Ukraine IMF talks to resume after tax reform, 2016 budget submitted

The Ukrainian government’s negotiations with the IMF will continue only after it develops and submits its tax reform project and 2016 draft budget for the Fund’s review, Deputy Finance Minister Ihor Umanskiy told reporters on Nov. 4, according to Interfax-Ukraine news agency. “The Fund will analyze them and we will resume our negotiations afterwards,” he said, confirming that the IMF mission has already arrived in Ukraine. 

The IMF mission completed on Oct. 2 its 11-day visit to conduct its second review of the third tranche of its four-year, USD 17.5 bln loan program. However, discussions on the second review were set to continue since the IMF did not have a clear vision on tax reform and the 2016 budget.

Alexander Paraschiy: We believe it was the IMF that informed Ukrainian officials to suspend talks until the tax reform and formation of the 2016 budget play themselves out. Recall, the IMF’s key demand is a realistic spending plan for 2016 that complies with the budget deficit requirement of 3.7% of GDP. This task is quite challenging given that more than UAH 60 bln in state revenue collected in 2015 will not be available in 2016. To make matters worse, the tax reform proposals on the table could lead to even further decline in budget revenue. The Finance Ministry’s tax reform is projected to cost UAH 60 bln in revenue losses while a more aggressive tax reform from the tax and customs policy parliamentary committee might lead to a UAH 150-200 bln revenue plunge, according to Finance Ministry estimates.

Since tax reform discussions have only started and we are still far from approving the 2016 budget, the chances of receiving any extra money from the IMF till the year end are very slim.  Finance Minister Natalie Jaresko has mentioned that most likely both tax reform and budget 2016 will be voted on in a single package. Given that discussions on tax reform promise to be tough, we expect both measures to be approved on New Year’s Eve in what’s now tradition in Ukraine.