Bloomberg: IMF wants Ukraine to raise taxes and depreciate the hryvnia for new financial aid

Ukrainian officials expect that during a visit to Kyiv this week, representatives of the International Monetary Fund (IMF) will insist on a faster devaluation of the hryvnia, lower interest rates and higher taxes — in this way, in their opinion, the country will be able to fill the deficit in the state budget. These are conditions for Ukraine to continue receiving financial assistance from IMF.

Bloomberg writes about this with reference to the words of people familiar with the situation.

At the meeting of Ukrainian officials and representatives of IMF, they will consider the Extended Fund Facility (EFF) loan program for $15.6 billion. According to the results, Ukraine will be able to unlock the payment of $1.1 billion — the IMF representatives must make sure that the country achieves the goals of the program and has enough funds for financing. The EFF program is a four-year extended loan financing of $15.6 billion for Ukraine. The main goal of the EFF was to increase the level of reserves of the National Bank of Ukraine (NBU), prevent capital outflows, stabilize the countryʼs balance of payments and help Ukraine overcome structural problems in its economy through reforms.

At the same time, the National Bank of Ukraine does not want to allow further weakening of the hryvnia. The currency has already lost more than 10% since October 2023, when the country abolished its fixed exchange rate, which was implemented after the start of a full-scale Russian invasion.

Representatives of IMF, NBU and the Ministry of Finance of Ukraine did not comment on these statements.

IMF also called the Ukrainian governmentʼs plan to increase taxes too soft and called for expanding the range of duties — one of the possible proposals is to increase the value-added tax, which currently stands at 20%.

On Tuesday, September 3, the Ukrainian parliament failed to pass a law that would increase the so-called military levy on the income of individuals and extend it to individuals engaged in business.

A devaluation of the hryvnia, as well as an increase in taxes, would be politically harmful, writes Bloomberg.

Separately, Ukraine also plans to receive further support from loans in the amount of $50 billion, which are financed at the expense of profits from the frozen assets of the Russian central bank.

Funds from IMF

The total amount of the EFFʼs expanded funding program for 2023-2027 is $15.6 billion. EFF is part of the package of international support for Ukraine, which currently amounts to about 122 billion US dollars.

These $15.6 billion are provided by IMF to Ukraine gradually. During the 14 months of operation of the EFF program, Ukraine successfully passed four revisions of the work of this mechanism — this gave $7.6 billion to the budget from the IMF. Another review of the $1.1 billion program is now starting. Two more hearings await Ukraine in the future.