Jaresko not sure if IMF will accept Ukraine’s tax changes

The changes to the 2016 budget and tax code, adopted by Ukrainian parliament last week, will need additional coordination with the IMF, Finance Minister Natalie Jaresko told a Nov. 30 press briefing, as reported by the Interfax-Ukraine news agency. Jaresko said some of the Cabinet’s initiatives that were fully compliant with the IMF – including anti-corruption measures, education, pension and healthcare reforms – were not supported by parliament. In case the IMF doesn’t approve some of the changes from the Cabinet’s initial drafts, MinFin will initiate a revision of the necessary legislation. She also said that the government and the IMF will discuss the changes from their respective locations, as soon as the fund’s officials return to work from the holidays and final versions of Ukraine’s adopted laws become available.

Alexander Paraschiy: The key criteria of the 2016 state budget – its deficit in the amount of 3.7% of Ukraine’s GDP – has been met, which makes most Ukrainian politicians confident that the IMF won’t criticize it. At the same time, the risk that some last minute changes won’t satisfy the IMF exists, especially given that as of Dec. 30, no one saw the final version of the documents (in the way they were approved by the Rada last week).

In their statements on Ukraine’s program, aside from the budget deficit, IMF officials concentrated on the need for progress in anticorruption legislation and real anticorruption efforts, as well as a broadened tax base and removal of exemptions. Some of the items of the altered legislation do not perfectly meet the latter criteria. In addition, we also have to recall that Ukraine has another impediment (of the same weight) on its way to getting the next IMF tranche, which is the default on the Russian state fund debt. Ukraine does not perfectly match the criterion of performing “good faith efforts” to resolve the issue.

That said, a prompt disbursement of the next IMF tranche heavily depends on the subjective view of IMF officials regarding Ukraine meeting its various commitments. We remain optimistic that their judgment will favor Ukraine.