Difficult negotiations with the IMF: what awaits Ukraine before receiving the next tranche?

Ukraine's cooperation with the International Monetary Fund (IMF) is one of the key conditions for maintaining the country's macroeconomic stability, especially in the context of an ongoing full-scale war. However, after the IMF Mission started working in Ukraine, it turned out that international lenders are not entirely satisfied with the state of Ukraine's implementation of the Memorandum of Cooperation, and this may affect the allocation of the next tranche of financial assistance, UNN reports.

On September 2, Ukrainian Prime Minister Denys Shmyhal announced the launch of the fifth review of the EFF Extended Fund Facility program, which is being conducted by the IMF Mission to Ukraine. According to him, this will allow attracting $1.1 billion to the Ukrainian budget this fall.  During their work in Ukraine, international experts are assessing the progress of reforms and the implementation of structural benchmarks set out in the Memorandum of Cooperation.

After a series of meetings between government officials and creditors, it turned out that Ukraine had been too positive about the state of fulfillment of IMF conditions, as the dialogue with creditors turned out to be unexpectedly difficult.

We had another meeting with the IMF with the participation of the Ministry of Finance and the National Bank. It was a difficult conversation. Obvious challenges

The IMF is not satisfied with the fulfillment of the commitments undertaken by the Ukrainian side, which are the basis for financial assistance. One of the main issues is the lack of progress in implementing financial and tax reforms, which are critical to ensuring long-term financial stability.

In particular, the IMF insists on substantial improvement of tax collection efficiency and implementation of structural reforms in the budget sector. According to the Fund, the current level of fulfillment of these requirements is unsatisfactory. Among the main complaints are the lack of a consistent policy on tax increases and the insufficient level of anti-tax evasion.

Western media, citing their own sources, indicatethat in addition to raising taxes, the IMF also demands that the Ukrainian authorities devalue the hryvnia quickly and cut the discount rate.

After a meeting between representatives of the Office of the President of Ukraine and the IMF mission, it turned out that the lenders also insist on the creation of a High Specialized Court to consider public law disputes against national government agencies, as well as the extension of the mandate of the Public Council of International Experts to successfully complete the competition for the positions of judges of the High Anti-Corruption Court.

However, it is not only the competition for judges that interests international experts. According to experts interviewed by UNN , the IMF is generally dissatisfied with Ukraine's approach to personnel policy. Creditors have long demanded open and transparent competitions for senior positions in key government agencies, especially those related to the financial sector.

For example, the Memorandum of Understanding between Ukraine and the IMF includes as one of its structural benchmarks amendments to the legislation that provide for an open competition for the position of managing director of the Deposit Guarantee Fund. Ukraine has committed itself to appointing a new head of the DGF in accordance with the new rules in the spring of 2025. However, this requirement has so far been ignored, although MPs interviewed by UNN note that it is not difficult to make the relevant changes to the legislation and they are unlikely to become a stumbling block.

This requirement has become even more urgent after Svitlana Rekrut resigned as managing director of the Deposit Guarantee Fund. The media reported that the appointment of a new head is currently planned in a closed mode, despite the IMF's demands. However, the question arises as to why the appointment should be made now in order to hold an open competition in a few months. Why, for example, can't the deputy managing director act as the new head before the new head is appointed in an open competition?

It is worth noting that international partners also strongly recommend that Ukraine involve foreign partners who pay considerable attention to business reputation in the selection committees. Perhaps this explains the rush to appoint a new Managing Director of the Fund behind closed doors.

According to media reports, the main contender for this position is Pavlo Polarush, head of the National Bank's Department for Work with Troubled Assets. He is a favorite of the National Bank, whose representatives are members of the DGF Administrative Board, which is making the relevant personnel changes. It is possible that Polarush may be supported by the Presidential Office, as the deputy head of the Office, Iryna Mudra, is his common-law wife.

The journalists found out that Polarush had repeatedly traveled abroad after the start of Russia's large-scale invasion of Ukraine. In particular, the journalists reported that 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.

Member of the Verkhovna Rada Committee on Transport and Infrastructure Mykola Velychkovych believesthat law enforcement should investigate Polarush's travels abroad. A member of the Verkhovna Rada Committee on National Security and Defense, Hennadiy Kasai , does not rule outthat Polarush may have problems during the special vetting process as a candidate for the position of managing director of the Deposit Guarantee Fund.

At the same time, MPs and experts interviewed by UNN emphasize that the election of the new head of the Deposit Guarantee Fund should be transparent and open. And one of the main selection criteria, along with professionalism, should be the candidate's crystal clear business reputation. 

It is extremely important to have an impeccable reputation. This is the key. It is important that this person has a decent reputation, is definitely a specialist and a patriot of Ukraine, and does not represent the interests of someone else

As a result , the IMF, dissatisfied with the current state of Ukraine's fulfillment of its obligations under the Memorandum of Cooperation, plans to impose stricter requirements, including tax increases and possible devaluation of the hryvnia.

These measures could have a significant impact on Ukraine's economy and social stability, causing serious criticism at home. The authorities could reduce the tension and irritation of the IMF by at least fulfilling the requirement to change the approach to personnel policy in the Deposit Guarantee Fund.

Perhaps this would have softened the creditors' position a bit and brought Ukraine closer to receiving the next financial assistance.