work of the High Anti-Corruption Court.
Head of the National Bank of Ukraine Yakiv Smolii positively assesses the course of the negotiations on the possibilities of obtaining the next tranche of financing with the mission of the International Monetary Fund (IMF) that have been held in Kyiv since September 6.
“The negotiations with the IMF are continuing. The mission is finishing its work next week, and we expect a positive decision on continuing cooperation,” he told journalists on the sidelines of the 15th YES forum organized by the Victor Pinchuk Foundation in Kyiv.
Asked about the aspects of this cooperation, Smolii noted that the fund’s continued financial support for Ukraine remains an important element of it.
“The replenishment of foreign exchange reserves is the key to macro-financial stability,” the NBU head said.
As reported, the IMF mission headed by Ron van Rooden began work in Kyiv on September 6 and plans to work until September 19 “to discuss the latest economic events and economic policy.”
The mission of the International Monetary Fund (IMF) led by Ron van Rooden started working in Kyiv on Thursday, the IMF representative office in Ukraine has told Interfax-Ukraine. The IMF representative office said that the mission arrived in Kyiv the day before.
As IMF Resident Representative in Ukraine Goesta Ljungman reported in the middle of August, the IMF mission will visit Kyiv during September 6-19, 2018, to discuss recent economic developments and policies.
Ljungman also said that the mission will also discuss next steps, including financial assistance from the IMF in support of policies to maintain macroeconomic stability and keep the economy on a path toward sustainable and inclusive growth.
Ukraine’s Acting Finance Minister Oksana Markarova said that Ukraine plans to discuss all current issues with the IMF and continuation of cooperation after the completion of the Extended Fund Facility (EFF) in March 2019.
According to her, the successful fourth review of the IMF EFF and the receipt of the fifth tranche of $2 billion will open the way to attract financing to the national budget on preferential terms, using the World Bank’s guarantee for$ 800 million, as well as receiving macro-financial assistance from the EU for EUR 1 billion.
In turn, NBU Governor Yakiv Smolii said that approaching the prospect of receiving financing from the IMF will have a positive impact on the state of the currency market of Ukraine and will also improve the government’s ability to borrow on the international capital markets.
“The arrival of the IMF mission to Kyiv is a step towards reducing uncertainty regarding the further development of the situation in the Ukrainian economy and improving the expectations of market participants,” the head of the NBU said in the middle of August.
As reported, the four-year-EFF program worth SDR 12.348 billion (about $17.46 billion at the current forex rate) was launched in March 2015 with a first disbursement of $5 billion. It originally suggested a quarterly review of the program, the allocation of three more tranches worth SDR 1.18 billion each in 2015 and a reduction in quarterly disbursements in 2016-2018 to SDR 0.44 billion ($0.61 billion).
Under the ongoing program, Ukraine has managed to receive a second tranche worth $1.7 billion early in August 2015 with a little delay, which was followed by a long break as Ukraine had failed to meet a number of conditions, which was aggravated by the political crisis and government reshuffles.
Talks on further financing resumed after the appointment of a new Cabinet of Ministers headed by Volodymyr Groysman in April 2016. However, the IMF decided to issue a third disbursement worth $1 billion only in the middle of September 2016 and a fourth one on April 3, 2017.
Since July 2017 Ukraine has been in a complicated negotiating process with the International Monetary Fund (IMF) on the gas issue. The IMF insists on raising the price of gas for the population, which, according to various estimates, may range from 30% to 60% due to rising prices in international markets, while the prime minister had previously pointed out the irrationality of such a sharp increase.
A government source said that during this period Ukraine offered the IMF at least eight options of changing the formula for gas prices, based on observance of the principles agreed upon with the IMF.
The Fund’s position is quite tough, as the government last year decided to raise gas prices that allowed Ukraine to receive a tranche from the IMF, but subsequently unilaterally refused to implement it.
IMF Managing Director Christine Lagarde on June 19, 2018 said that the implementation of the actions related to gas prices is critical to allow the completion of the pending review under Ukraine’s IMF-supported program.
She said that another action is critical: observing the upper limit for the budget deficit.
Ukraine would calmly pass this autumn and winter thanks to the assistance of the International Monetary Fund (IMF), Ukraine’s Alternate Executive Director in the IMF Vladyslav Rashkovan has said. “I am sure that we would calmly pass this autumn and next winter, including thanks to assistance from the IMF,” Rashkovan said in an interview with the Novoye Vremia magazine.
He said that Ukraine would soon receive the next tranche from the IMF under the Extended Fund Facility (EFF).
“I still hope that Ukraine will receive this money. I would think in terms of how it will help us to further implement the reforms that have been launched. Over the past four years it has been done more than in 23 years. The World Bank, the EBRD [the European Bank for Reconstruction and Development] and all international investors admit it, but we have lost a lot of time and we need to develop faster. The IMF is able to help us,” Rashkovan said.
The International Monetary Fund (IMF) considers it possible to introduce an exit capital tax in Ukraine if mechanisms to cover possible budget losses are available, the member of the Verkhovna Rada Committee on Taxation and Customs Policy, People’s Deputy Tetiana Ostrikova (Samopomich), has said after a meeting with IMF representatives in the United States. “The first news is that the IMF does not oppose this tax and considers such a model of profit taxation possible taking into account certain factors. The second news is that the IMF does not directly support the bill on the exit capital tax, which the Ukrainian government uses, covering its inactivity in the tax sphere,” the press service of the Samopomich party said.
The party notes that the issue of the introduction by the president of Ukraine of a draft law on the exit capital tax, prepared by a working group under the Ministry of Finance, to the parliament, was postponed indefinitely, referring to correspondence with the IMF.
At the same time, the political force explained that the issue of the exit capital tax was not included in the memorandum between the IMF and Ukraine, therefore it is not a top priority for the fund. At the same time, the IMF is concerned about a lack of tangible tax reforms.
