Cooperation with the IMF has barely begun, and we are already at risk of making serious mistakes

In just a few weeks, Ukraine may not fulfill one of the first structural beacons of the current program of cooperation with the International Monetary Fund (IMF). It is worth noting that this is not the first time that we are generally record holders for the number of unfinished cooperation programs with this structure. However, perhaps for the first time, we risk starting the program with failure. Moreover, the issue that became the cornerstone is the return of the "pre-war" system of taxation of individual proprietors. It is worth noting that from the entire list of our obligations, this issue is definitely not the most serious. And if there are problems even with this, then what will happen next?

At the end of March 2023, the Executive Board of the International Monetary Fund (IMF) approved a four-year program for Ukraine within the framework of the Extended Fund Facility (EFF) in the amount of about 15.6 billion US dollars.

The Memorandum on Economic and Financial Policy contains 19 structural beacons and is the largest number since 2015. In addition, the deadline for the implementation of 17 structural beacons falls on 2023, and only two should be implemented by mid-2024.

A total of 11 reviews are planned for monitoring and evaluating the progress of program implementation, which will be quarterly at the initial stages. At the end of May this year, the International Monetary Fund (IMF) mission completed the first review of the program with Ukraine. Therefore, it is expected that soon there will be the next monitoring of the fulfillment of obligations to the International Monetary Fund (IMF).

From the end of June to the end of July this year, Ukraine must fulfill four structural beacons, which include reforms in the fiscal sector, monetary and currency, and anti-corruption policies.

Does Ukraine fulfill its obligations to the International Monetary Fund (IMF) at the current stage?

The Ukrainian side successfully passed the first revision of the International Monetary Fund (IMF) program, and there is almost no doubt that our country will soon receive the second tranche. However, the implementation of the nearest structural beacons (infographic), predicted for the end of June – the beginning of July 2023, does not look so optimistic, because there are doubts about their timely implementation.

The biggest concerns relate to the adoption of draft law No. 8401 on tax policy (cancellation of the 2 percent taxation for individual proprietors). People's deputies submitted 1,900 amendments to the relevant bill. Therefore, it is unlikely that the structural beacons, will be completed on time, that is, by July 1, 2023. Given the fact that more than half of all amendments were made by the All-Ukrainian Union "Fatherland", as well as the statistics that currently there are more than 350 amendments on each page of the text of the law, there are suspicions of frank sabotage of the legislative process by a separate political force. Unfortunately, this calls into question the coordinated work of the parliament on the implementation of the International Monetary Fund (IMF) program as such. It is worth noting that this question may arise not only now, but also in the future.

There is little doubt about the timely preparation of the Strategy for removing currency restrictions and moving to a more flexible exchange rate. According to publicly available information, the National Bank of Ukraine (NBU) is in the process of developing this strategy. Of course, there is still time until the end of June, so we hope that the task will be completed.

Regarding the transfer of the shares of the GTS Operator to the Ministry of Energy of Ukraine, the government draft law on this issue was rejected, so the main attention is currently focused on the alternative draft law, which was sent for revision on June 10. The structural beacon should be completed by the end of July 2023. So it seems that there is still time to implement this task in a timely manner. However, work on a draft law that would solve the problem without causing additional questions and criticism is far from the finish line.

The resumption of declaration submission by civil servants is another structural beacon that raises certain concerns about its timely implementation. It would seem that the relevant draft law was submitted to the parliament in September of last year, but was never considered (despite the recommendation of the specialized committee for consideration).

In April 2023, the National Agency on Corruption Prevention (NACP) announced its readiness to fulfill the International Monetary Fund’s condition regarding the resumption of the declaration and emphasized the need for the swift adoption of the draft law. However, the issue turned out to be too delicate, and the appeals of the National Agency on Corruption Prevention (NACP) representatives were not heard by the People's Deputies. Instead, information appeared in May that the Verkhovna Rada of Ukraine (was preparing a new draft law on the restoration of declaration. There are many doubts about the fact that the parliamentarians will present an option that will not distort the essence of the changes and will satisfy the representatives of the National Agency on Corruption Prevention (NACP), as well as the representatives of the International Monetary Fund (IMF). So while it is difficult to predict what will happen to this structural beacon, there is a high probability that this task will also not be completed in time.

Summing up, it should be said that situations where the Ukrainian side untimely fulfills the structural beacon occurred during implementation of previous programs of the International Monetary Fund (IMF). Our analysis of the three most recent programs with this structure, which were launched before the full-scale Russian invasion, showed that almost 40% of the beacons of their total number were completed late.

However, for the first time in its history, of the International Monetary Fund (IMF) actually agreed to a traditional financing program for a country at war. And although the program, of course, takes into account the risks of wartime, and the representatives of the International Monetary Fund (IMF), most likely, will be sympathetic to the untimely completed beacons, this situation raises some questions for the Ukrainian side regarding the future fulfillment of the obligations stipulated in the Memorandum. After all, if problems arise with the taxation of individual proprietors and the publication of declarations, should we wait for constructive and effective solutions in the future, when the implementation of the provisions of the Memorandum will require much more significant changes? Therefore, it is worth emphasizing once again that cooperation with the International Monetary Fund (IMF) is not only an opportunity to attract money on very good terms (although this option is quite important for us at the moment), but also to obtain much greater benefits for our country. It is about the introduction of really important changes in the country to the loyalty of other global financial organizations and investors from the private sector.