Tax breaks and free travel: IMF concerned about Ukraine's budget initiatives ahead of $8 billion loan talks, Bloomberg
Specific budgetary proposals sanctioned by the Ukrainian administration have stirred anxiety within the International Monetary Fund (IMF). Namely, concessions on taxation and complimentary train journeys may worsen the already fragile financial condition of Ukraine.
Bloomberg made this disclosure, attributing it to well-informed sources. IMF officials voiced these apprehensions preceding discussions about a fresh four-year financing arrangement totaling $8 billion.
What troubles the IMF
The central worry of the Fund pertains to fiscal incentives, especially those for Ukraine's industrial sector and for independent business owners. The IMF is worried that this might intensify Kyiv's shaky economic state.
The Fund also indicated unease concerning the “UZ-3000” program, which allows Ukrainians to travel without charge on Ukrzaliznytsia trains for distances reaching 3,000 kilometers. Moreover, the IMF stipulated further requirements:
- Deregulation of the gas market. The fund will oblige Kyiv to discontinue the practice of offering preferential pricing to consumers.
- Combating the shadow economy. The IMF insists on diminishing the informal economy (calculated to be more than 30% of GDP), particularly by curtailing the extent of tax reductions for individual entrepreneurs.
- Devaluation of the Hryvnia. The lender maintains pressure on the National Bank, urging a quicker devaluation of the hryvnia to augment budget revenue in the local currency.
It is noteworthy that the IMF has earlier conveyed worries regarding Ukraine's tax laws. Specifically, this matter was deliberated with Danylo Hetmantsev, chair of the Verkhovna Rada's Finance Committee, and Economy Minister Yulia Svyrydenko.
In response to inquiries from journalists, the IMF remarked that the forthcoming program will focus on “measures intended to bolster macroeconomic stability, generate internal income, guarantee Ukraine's debt sustainability, and protect external financial viability.”
Will Ukraine secure the loan?
It was previously indicated that the IMF might refuse Ukraine an $8 billion loan if the EU fails to approve a €140 billion compensation loan derived from frozen Russian assets. Belgium holds the final determination, as its dissent prevents a crucial agreement and endangers further international aid to Ukraine.
European diplomats and European Commission members caution that absent approval of the reparations loan, the IMF could misplace confidence in Ukraine's monetary soundness. This is essential for the Fund, as the IMF refrains from extending loans to nations lacking evident medium-term financing assurances.
However, during the October assembly of EU leaders, Belgium voiced opposition to this initiative, citing monetary and juridical risks. This choice effectively impeded the formulation of a consensus for the December IMF gathering, where the anticipated future structure of support for Ukraine is expected to be determined.
