3 Apr 2023 14:57

More than half of IMF Ukraine program's structural benchmarks are in fiscal sphere

MOSCOW. April 3 (Interfax) - The four-year Expanded Financing Program (EFF) for Ukraine for $15.6 billion, approved by the International Monetary Fund (IMF), currently contains 19 structural benchmarks - the most important performance criteria for the period until the end of June 2024, more than half of which are in the fiscal area.

According to the memorandum on economic and financial policy published on the fund's website, the nearest fiscal structural benchmarks are the entry into force by the end of April of the updated state budget law with increased spending of UAH 537 billion which has already been adopted by the Verkhovna Rada of Ukraine.

By the end of May, it will be necessary to submit two bills to the Rada which tighten the provisions of the Budget Code to minimize the consequences of changes to the budget and which restore the norm on the limit of state guarantees with their clear justification. The program also contains a quantitative criterion for the ceiling of state guarantees - UAH 20 billion at the end of April and UAH 37 billion at the end of 2023.

By the end of May, it is necessary to adopt the amendments to the Budget Code and the relevant legal framework to increase the transparency and accountability of donations that are accumulated on special accounts in the National Bank, and consolidate them into a special state budget fund.

The next benchmark is the adoption by the end of June of the bill on the abolition of the single tax of 2% on July 1 along with other benefits for entrepreneurs and the restoration of document checks. The bill was submitted by the Cabinet of Ministers to the Verkhovna Rada on January 31, fulfilling the condition of the IMF's previous monitoring program.

By the end of September, the Medium Term Debt Management Strategy will need to be updated and published to align it with program objectives, and to present in the 2024 Budget Declaration projections for the main categories of income and expenditure and sources of financing the deficit for 2025-2026, as well as a report on fiscal risks. It should contain detailed information about state-owned enterprises in the field of energy and critical infrastructure.

Finally, before the end of this year, Kiev needs to adopt a National Revenue Strategy and review its current public investment management (PIM) procedures. The government is committed to developing a roadmap of measures by this date so that all public investment projects follow the unified PIM approaches, including PPPs, that investment projects are selected on a transparent competitive basis, and the Ministry of Finance is vested with greater powers, including a clear supervisory role at various stages of the investment project cycle.

In terms of improving governance and fighting corruption, the next of the four benchmarks, with its deadline at the end of July, is the adoption of a law on the restoration of the declaration of income of public officials with the restoration of the function of the National Agency for the Prevention of Corruption (NAPC) for auditing and verification.

By the end of September, the Financial Monitoring and Anti-Money Laundering Act should be amended to reinstate enhanced due diligence measures for politically exposed persons (PEP) in line with a risk-based approach consistent with FATF standards.

Then, by the end of October, the asset declaration system should be simplified by linking to other databases and registries, and by the end of the year, legislation should be adopted to increase the institutional autonomy of the Specialized Anti-Corruption Prosecutor's Office, in particular with regard to selection procedures, organizational regulation capabilities, and discipline and accountability mechanisms.

In terms of state corporate governance, the task is to transfer the shares of the Gas Transmission System Operator of Ukraine from the Main Gas Pipelines of Ukraine directly to the Ministry of Energy of the country by the end of July with the appropriate change to the charter.

The remaining five structural benchmarks relate to the National Bank (NBU) and the financial and banking system. In particular, by the end of June, there are plans to prepare a strategy for the transition to a more flexible exchange rate, the simplification of foreign exchange controls and inflation targeting depending on conditions.

By the end of September, it is necessary to strengthen the management and supervision of banks by separating the NBU division for related parties from banking supervision, introducing "expert juries" or supervisory panels as an advisory body to the supervisory board (supervisory committee) and resuming scheduled inspections of both banking and non-banking institutions. In the latter case, there is also a task to ensure the NBU has freedom of action in matters related to the safety of its personnel.

The approved IMF program provides for the allocation to Ukraine in 2023-2024, immediately, of 2.012 billion SDRs ($2.706 billion), followed by the provision of 664 million SDRs ($893 million) in mid-June and October of this year and the end of next Februaryt, and then 1.67 billion SDR ($2.246 billion) in mid-June 2024 and 835 million SDRs ($1.123 billion) in early September and December.