Bill reinstating 30,000-hryvnia bonuses to soldiers not balanced, may negatively affect Ukraine's economy - IMF rep

MOSCOW. May 3 (Interfax) - A bill adopted by the Ukrainian Verkhovna Rada on April 10, reinstating 30,000-hryvnia bonuses to soldiers, does not determine sources for financing this additional amount of spending, which is equivalent to more than $4 billion, and could thus lead to a growth of the budget deficit in 2023, International Monetary Fund (IMF) Resident Representative in Ukraine Vahram Stepanyan said.

"Finding resources of this magnitude would likely imply abrupt short-term tax measures or large borrowing in the domestic financial market, but such measures are impossible in practical terms without having a very negative impact on the economy and on the financial market," Stepanyan said in an interview with Ukrainian media.

Borrowing in order to fund such spending could even further jeopardize the sustainability of Ukraine's debt, which is already under pressure, he said.

The IMF official acknowledged that fiscal financing needs during a crisis are both large and volatile, adding at the same time that under the Extended Fund Facility (EFF) program, Ukraine seeks to ensure fiscal sustainability and predictability of its budget policy altered during the Covid-19 pandemic and the crisis.

"In this context, the authorities have committed to restore and strengthen Article 52 of the Budget Code, which determines and governs the framework and circumstances when the budget can be amended in terms of both revenue and expenditure," Stepanyan said.

As reported, the reinstatement of Article 52 of the Budget Code is one of the 19 structural beacons of the EFF program with the IMF. The timeline for its implementation under the program is until the end of May.

"It is highly important to ensure that the government controls any changes in the budget. The risk of adopting populist decisions, which are absolutely not calculated, is extremely high," Ukrainian Finance Minister Sergei Marchenko said in an interview with Ukrainian media outlets in mid-April.

When commenting on the aforementioned bill, the minister said that "the so-called return of bonuses is not about the interests of the army. Rather, these are steps that make us more vulnerable." Governor of the National Bank of Ukraine Andrei Pyshny, for his part, said last week that the adoption of this bill "does not carry any positive connotation in our talks with international partners," as "the implementation of this decision will quite seriously suspend, in this case, the agreements assumed as part of the memorandum with the International Monetary Fund."

A vote on a resolution submitted by MP Vladimir Tsabal "blocking" the aforementioned bill is now being awaited in the Verkhovna Rada.

Data circulated by the Finance Ministry show that disbursements from the budget to pay service members declined to 67.3 billion hryvni in March from 76.9 billion hryvni in February and from 71.8 billion hryvni in January. The share of payments to service members in the overall structure of disbursements decreased to 29.9% from 33.8% in February and 39% in January.