IMF And EU Programs: How Ukraine Is Coping With Its “Homework”

Programs with the IMF and the EU are what keeps Ukraine afloat, helps to fight off the enemy, pay pensions, salaries to teachers and doctors and keep the economy in a functioning state.

This was stated during the presentation of the next report of the RRR4U consortium (Resilience, Reconstruction and Relief for Ukraine) on monitoring the implementation of IMF and EU assistance programs. In addition, the customs service reset that has begun was also discussed. We will familiarize the reader with the main excerpts from the discussion.

Let's rewind to last year for a while. The 2023 budget included a deficit of $36 billion. However, Ukraine's real need for financing amounted to $80 billion. Ukraine is unable to draw such money from domestic sources, and no tax increase will help. That is why Ukraine could not do without external financing then. And it cannot do it now either.

Ukraine's need for financing in 2024 is estimated at $40 billion, but the amount, as experts of the consortium say, like they did last year, can be much higher. And for the following years, too. Therefore, it is very important that Ukraine fulfills its “homework” — IMF structural beacons and EU recommendations, although it may not always meet the deadlines.

On September 10, Ukraine and the IMF at the expert level agreed on the fifth revision of our EFF program amounting to $15.6 billion. The negotiations were not easy. In particular, in addition to a number of structural beacons that Ukraine pledged to fulfill, another one entered the stage — the election of new members of the supervisory board of the Ukrenerho National Energy Company (NEC) to replace those who had resigned.

We remind you that on September 2, the supervisory Board dismissed the head of the company Volodymyr Kudrytskyi. In connection with this, the head of the NEC supervisory board, Daniel Dobbeny, and a member of the board, Peder Andreason, resigned. The collapse of the NEC supervisory board threatens a conflict with international donors. In this regard, the G7 ambassadors expressed concern about the personnel changes in the NEC leadership and emphasized the importance of quickly appointing new supervisory board members.

Politically important is the need to complete an external audit of the NABU's effectiveness with the participation of three independent international experts. This was scheduled for September, but only on October 3, a delegation of the NABU Audit Commission visited the National Anti-Corruption Bureau. Thus, the external independent assessment of the National Bureau's activity, although with some delay, has begun.

Reforms are needed not only so that Ukraine could get access to funding. The reforms are aimed at making the Ukrainian economy more stable, solid, rule-of-law-oriented, so that Ukraine becomes a civilized European country. “But the things that can move Ukraine forward, towards correct and healthy economic development, are not always implemented even under pressure from international donors,” Mariia Repko, deputy director of the Center for Economic Strategies, stated during the discussion.

Nevertheless, Ukraine has achieved almost all the quantitative criteria necessary for the successful sixth revision of the current cooperation program with the International Monetary Fund, which is scheduled for December. However, Ukraine has not achieved all structural beacons.

A successful fifth review will unlock $1.1 billion for Ukraine, and in December, and if we do not stumble over unfulfilled items of the IMF program, the sixth review will loom on the horizon.

Now on cooperation plans within the framework of the Ukraine Facility. The European Union will continue to provide funds for Ukraine's reconstruction, as planned, until 2027. But there are indicators standing in the way of funding, and we don't need them to start blinking alarmingly.

On August 6, the EU Council gave the green light for grants and loans to Ukraine for meeting nine second-quarter indicators. On August 13, the State Budget of Ukraine received €4.2 billion from the EU (€2.7 billion in concessional funding and €1.5 billion in grant funding).

Besides:

• On August 16, the Ministry of Economy launched a dashboard to monitor the implementation of Ukraine's Plan for the Ukraine Facility program from the EU;
• On September 6, the State Audit Service was granted the status of the Anti-Fraud Coordination Service under the Ukraine Facility.

As mentioned above, on August 13, the state budget of Ukraine received €4.2 billion from the EU. Since the beginning of 2024, Ukraine has received €12 billion within the framework of Ukraine Facility for fulfilled indicators and may receive another €4.2 billion by the end of the year. In total, the amount of receipts for 2024 may amount to €16 billion.

The main thing is not to put the brakes on where they are not needed. In no way has Ukraine undertaken to fulfill the structural beacons and indicators to make international partners happy.

Let's touch upon another sore spot — customs. It should have been rebooted long ago, freed from the accumulated junk and strangled corruption. The Verkhovna Rada of Ukraine approved the reset of the customs service: on September 17, the Verkhovna Rada of Ukraine adopted as a whole the draft law No. 6490-d “On Amendments to the Customs Code of Ukraine on Establishing the Specifics of Service in Customs Bodies and Certification of Customs Officials.”

“It is strange to me that we carry out such important reforms as customs only when we have crushing deadlines on the IMF program... However, I hope that further beacons and commitments to partners will provide for the implementation of decisions that will not be blocked,” commented Yaroslav Zhelezniak, MP, first deputy head of the VRU Committee on Finance, Tax and Customs Policy.

“Customs reset is a beacon of the IMF, the World Bank and the United States. And of all business associations. And for the public. But most importantly, it is the best thing that could be done from our side to increase budget revenues,” Yaroslav Zhelezniak emphasized.

“Bill No. 6490-d, among other things, provides for periodic confirmation of the professional level of knowledge of employees, the possibility of conducting integrity checks, as well as the creation of disciplinary committees at the regional and central levels, which will include persons independent of customs. It also provides for the possibility of using the polygraph as one of the tools for identifying risks on the part of customs officials, in particular corruption risks, and the introduction of the rotation principle. These are the components that the leadership of the State Customs Service of Ukraine (STS) fully supports. At the same time, the success of the customs reform is fully dependent on more funding, which is necessary to increase the salaries of STS employees”, summarized Vladyslav Suvorov, Deputy Head of the State Customs Service of Ukraine.

However, back in December 2023, the National Revenue Strategy (NRS) was approved, which provides for the adoption of a long-term National Strategic Plan for Digital Development, Digital Transformation and Digitalization of the State Customs Service. This plan should take into account the EU's Multi-Annual Strategic Plan for Electronic Customs (MASP-C), which is a management and planning tool that guides the development of electronic customs systems within the EU.

In February 2024, the Ministry of Finance adopted a long-term National Strategic Plan for Digital Development, Digital Transformation and Digitalization of the State Customs Service in accordance with the provisions of the NRS, which is earlier than the deadline set in the Ukraine Plan.

The plan contains steps to be achieved from now through 2026, which include, among others:

• development of functional and technical specifications for new electronic systems based on EU best practices;
• implementation of a new computerized transit system (NCTS);
• introduction of cyber defense principles and paperless procedures;
• building reliable and modern customs IT systems.

“Over the last three years, such key things as a single window at customs, accession to the Convention of Common Transit and introduction of authorized economic operators have been adopted. Laws have been adopted that have significantly changed the procedures and landscape for the work of customs concerning further European integration,” said Oleksandr Moskalenko, Director of the Customs Policy Department of the Ministry of Finance of Ukraine.

So, reforms are being carried out, structural beacons are being achieved, but there are still risks that the changes will remain cosmetic and will not transform the usual “practices.” Alas, we are not describing the first reform of the customs service, and we the previous ones cannot be said to have changed the status quo at the border in any meaningful way.

 

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