IMF demands tax hikes: Ukraine risks losing loan, Bloomberg reports

Risk of funding disruption

The International Monetary Fund stated that the Verkhovna Rada (Ukraine's parliament) has until the end of March to adopt a number of legislative changes within the four-year loan program.

This concerns tax increases for businesses and the population. These steps are conditions for receiving the next tranches of assistance.

However, members of parliament have so far failed to adopt the changes, expressing disobedience to President Volodymyr Zelenskyy, which could potentially paralyze parliament.

"I can say that I am concerned," said the International Monetary Fund’s resident representative in Ukraine, Priscilla Toffano.

Talks with lawmakers

According to a Bloomberg source, International Monetary Fund staff led by mission chief Gavin Gray plan to meet with Ukrainian lawmakers starting March 18.

The goal is to discuss the necessary changes that should ensure further financing.

Additional risks for the budget

The situation is complicated by the fact that Ukraine may face a shortage of funds in the coming months. This is due, in particular, to the blocking of the European Union aid package by Hungary and Slovakia.

According to the head of the National Bank, Andriy Pyshnyi, in case of a funding deficit, the National Bank may again resort to direct lending to the government.

Tensions between the authorities and the parliament

The situation is also complicated by political disagreements. Some lawmakers do not support the proposed changes despite pressure from the authorities.

President Volodymyr Zelenskyy reacted sharply to the delays.

"If you do not serve the state in parliament, then serve the state on the front lines," he said.

What is known about the tranche

The International Monetary Fund approved a new extended financing program for Ukraine. It is designed for four years and amounts to 8.1 billion dollars, which will partially cover the Ukrainian budget deficit.

The first tranche — about 1.5 billion dollars — Ukraine has already received at the beginning of March.

Further receipt of funds depends on meeting a number of conditions. In particular, Ukraine must introduce a value-added tax for individual entrepreneurs with annual income exceeding 1 million hryvnias (about 25,000 US dollars).

In addition, to receive financing, it is necessary to introduce a tax on online sales (including via OLX), duties on all international parcels, and make the military levy permanent.

All these changes must be adopted by the end of the current month.