The International Monetary Fund has agreed on another tranche of $1.1 billion for Ukraine. Why does the country need this assistance and how will the state repay the borrowed funds? Komersant ukrainskyi
asked economic expert Oleg Getman asked economic expert Oleg Getman.
“The IMF is one of the cheapest lenders, providing funds at 2-3% per annum. We have no options not to borrow money, because all the countries that have been at war, especially those attacked by a larger and more powerful aggressor, have always had to borrow money to strengthen their army, buy more modern military equipment, and so on,” Hetman said.
The expert explained that most of the weapons for Ukraine’s military are provided free of charge, without the need to return them. “Donors “transfer” about half of it to the state budget: these are grants without the need to return them. And the country has to borrow about half of it, because there are no other options.
Today, Ukraine needs about $35-40 billion annually to fight and have a powerful army. We are given about the same amount in the form of weapons without the need to return them.
“So, out of everything we are given – about 80 billion a year in various ways – we will only need to return about 20 billion, and that is in 20-30 years,” Oleg Getman said.
The economist also does not consider the current situation in which Ukraine finds itself to be critical. He even cites Japan as an example, which has more than 200% of GDP in public debt. By comparison, our country is only approaching 90% of GDP.
The IMF has agreed on the next tranche for Ukraine: what is known
on 11 September, it became known that Ukraine had agreed with the IMF on a new tranche under the EFF programme (a four-year Extended Fund Facility – ed.).
The agreement must now be approved by the IMF Executive Board, which is expected to be considered in the coming weeks. If approved, Ukraine could receive about $1.1 billion.
“We expect the IMF Executive Board to approve this agreement. After that, Ukraine will receive $1.1 billion,” said Prime Minister Denys Shmyhal.
The Prime Minister of Ukraine addedthat the partners’ funds help the Cabinet of Ministers to finance all non-military budget expenditures. This makes it possible to direct the country’s internal resources to defence capability.
Shmyhal emphasised that this was the first IMF mission to work fully in Kyiv during a full-scale invasion.
How the IMF mission worked in Ukraine
From 4-10 September, the IMF mission led by Gavin Gray held talks with representatives of the Ukrainian authorities in Kyiv. The mission met with:
- minister of Finance Sergiy Marchenko;
- governor of the National Bank of Ukraine Andriy Pyshnyi;
- heads of relevant ministries;
- civil servants
- representatives of the public.
“The four-year agreement between Ukraine and the IMF under the EFF continues to provide a strong anchor for the government’s economic programme in times of extreme uncertainty. The programme’s performance remains strong despite the war, with all quantitative performance criteria met at the end of June, as well as the structural criterion to be achieved during this review,” the head of the mission concluded.
As a result, the parties reached an agreement at the staff level on the fifth review of the programme.
What conditions did Ukraine fulfil to receive the tranche?
The government has met all quantitative performance criteria (KPIs) set at the end of June and the structural benchmark for the review. An understanding was also reached on the policy framework and reforms aimed at maintaining macroeconomic stability in the face of the ongoing war.
Going forward, Ukraine should work on implementing ongoing tax policy measures aimed at closing existing opportunities for tax evasion, increasing tax compliance and combating the shadow economy, in line with the National Revenue Strategy.
Legislation to reform the Customs Code should reaffirm the central role of the Ministry of Finance in overseeing customs, and establish credible procedures for the selection of a permanent head of customs and other key management positions.
In addition, Ukraine should pay attention to Ukrenergo and conduct an audit of NABU.