Ukraine makes historic progress in IMF programme reviews – September RRR4U monitoring
On 13 August, Ukraine received €4.2 billion from the EU under the Ukraine Facility for meeting all the indicators of the Ukraine Plan for the second quarter. On 10 September, Ukraine and the IMF reached a staff-level agreement on the fifth review of the programme. Ukraine may receive the next tranche of about $1.1 billion after the Executive Board approves the revision, which is expected in mid-October. These decisions were made possible by Ukraine’s timely fulfilment of its obligations.
This is stated in the latest issue of the Monitoring of IMF and EU Assistance Programmes, which was presented by experts of the RRR4U Consortium on 30 September.
“The official budget deficit for 2023 was $36 billion. Additionally, we received about $12 billion in grants and almost $20 billion in humanitarian aid and weapons, which were recorded as own revenues of budgetary institutions. In addition, Ukraine paid off its debt of about $12 billion. Instead of an official deficit, Ukraine’s total financing needs amounted to almost $80 billion. That is why the IMF and EU programmes have kept Ukraine functioning. Currently, according to various estimates, the financing need is $40 billion, but the figures may also increase for this year and the following years,” said Maria Repko, Deputy Director of the Centre for Economic Strategy.
For the fifth review of the IMF Programme, Ukraine has fulfilled all quantitative criteria and one structural benchmark that we had to fulfil by the end of June (the evaluation period) – the adoption of the law on BES reform. This is subject to a positive decision by the IMF Board of Directors, which is expected in mid-2024. The sixth review of the IMF programme will take place in December. At that time, our progress will be assessed against quantitative indicators and structural benchmarks, with a deadline of the end of September 2024.
“30 September is the deadline for three structural benchmarks – developing a methodology for auditing tax benefits and losses from them, identifying the state-owned companies most affected by the war and assessing fiscal and quasi-fiscal risks, as well as completing an external audit of the NABU’s effectiveness with the participation of three independent experts with international experience and publishing its report. The first two of them have been fulfilled, and the third is likely to be postponed,” said Maksym Samoiliuk, economist at the Centre for Economic Strategy.
In August 2024, the EU Council gave the green light to allocate grants and loans to Ukraine for the fulfilment of 9 indicators in the second quarter of 2024, and the State Budget of Ukraine received €4.2 billion from the EU (€2.7 billion in concessional financing and €1.5 billion in grants).
“Ukraine can receive the next tranche by the end of 2024, provided that all 9 indicators of the third quarter are met. Then Ukraine should send a request for €4.2 billion to the European Commission, which, together with the EU Council, should support the decision to allocate funds. According to the Consortium, as of 30 September, several indicators have not been fully met,” explained Alyona Korogod, DiXi Group analyst.
One of the structural beacons of the Memorandum with the IMF is the reform of the State Customs Service of Ukraine, which has become a special topic of public discussion.
2Business identifies customs issues as problematic, and experts often call the work of the State Customs Service inefficient. Effective customs work means transparency and predictability, a better business climate and higher budget revenues. Effective customs legislation means harmonisation with EU rules and clear rules of the game for Ukrainian and international businesses. Reform in this area has always been in the focus of international commitments. The key commitments are the reform of the State Migration Service, the introduction of new IT solutions and changes in customs legislation,” outlined Oleksandra Betliy, Senior Research Fellow at the IER. One of the fulfilled milestones in the IMF programme was the adoption of the draft law 6490-d, which primarily concerns the reform of the SMS. It provides for a transparent competition for the head of the State Customs Service, re-certification of employees, and greater control over customs activities.
“It is strange to me that we are implementing such important reforms as customs only when we are facing deadlines under the IMF programme and other international documents. However, I hope that further beacons and commitments to our partners will provide for the implementation of decisions that will not be blocked,” commented Yaroslav Zheleznyak, MP, First Deputy Chairman of the Parliamentary Committee on Finance, Taxation and Customs Policy.
“Over the past three years, we have adopted such key things as a single window at customs, accession to the Convention on Common Transit, and the introduction of authorised economic operators. Laws have been adopted that have significantly changed the procedures and the landscape for customs work, which are essential for further European integration,” said Oleksandr Moskalenko, Director of the Customs Policy Department of the Ministry of Finance of Ukraine.
“Draft Law 6490-d, among other things, provides for periodic confirmation of the professional level of knowledge of employees, the possibility of conducting integrity checks, the establishment of disciplinary committees at the regional and central levels, which will include persons independent of customs, the possibility of using a polygraph as one of the elements of identifying risks on the part of customs officials, including corruption, and the introduction of the rotation principle. These are the components that the leadership of the State Customs Service of Ukraine fully supports. At the same time, the success of the customs reform depends entirely on more funding, which is necessary to increase the salaries of the SCS employees,” summed up Vladyslav Suvorov, Deputy Head of the State Customs Service of Ukraine.
To watch the recording of the presentation of the Monitoring of the IMF Programme Conditions and EU Assistance under the Ukraine Facility, please follow the link.
The event was supported by the International Renaissance Foundation.
