Law on BES reboot and tax concessions assessment among key conditions for latest IMF tranche for Ukraine
MOSCOW. March 22 (Interfax) - The key conditions for the continued timely allocation of tranches by the International Monetary Fund to Ukraine under the extended financing program or EFF are reforms to strengthening governance and support a sustainable finances, said Gavin Gray, head of the IMF mission in Kiev.
Ukrainian media quoted Gray as saying at a briefing in the early hours Friday that he would particularly emphasize the need to adopt legislation to strengthen the Bureau of Economic Security (BES) as well the assessment of tax concessions when asked about the main structural beacons of the next, fourth review of the program and the allocation of the fifth tranche.
Gray said both reforms would play an important role in efforts to strengthen financial management and support the fiscal trajectory that will be key to the program.
He said the Fund also had an active program of interaction to help the Ukrainian authorities improve the management of public investments, however that beacon had a deadline of December this year.
Gray also said decisive action would be needed if Ukraine had a liquidity problem again this year, and the authorities must be prepared for this.
It will also be important to speed up the mobilization of internal revenue through the National Revenue Strategy to meet still significant needs for expenditure anticipated next year and beyond, when external funding is expected to be less plentiful, Gray said.
He said the 2024 budget, adopted at the end of last year, ought to be the anchor of fiscal policy for this year. It corresponds to the macro framework, there are measures to reinforce it, and the Fund does not see the need to change it at this stage.
Regarding revenue growth, Gray mentioned the strengthening of tax and customs administration, adding that the IMF was liaising closely with the authorities, helping them to increase their potential and achieve this.
There could also be changes to tax rates, but this has not yet been decided. This will be taken into consideration in the context of the budget for 2025 and the years that follow. So this is a medium-term issue, Gray said.
As for monetary policy, he said the Fund saw further opportunities for easing this year after the policy rate was cut 50 basis points (to 14.5% per annum) last week, given still-high real interest rates and good inflation expectations that have taken hold.
The transition to managed floating exchange rate is working well, and the exchange rate should continue to act as a shock absorber, bolstering resilience and maintaining overall macroeconomic stability, he said.
The four-year EFF totaling around $15.6 billion was approved on March 31, 2023, and is part of a $122 billion package of international support for Ukraine. The first tranche of $2.7 billion was disbursed in early April, and the second and third tranches of SDR664 million (about $881 million-$890 million at the then exchange rate) in early July and mid-December.
The Executive Board in the early hours of Friday approved the disbursement of the fourth EFF tranche following a third review of the fulfillment of terms as of the end of December 2923. Another three tranches are envisaged for 2024, including SDR1.67 billion ($2.226 billion) in mid-June, and SDR835 million ($1.113 billion) each in early September and December.
Two tranches are planned for 2025: SDR684 million ($912 million) each will be released in early March and late August, followed by the three last tranches of SDR966 million ($1.288 billion) each.