IMF cautions Ukraine against creating single holding for state cos, urges adherence to reform agenda
MOSCOW. Dec 13 (Interfax) - The International Monetary Fund (IMF) has cautioned Ukraine against creating a state holding company that would combine all state-owned enterprises (SOE), because it believes this would be premature due to the fiscal and potential governance risks, Ukrainian media reported, citing a report on the second review under the Extended Fund Facility for the country published by the Fund.
"The establishment of an SOE holding company is premature at this stage in view of the fiscal and potential governance risks. Instead, staff sees merit in exploring options to strengthen SOE management through the existing SOE corporate governance reform agenda," the IMF report said.
The IMF said that the scope and mandate of SOE management should be clearly defined based on best practices, including the roles and mandates of key government institutions. Ukraine should adhere to a well-sequenced SOE reform agenda in consultation with international partners, including passing the SOE corporate governance law, assessing the financial conditions and fiscal risks of the SOEs in the state ownership policy by the end of March 2024, and producing a comprehensive state ownership and dividend policy, as well as a privatization strategy (proposed structural benchmark for end of August 2024), the report said.
The IMF also said the current legal basis for virtual assets could create risks for price stability and the effectiveness of monetary policy. Under an updated memorandum, the National Bank of Ukraine (NBU) and National Securities and Stock Market Commission (NSSMC) will prepare updated legislation with technical assistance from the IMF by the end of June 2024 in order to bring it in line with best international practices, while taking into account the goals of economic growth and financial stability.
The updated memorandum on financial and economic policies includes 12 new structural benchmarks.
Under the memorandum, Ukraine has committed to introduce a procedure to assess the performance of state banks. The first such assessment will be conducted for each bank at the beginning of 2025 on the results for 2024.
A fresh slate of independent supervisory board members was appointed at state owned banks in the first half of 2023. The NBU is currently applying its fit and proper assessment framework to selected candidates, and upon completion of the selection process in this cycle, Ukraine has assessed the effectiveness of the new procedures and will make some minor adjustments to procedures in consultation with stakeholders, the memorandum said.
Bill No. 5593-D will be passed by early 2024 to bring the SOE corporate governance framework broadly in line with the Organization for Economic Cooperation and Development guidelines and to mitigate fiscal risks, the memorandum said.
This reform aims to establish a regular independent evaluation procedure of SOE supervisory boards and clear criteria for early supervisory board dismissal, and is expected to strengthen the accountability and broaden the powers of supervisory boards, so they have the ultimate authority to appoint and dismiss CEOs and set CEO remuneration, based on the state's remuneration policy.
Ukraine also intends to ensure a strong gatekeeper role for the Finance Ministry in its relationship with SOEs on financial predictability, reporting, transparency and accountability, including approving key financial metrics, the memorandum said.
Ukraine is also exploring options to strengthen SOE management through the existing SOE corporate governance reform agenda.
The country will follow the SOE reform agenda in close consultation with international partners, including passing the SOE corporate governance law, implementing related secondary legislation, establishing a methodology for and subsequently conducting regular independent evaluations of SOE supervisory boards and, as an interim step, assessing the financial conditions and fiscal risks of the SOEs in the state ownership policy by the end of March 2024, as well as producing a comprehensive state ownership dividend policy and privatization strategy (proposed structural benchmark, end-August 2024), the memorandum said.
Ukraine will also assess the financial viability of key SOEs as an input to developing a framework to deal with quasi-fiscal costs, including legacy public service obligations, the memorandum said.
The former head of Ukraine's State Property Fund (SPF), Rustem Umerov said earlier that the SPF would like to become the sole manager of all state property in the country. Such centralization will make it possible to manage state assets more efficiently, he said. This idea was backed by the Economy Ministry.
There are currently two bills before Ukraine's parliament on launching a market for virtual assets.