Aid is under threat. Who may cause Ukraine to lose IMF funding

Since the beginning of Russia's large-scale war against Ukraine, international financial assistance has become a key pillar of support for the Ukrainian economy and defense capabilities. It is hard to imagine how we would be able to effectively defend ourselves without the help of external partners - creditors and donors. Along with foreign governments, organizations such as the International Monetary Fund (IMF) and the World Bank (WB) are among those helping Ukraine. It is important for international partners that their funds contribute to economic stability in our country, and therefore there are a number of important requirements that allow Kyiv to receive regular financial assistance, UNN writes.

Funding from the IMF plays a key role for Ukraine's economic stability and development. The IMF provides the necessary financial resources to maintain macroeconomic stability, strengthen foreign exchange reserves, and implement important structural reforms. This financing also helps to increase the confidence of international investors in the Ukrainian economy, which in turn stimulates investment and contributes to economic growth. In other words, it sends a signal that Ukraine can be trusted with its funds. In addition, cooperation with the IMF promotes the implementation of international best practices in economic management in Ukraine, which contributes to the efficiency of public administration and strengthening of the financial system. When receiving international assistance, the Government of Ukraine emphasizes the importance of support from international partners.

In particular, according to the Ministry of Finance, this year alone, budget support from the IMF is the second largest external financing for Ukraine. In 2024, it amounted to $3.1 billion. In total, the state budget has already received $7.6 billion in cooperation with the Fund.

The next IMF mission in preparation for the fifth review of the Extended Fund Facility program will begin in September. The expert discussions will focus on Ukraine's compliance with the terms of the Memorandum of Economic and Financial Policies. It is planned that as a result of a successful review of the program, Ukraine will receive the next tranche of the IMF in the amount of about $1.1 billion.   

Each time the government receives another tranche from the IMF, it reports on the fulfillment of a number of requirements set out in a memorandum with the Fund. They mainly relate to the implementation of reforms that bring Kyiv closer to overcoming corruption.

One of these "beacons" that the IMF emphasizes is the introduction of an open competition procedure for the position of managing director of the Deposit Guarantee Fund. This structure is responsible for the liquidation of banks and guarantees that depositors will be able to receive their funds kept in the accounts of a failed financial institution. According to experts, public confidence in the banking system in Ukraine depends entirely on the DGF's actions.

As it turned out, Ukrainian legislation still does not contain a provision that the selection of a new head of the Fund should be based on an open and transparent competition.  In its communications with the Ukrainian side, the IMF emphasized the need for appropriate legislative changes. The parties agreed and recorded in the Memorandum that the procedure will be developed and implemented in the spring of 2025.

Currently, the situation is such that the contract of the previous managing director of the DGF, Svitlana Rekrut, has expired and she was dismissed at her own request. Her deputy, Olga Bilay, is now acting in her place. 

According to media reports, the Administrative Board of the DGF wants to appoint a new head of the Fund behind closed doors, which directly contradicts the agreements reached with the IMF. This is probably an attempt to circumvent the requirement of an open competition and appoint a person fully under their control.

According to journalists, in addition to Bila, Pavlo Polarush, head of the National Bank's Department for Work with Troubled Assets, is being considered for the position of managing director of the DGF.

Experts interviewed by UNN warn that failure to comply with the IMF's requirements could result in a disaster for the Ukrainian budget, as the country could be left without external financing.

"In the current conditions, in the conditions of total dependence on external financing, it is certainly dangerous to ignore the interests of the IMF, it can lead to the suspension of cooperation, it can lead to certain financial and economic problems for the Ukrainian economy... So, given our financial dependence, we must take into account the IMF's requirements, given the financing that we cannot do without now," Ruslan Bortnik, director of the Ukrainian Institute for Policy Analysis and Management, said .

Experts emphasize that international partners associate Ukraine's domestic policy with corruption, and they believe that we are a "deeply corrupt country." Therefore, in matters of personnel appointments, we should not go against the recommendations of international partners, especially the IMF, on whose assistance we will be dependent for at least several more years.

"If the IMF demands an open competition for this position, the Ukrainian authorities should not only listen to it, but do so. Because if Ukraine continues to take steps step by step contrary to the recommendations of our partners, from whom we are constantly receiving various kinds of assistance, from military to financial, then at some point the question will simply arise of providing this assistance or reducing it," emphasized the head of the Committee of Economists of Ukraine, Andriy Novak.

The fact that Polarush, as found out , has repeatedly traveled abroad since the start of the large-scale invasion does not add to the positive situation. In particular, according to media reports, in November 2022, he received permission to leave the country from the odious former Deputy Minister of Defense, who is currently a suspect in corruption crimes. The permit was allegedly issued to Polarush to travel abroad in an elite Lexus car to receive humanitarian aid. However, it is not yet known on what grounds Polarush traveled abroad from February to November 2022.

The Verkhovna Rada believes that law enforcement should investigate the circumstances of Polarush's departure abroad. In particular, Mykola Velychkovych , a member of the Verkhovna Rada Committee on Transport and Infrastructure, believesthat investigators should establish how the official left Ukraine. A member of the Verkhovna Rada Committee on National Security and Defense, Hennadiy Kasai , does not rule out that Polarush may have problems during the special vetting process as a candidate for the position of managing director of the Deposit Guarantee Fund.

So whether the whole country should be jeopardized for the sake of one appointment is a rhetorical question..