IMF approves tranche for Ukraine despite failure to meet key condition - Bloomberg
Kyiv • UNN
Ukraine is expected to receive $700 million from the IMF without meeting a key condition. The Fund allowed the postponement of the tax on overseas parcels until July.
The International Monetary Fund has agreed to release the next tranche of a loan to Ukraine, "despite Kyiv's failure to meet a key condition," as the war-weary country "faces a growing backlash against this unpopular measure," Bloomberg reports, according to UNN.
Details
According to people familiar with the matter, the Washington-based lender and the Ukrainian government reached a staff-level agreement, clearing the way for Ukraine to receive nearly $700 million in aid. They spoke on condition of anonymity because the talks are private.
The deal could be announced as early as Friday, the sources said. The agreement will still require approval from the IMF Executive Board next month.
The compromise resulted from weeks of negotiations during a recent IMF mission, which were complicated by the Ukrainian parliament's failure to pass legislation requested by the lender, the publication points out. The desired bill would expand taxation on parcels from abroad in an attempt to reduce the size of Ukraine's shadow economy, the publication notes.
"Ultimately, the IMF agreed to allow Ukraine to postpone the passage of the legislation until July," one person said, "effectively giving lawmakers more time to fulfill the commitment." The next IMF review is scheduled for no earlier than September.
Lawmakers failed to approve the bill on time, as tax hikes would be highly unpopular among Ukrainians, the publication writes. The idea is to tax parcels worth more than 45 euros ($52) at a value-added tax rate of 20% plus other fees.
The proposal has dismayed many Ukrainians who frequently purchase goods from abroad, as well as lawmakers. At the same time, the prolonged war has led to double-digit growth in Ukraine's budget deficit, forcing the government to seek new sources of revenue, as the gap is largely financed by aid from foreign allies, including the IMF, the publication writes.
Earlier, the IMF agreed to postpone another legislative commitment—the introduction of VAT for certain groups of self-employed entrepreneurs—which Ukraine was supposed to fulfill by April.
Kyiv committed to passing these measures as conditions for the $8.1 billion loan program last year, but later struggled to implement them due to strong resistance from parliament, the publication notes.
Despite repeated "breaches of the reform schedule," the IMF agreed to continue disbursements under the four-year loan program, which is an "unusually lenient stance for the fund," the publication points out.
An IMF spokesperson did not immediately respond to a request for comment.
This is the second IMF loan program for Ukraine since Russia's full-scale invasion began more than four years ago. It followed the fund's unprecedented approval of a $15.6 billion four-year program in 2023, as the IMF had previously avoided lending to countries at war.
The IMF's support for Ukraine was highlighted by Managing Director Kristalina Georgieva's visit to Kyiv last winter, at a particularly difficult time for the country as it struggled with prolonged power outages and disruptions to heating and water supplies caused by Russian airstrikes, the publication writes.
The IMF loan program is noted to be crucial for Ukraine not only for the financing it provides but also because the lender's support serves as a strong signal to other donors, including the European Union.
The EU, which approved a 90 billion euro two-year aid package for Ukraine, has linked part of its funding to conditions reflecting some of the IMF's requirements, including higher taxes on foreign parcels. The bloc is expected to make the first payment this month, the publication writes.