IMF mission leaves Ukraine as budget talks continue

An IMF mission concluded its latest visit to Kyiv on Nov. 20, according to an IMF press release. “The mission continued constructive discussions with the authorities on policies that are needed to complete the second review under the External Funds Facility arrangement,” said Ron van Rooden, IMF mission chief for Ukraine. “Significant work at a technical level helped advance mutual understanding regarding the planned tax reforms and the implications for the 2016 budget,” he said. It is now important that the government submits to parliament a budget that is consistent with the program objectives of further reducing the budget deficit and state debt to safer levels, and that parliament adopts such a budget. This will require permanent measures to broaden the tax base and rationalize spending. A strong fiscal position – along with actions to rehabilitate the banking system and speed up economic reforms – are critical to entrench financial stability and pave the way for strong and sustainable growth.

Alexander Paraschiy: We believe the IMF’s prompt departure indicates that the finance minister and the IMF have already agreed upon the 2016 spending plan and tax reform. Now all eyes are on the parliament. Heated discussions are forthcoming and the IMF leaving now means its officials don’t anticipate smooth approval soon. Recall that the general budget deficit should be narrowed to 3.7% of GDP in 2016 (from 4.2% of GDP in 2015) while even the most conservative tax reform (from the Finance Ministry) presumes more than UAH 60 bln in budget revenue losses next year, or 2.7% of next year’s expected GDP.

Against this backdrop, the government faces the challenge of getting parliament’s approval for a bill with painful spending cuts and modest tax reduction initiatives for business. We believe the parliament will only agree with such initiatives in a last-minute, New Year’s Eve vote for the budget. Therefore, we continue to expect that the third IMF tranche of USD 1.7 bln won’t arrive this year, nor will support from other donors. Gross international reserves will remain close to USD 13 bln by the year end.

Источник: Конкорд Капитал