IMF holds new talks with Kyiv as government grapples with graft scandal

By Olena Harmash and Dan Peleschuk

KYIV (Reuters) -The International Monetary Fund mission launched talks on Monday with Ukraine on a new lending programme critical to its wartime fortunes, as Kyiv grapples with a wide-ranging corruption probe that has shaken faith in the government.

Ukraine relies on the IMF and other foreign lenders to cover its budget gap as it funnels most revenues towards fending off Russian forces in the fourth year of Moscow's war.

Senior lawmaker Danylo Hetmantsev described Monday's talks as the most difficult since Russia's February 2022 invasion, following an investigation by anti-corruption authorities into an alleged $100 million procurement scheme at the state nuclear agency.

The probe has so far claimed two government ministers and prompted President Volodymyr Zelenskiy, whose former business associate is the chief suspect, to announce an overhaul of management in the energy sector.

It also comes as Ukrainian troops struggle to beat back Russian forces from the strategic city of Pokrovsk, whose capture could allow Moscow to threaten eastern Ukraine's last key government-held cities.

SCANDAL LEADS TO LOSS OF TRUST

Hetmantsev, head of parliament's tax and finance committee, said a "loss of trust" among Kyiv's partners, who he said were openly talking about the scandal, had become "a big problem" for Ukraine.

"Trust is capital that is created over years, and can be lost in one unworthy moment," he wrote on the Telegram app.

Hetmantsev, who added Ukrainian officials would need to make "very difficult decisions", did not provide further details on the talks.

Priscilla Toffano, the IMF representative in Kyiv, had earlier said the talks would cover Ukraine's economic policy objectives and ways to strengthen governance, combat corruption and enhance growth.

Monday's discussions began as a special parliamentary commission publicly questioned government and law enforcement officials for details regarding the investigation and other corruption risks.

KYIV IS SEEKING NEW IMF PROGRAMME

Central bank governor Andriy Pyshnyy said Ukraine was prepared for "a detailed conversation about interest-rate and exchange-rate policy and financial sector reform."

Kyiv has requested a new IMF financing programme and hopes to secure a decision by the end of this year. The previous programme, agreed in 2023, assumed the war would end in late 2025 - an unlikely prospect since a diplomatic effort stalled earlier this year.

Ukraine has so far received about $10.6 billion under its existing $15.6 billion Extended Fund Facility programme, according to the Finance Ministry.

(Additional reporting by Anastasiia Malenko; Editing by Hugh Lawson)