Monitoring of implementation of the IMF program and the Ukraine Plan (July,2024)
Cooperation with international partners is crucial for Ukraine. The success of such cooperation results in the financing of priority state budget expenditures (domestic revenues are directed to security and defense).
Fulfillment of obligations under financial support programs is not needed by donors – indeed, Ukraine needs them to achieve economic sustainability and transition to growth and increase the welfare of Ukrainians. It is also a way to gain the trust of all international partners and foreign businesses.
Our monitoring takes into account the results of the implementation of commitments as of July 2024.
The RRR4U consortium continues to regularly monitor Ukraine’s compliance with the IMF financing program. As Ukraine has fulfilled all structural benchmarks required for a successful fourth review of the Program, an agreement on a successful review was reached at the expert level on May 31. The decision of the IMF Executive Board on the review is expected on June 28.
IMF
At the end of June, the IMF Executive Board completed the fourth review of the Extended Fund Facility Arrangement for Ukraine. This made it possible for Ukraine to receive the next (fifth) tranche of USD 2.2 bn.
It is worth noting that for the first time in its bilateral relations with the IMF, Ukraine was able to successfully pass the fourth review of the program.
The updated Memorandum with the Foundation contains two new structural benchmarks, namely:
- customs reform (by the end of October 2024);
- repeal of the “Lozovyi’s amendments” and other changes to the Criminal Procedure Code of Ukraine (by the end of October 2024).
The deadlines for three structural benchmarks were postponed.
The next review, which will take place tentatively in September-October 2024, also has every chance of being successful. After all, we have actually already done our homework, namely, the law on the reboot of the Economic Security Bureau of Ukraine was adopted in June 2024. At the same time, progress under the program will be assessed based on the fulfillment of quantitative performance criteria and indicative targets.
By the end of September, Ukraine should have completed the following structural benchmarks:
– audit tax benefits and losses from them (postponed from July 2024);
– identify the state-owned companies most affected by the war and assess fiscal and quasi-fiscal risks;
– complete an external audit of the NABU’s effectiveness with the participation of three independent experts with international experience, and publish its report.
EU
What was done in July, 2024
➔ On July 16, the Ministry of Economy reported that Ukraine had taken all the necessary steps to meet the indicators for the second quarter of 2024 envisaged by the Plan and sent a request for EUR 4.2 bn to the EU Commission on July 9.
➔ In mid-July, the EU Commission supported the allocation of almost EUR 4.2 bn to Ukraine.
➔ On July 24, EU ambassadors agreed on the first tranche of almost EUR 4.2 bn to support recovery, reconstruction and modernization.
What to expect further in July, 2024
➔ The EU Council is to decide on the allocation of EUR 4.2 bn to Ukraine.
➔ After that, over the next two months, the EU member states will have to approve the decision to provide the relevant funds.
➔ The next part of macro-financial support is due in September 2024.
Special topic: The impact of foreign aid on the economy: will we close the fiscal gap?
2024: more funds are needed to finance defense
Civilian expenditures:Funding is likely sufficient
- According to the Ministry of Finance, Ukraine needs about USD 37 bn in external financing in 2024.
- In 2024, Ukraine will receive USD 38 bn in external budgetary aid (NBU estimate).
- Ukraine has has finalised agreements to receive the first tranche (USD 3.9 bn out of USD 7.85 bn) of the grant from the United States.
Defense spending: Increase by UAH 500 bn
- The main source of additional funding will be tax increases.
- The Ministry of Finance insists on increasing the military tax instead of VAT.
- In a joint statement, think tanks, including IER and CES, call for an increase in VAT instead and better tax administration and minimization of shadow schemes.
The RRR4U (Resilience, Reconstruction and Relief for Ukraine) consortium is a partnership of four Ukrainian civil society organizations with financial support from the Open Society Foundations and the International Renaissance Foundation. The consortium members are the Center for Economic Strategy, the Institute for Economic Research and Political Consultations, the Institute for Analytics and Advocacy, and the DiXi Group.
