Loan in Jeopardy: IMF Insists on Tax Hikes in Ukraine
17 March 12:37
The International Monetary Fund has expressed concern about Ukraine’s ability to secure the remaining funds from the $8.1 billion package due to delays in the Verkhovna Rada’s decision-making process.
This was reported by [Komersant] citing Bloomberg.
Risk of funding disruption
The IMF stated that the Verkhovna Rada has until the end of March to adopt a series of legislative changes as part of the four-year loan program.
These include tax increases for businesses and the general public. These steps are a condition for receiving the next aid tranches.
However, lawmakers have so far failed to pass the changes, expressing defiance toward President Volodymyr Zelenskyy, which could potentially paralyze parliament.
“I can say that I am concerned,” said Priscilla Tofano, the IMF’s Resident Representative in Ukraine.
Negotiations with lawmakers
According to a Bloomberg source, IMF staff led by mission chief Gavin Gray plan to meet with Ukrainian lawmakers starting March 18.
The goal is to discuss the necessary changes to ensure continued funding.
Additional risks to the budget
The situation is complicated by the fact that Ukraine may face a funding shortfall in the coming months. This is linked, in particular, to Hungary and Slovakia blocking the EU aid package.
According to National Bank Governor Andriy Pyshnyy, in the event of a funding shortfall, the NBU may once again resort to direct lending to the government.
Tensions between the government and parliament
The situation is also complicated by political disagreements. Some lawmakers do not support the proposed changes, despite pressure from the government.
President Volodymyr Zelenskyy reacted sharply to the delays.
“If you don’t serve the state in parliament, then serve the state on the front lines,” he said.
What is known about the tranche
The IMF has approved a new Extended Fund Facility program for Ukraine. It is designed to last four years and amounts to $8.1 billion, which will partially cover Ukraine’s budget deficit.
Ukraine already received the first tranche—about $1.5 billion—in early March.
Further disbursements depend on the fulfillment of a number of conditions. In particular, Ukraine must introduce a VAT for individual entrepreneurs with an annual income exceeding 1 million hryvnias.
Additionally, to receive funding, Ukraine must introduce a tax on online sales (including via OLX), a duty on all international parcels, and make the military levy permanent.
All these changes must be adopted by the end of this month.
