Europe can, Ukraine cannot? Why the IMF demands the removal of subsidies and who will be hit first
Kyiv • UNN
IMF Managing Director Kristalina Georgieva stated that Ukraine could become an "economic lion of Europe," but to do so, it needs to abandon electricity and heating subsidies. Expert Yuriy Korolchuk explained what this would mean for Ukrainians.
On January 20, IMF Managing Director Kristalina Georgieva stated on the sidelines of Davos that Ukraine has the potential to become an "economic lion of Europe," but to achieve this, it must accelerate reforms and gradually phase out electricity and heating subsidies. She also emphasized the need for a fairer distribution of the tax burden, removing barriers for the private sector, addressing labor shortages, and accelerating EU accession as a key magnet for economic growth.
What this will mean for Ukrainians in practice and whether the state will risk ending subsidies during the active phase of hostilities, UNN discussed with Yuriy Korolchuk, co-founder of the Institute of Energy Strategies and an expert.
Subsidies, taxes, labor: what exactly the IMF demands from Ukraine after the war
Georgieva spoke about the abolition of subsidies for electricity and heating in Davos during the discussion "Ukraine: On the Frontline of the Future," organized by the Victor Pinchuk Foundation on the sidelines of the World Economic Forum.
Among the country's key unfinished tasks, she named energy and utility subsidies. Electricity and heating are still partially subsidized, and, according to her, this needs to be gradually phased out given the state of public finances. In parallel, according to the head of the IMF, Ukraine should work on a fairer distribution of the tax burden, although this is difficult.
Kristalina Georgieva supported her point with the example of Bulgaria: there, after the fall of communism, euphoria was quickly replaced by harsh reality, and economic recovery required painful decisions and sacrifices.
Separately, the official emphasized that official Kyiv needs to remove barriers to the development of the private sector.
Georgieva named security and the availability of labor as the most important factors. Moreover, according to her, during a recent meeting with businesses in Kyiv, some entrepreneurs raised the issue of access to workers even higher than the issue of security. The IMF, she said, is ready to help with practical matters: stimulating the return of Ukrainians home, reducing structural unemployment, and integrating veterans into the labor market.
The IMF Managing Director concluded with an emotional call to "believe in yourself as a lion" and demonstrate confidence every day: avoid internal strife and bury corruption. Then, in her opinion, success will be achievable, although the path will not be easy.
Signal from the IMF: subsidies as a political marker of the post-war economy
Yuriy Korolchuk, co-founder of the Institute of Energy Strategies, explains: IMF Managing Director Kristalina Georgieva's statement about the need to eliminate electricity and gas subsidies for Ukraine sounded not as technical advice, but as a clear political message.
In the Fund's logic, this issue is not only about tariffs, but about the redistribution of the budget burden, reduction of social expenditures, and changing the architecture of household support in the coming years.
The expert, commenting on the content of the statement, directly indicates: Georgieva's words are not simple and have a specific message behind them, addressed not only to the government, but more broadly: to the authorities, the government, the next president, that this needs to be covered up.
What is meant by "subsidization"
Before starting the conversation about the hypothetical abolition of energy subsidies in Ukraine, the expert emphasizes.
The key confusion in the discussion about subsidies is that in the public space, this word refers to both targeted housing subsidies, benefits, and PSO mechanisms, as well as the difference between the market price and the tariff for the population – he says.
Yuriy Korolchuk outlines the basic interpretation that, in his opinion, the head of the IMF had in mind: first of all, it is about the so-called tariff difference.
We are talking about a situation where there is a conditional market tariff, and there is a tariff for the population, which is lower than it
The expert gives a striking example:
When there is a seemingly market gas tariff of 12 thousand hryvnias and the tariff that a Ukrainian pays is 8 thousand hryvnias. Accordingly, this difference of 4 thousand hryvnias is paid by "Naftogaz of Ukraine"
According to him, a similar logic is applied to electricity:
There is some real price, higher, and there is that preferential price
Cross-subsidization: scale reduced, but the issue has not disappeared
An important point: even if subsidization has decreased compared to pre-war periods, this does not mean that the IMF will stop pressuring Ukraine on this issue.
In a conversation with UNN, the expert reminds that 10-15 years ago, cross-subsidization amounted to about 4 billion dollars in the Ukrainian market. Now, according to his assessment, the volume is smaller: it is about a maximum of 2 billion dollars.
Separately, Korolchuk emphasizes that in the IMF's internal understanding, subsidization can cover a broader package: including also subsidies, benefits, and targeted housing subsidies.
European paradox: they can, we cannot
Yuriy Korolchuk, co-founder of the Institute of Energy Strategies, claims that in Europe, governments can provide benefits and subsidies to their citizens. But in Ukraine, this has every chance of not working.
To illustrate, he gives the example of France.
They spent 30 billion euros on subsidies for the electricity and gas market. In addition, approximately 10 billion euros went to the population
Another striking case he mentions is the example of Poland.
They have a very large coal sector and Europe is "pressuring" them. But the Poles stand firm to the last, while subsidizing this coal industry and providing support to households that heat their homes with coal
In conclusion, Korolchuk debunks the popular myth of the so-called "clean market"
There is no such market price that we are often told about. Well, there isn't
What the IMF will really push for: PSO, benefits, number of recipients
From the expert's point of view, the Fund's pressure will be directed in two ways:
- The first is the curtailment of cross-subsidization (the difference between the tariff and the market).
- The second is the reduction in the number of recipients of subsidies and benefits. Yuriy Korolchuk directly predicts:
The IMF will push for the abandonment of cross-subsidization and further reduction of recipients of benefits and subsidies. In this context, he actualizes the experience of 2015-2016, when 7.5 million households received subsidies, after which the number of recipients was gradually reduced
However, the post-war social reality, according to the UNN interlocutor, may work in the opposite direction. Yuriy Korolchuk suggests that even if 3.5 million Ukrainians currently receive subsidies and benefits, in a few years another 2 million people will need similar support. The reason is the growing number of veterans and people with disabilities. Therefore, in his opinion, cutting subsidies for our country is inevitable.
The toughest part of the expert's forecast concerns military personnel and veterans. Yuriy Korolchuk calls this the direct meaning of Georgieva's statement.
This is a message regarding military personnel… veterans, disabled people. This issue will definitely be sharply actualized
Fiscal effect: when the budget is lighter, but the social problem does not disappear
When asked about the real budget effect, the UNN interlocutor answers cautiously.
It's hard for me to say. However, he admits it will be less of a burden on the budget
According to his logic, the state will be able to redirect the released funds to other purposes. At the same time, he emphasizes the risk of social tension.
The social problem will never disappear, and if support is cut, it can create an army of those who will stand in line for social products - shares the co-founder of the Institute of Energy Strategies.
And here another unpleasant nuance for the state appears: even if there are responsible businesses and funds in Europe, in Ukraine the sources of financing for social support are limited, and volunteer funds cannot replace the state in the long run.
Degradation and lack of reconstruction as a "bottleneck" of the energy sector
Separately, Yuriy Korolchuk mentions in the conversation that the tariff discussion is taking place against the backdrop of the degradation of the energy system due to Russian attacks. The expert describes the situation as a loss of regenerative capacity. After all, the system has actually degraded and will no longer be the same as it was before the war.
His forecast for the limit of recovery sounds pessimistic.
In the best case, we should hope for about 70 percent recovery, no more. Moreover, the problem is not only the war, but also financing. They just don't even give money for it at all
Will tariffs solve the problem of investments in the energy sector?
Yuriy Korolchuk, delving into the problem of tariffs and subsidization, admits: tariffs for heat and water are underestimated and should be higher.
But regarding electricity, a more complex position sounds. The expert gives an example of calculation for nuclear generation.
The current tariff is 4 hryvnias 32 kopecks, and the cost is 50 hryvnias. And this is enough to maintain your company
The question is different: in investments and development. The expert is convinced: if the company wants to build new blocks, then the tariff should be higher. But here Yuriy Korolchuk makes a fundamental caveat: raising tariffs under promises to repair the energy system is unrealistic.
Now, if they collect money, it will be a lie. No one in the world has ever built anything at the expense of tariffs. It's always investments. The tariff, by this logic, can gradually return investments, but it does not replace the initial capital
To demonstrate how market mechanisms work in Ukraine, the co-founder of the Institute of Energy Strategies recalls the "green tariff," which, in his opinion, should have been frozen for the duration of the war.
He then offers a reality check: producers should enter the market and try to sell electricity in market conditions, where the price can drop sharply during peak solar hours. This passage in the comment sounds like a criticism of double standards in regulation: there is no money, but there is money for the green tariff.
Tariff topic as a test of state maturity
Yuriy Korolchuk emphasizes: Georgieva's statement, if read through the prism of the arguments presented, becomes part of a future big bargain: between fiscal discipline and social stability, between the demands of creditors and the reality of a society that will emerge from the war with a different structure of risks and vulnerabilities.
The reduction of subsidization in the IMF's interpretation will likely not be a one-time decision, but a long process of reducing cross-mechanisms and reviewing benefits. The problem is that social issues do not disappear at the command of a creditor, and a degraded energy system does not recover on its own.
Ukraine will have to simultaneously seek investments in infrastructure, reassemble social support, and withstand external pressure.
Context
It should be noted that within the EFF, the government committed to preparing a roadmap for the gradual liberalization of gas and electricity markets within six months after the end of martial law, with a time-limited implementation plan after its abolition.
This roadmap is part of the EU-Ukraine Plan and includes reform of special obligations (PSO), gradual tariff increases or changes in tariff methodology, mechanisms for solving the debt problem, and comprehensive protection of the most vulnerable households. Separately, the IMF indicated in mid-2025 that gas and electricity tariffs for the population cover approximately half of the market price.
At the end of last year, Ukraine and the IMF also reached a staff-level agreement (SLA) on a new 4-year program. According to IMF Communications Director Julie Kozack, consideration of this program by the Executive Board is theoretically possible in February of this year.