IMF staff reaches deal with Ukraine for $690 million disbursement, pending board approval
IMF Loan Program Review and Ukraine’s Economic Outlook
By Andrea Shalal
WASHINGTON, June 12 (Reuters) - The International Monetary Fund on Friday said it had completed its first review of Ukraine's $8.1 billion loan program, paving the way for the war-torn country to receive a second tranche of $690 million despite Kyiv's failure to meet a key condition.
The IMF's board is expected to finalize the deal next month.
Performance Criteria and Structural Benchmarks
Ukraine met all quantitative performance criteria and indicative targets for the loan by the end of March, but implemented two structural benchmarks with a delay and missed one benchmark, the IMF said in a statement.
To keep the program on track, IMF staff and Ukrainian authorities agreed to a revised timeline for implementing reforms, corrective actions to address slippages and additional policy commitments, the IMF said in a statement.
It gave no details on the new timeline or commitments.
Macroeconomic Stability Amid Ongoing Conflict
The IMF, which also completed a review of Ukraine's overall economy, said authorities had broadly maintained macroeconomic stability despite Russia’s war - now in its fifth year - as well as spillovers from the war in the Middle East.
It said the National Bank of Ukraine (NBU) has maintained adequate international reserves, preserved financial stability and kept inflation expectations anchored despite shocks. However, GDP growth is projected to slow to 1% to 1.6% this year due to the impacts of the ongoing war and spillovers from the war in the Middle East which began on February 28.
Key Meetings and Negotiations
The agreement followed weeks of discussions during a recent IMF mission to Kyiv that included meetings with Ukrainian Prime Minister Yulia Svyrydenko, top central banker Andriy Pyshnyi, Finance Minister Serhii Marchenko and presidential chief of staff Kyrylo Budanov, the IMF said.
Legislative Challenges and Tax Reforms
The IMF agreed to proceed despite the failure of Ukraine's parliament to pass legislation raising taxes on parcels sent to the country, a key condition set by the IMF as part of the four-year loan program that has proven controversial with lawmakers.
Currently, parcels containing goods worth less than 150 euros ($175.54) are not subject to taxes in Ukraine. Introducing the tax would generate around 10 billion hryvnias ($227.53 million) annually, the finance ministry has said.
Debate Among Lawmakers
Some lawmakers worry the measure will further raise the cost of living for people already battered by more than four years of war. Others argue that it will aid domestic producers by helping reduce consumer imports.
IMF’s Policy Recommendations
The IMF said Ukraine's commitments included removing the customs exemptions for parcels and measures to eliminate the ability of companies to avoid paying taxes, and strengthening enforcement to curb abuse of the simplified tax regime.
IMF mission chief Gavin Gray underscored the need for continued work by Kyiv to reduce the size of Ukraine's shadow economy, address corruption and strengthen governance.
Impact on Business Environment
"Such reforms will help level the playing field, improve the business environment and better position Ukraine to compete successfully in the EU single market," he said in a statement.
Energy Market Reforms and Fiscal Needs
The IMF said Ukraine was also working on a roadmap for liberalizing the energy market that would include protection mechanisms for vulnerable households and could allow Kyiv to reduce household subsidies.
Ukraine needs to boost revenues since it currently channels the bulk of its domestic revenues to the military and relies on foreign financial aid to fund social and humanitarian spending.
EU Support Linked to IMF Program
The IMF's program remaining on track is also a prerequisite for progressively unlocking a 90 billion euro two-year support package for Ukraine from the European Union.
(Reporting by Andrea Shalal; Editing by Mark Porter and Andrea Ricci)