NBU to advance transfer of up to $1 bln of profit to Ukrainian budget - IMF memorandum

MOSCOW. March 25 (Interfax) - The National Bank of Ukraine (NBU), as it did in 2023, will bring forward this year's transfer of up to 80% of its net profit for 2023 to the country's budget, as seen in the updated Memorandum of Economic and Financial Policy of Ukraine under the Extended Fund Facility (EFF) with the International Monetary Fund (IMF).

The memorandum was adopted as a law on March 21.

"We commit to refrain from using NBU profit for earmarked spending in 2024 and will direct this revenue category to the General Fund of the State Budget," Ukrainian media said, citing the memorandum published on the IMF website.

The NBU may transfer up to 30 billion hryvni ($771.2 million) to the Ukrainian budget in March and a further 8 billion hryvni ($205.7 million) before the end of June, according to the document.

The Verkhovna Rada on March 21 tentatively passed draft legislation amending the law on the system of deposit guarantees. The bill allows the NBU to transfer 80% of net profit to the country's budget ahead of time, i.e. prior to external audit verification and the endorsement by the NBU board of the bank's financial report for 2023.

Recent volatility around the distribution of provided external financing has seriously affected budget implementation, prompting the government to take a number of measures, i.e. reschedule dividend payments by state-owned enterprises, advance tax payments, including nearly 24 billion hryvni of tax banks' profits, postpone certain expenditures, according to IMF materials. The government also raised capital on the domestic bond market and used the available financial reserves, which will have to be restored to their normal levels before the end of 2024, also taking next year's reduction in external financial into account.

"Several of these measures, while necessary under the circumstances, involve tradeoffs as they can cause unpredictable budget implementation, diminish tax transparency, and entail economic disruption. Further delays in external financing would likely require resort to suboptimal measures, underscoring the criticality of external donors providing their committed financing in a timely manner," the IMF said.

As reported, Ukraine received the European Union's first tranche of 4.5 billion euros in 2024 under Ukraine Facility and $1.5 billion from Canada on March 20. Prior to that, Ukraine had received only 1.2 billion in external financing since the beginning of the year. In addition, the IMF Board of Directors on March 21 approved a fourth EFF tranche of $880 million, which should be transferred to Ukraine within two-three days. On March 22, Ukraine's budget received $230 million from Japan under the World Bank's Ukraine Agriculture Recovery Emergency project.

The NBU expects Ukraine to receive $10 billion or more in external financing between mid-March and late April, given the budget financing needs of $37.3 billion for the whole of 2024.