Kyiv fears strained IMF relations after Trump’s return – Sources
Photo: Trump may block aid to Ukraine through the IMF
The IMF program with Ukraine, worth $15.6 billion, is set for the 2023-2027 period. While all previous reviews of the program have gone smoothly, further cooperation may become more complicated, according to several sources in the government.
"We are getting clear signals that it will become more difficult," one source noted. Another source suggested that the IMF might become more cautious in its work with Ukraine.
The concerns arise as the new US administration under President Donald Trump comes, and Trump is skeptical about support for Ukraine. As the IMF's largest shareholder with nearly 17% of voting power, the US can veto board decisions.
Tax increase
However, Vitalii Vavryshchuk, head of the Macroeconomic Research Department of ICU Group, believes these concerns may be premature.
"I think these assumptions are speculative, similar to the idea that the Trump team might initiate peace talks with Russia. At this point, there is no evidence that US foreign policy toward Ukraine would drastically change," said Vavryshchuk in a commentary to RBC-Ukraine.
Nonetheless, he didn't rule out that the US could push for a stricter approach to tax policies in Ukraine. "The US wants stronger arguments in favor of supporting Ukraine," he noted.
This could lead to lenders pressing Ukraine to raise more domestic revenue. The IMF program already outlines VAT increases as a potential budget source for 2025 if funding shortfalls arise.
For now, sources in the government indicate that there is no need for additional tax rises.
The IMF program ensures financial backing for Ukraine from leading Western nations.
IMF program
In October, the IMF updated its base and negative scenarios for Ukraine's economy based on the war's duration and intensity. The base scenario now expects the war to end by late 2025, later than the previously anticipated end in late 2024.
The negative scenario suggests more intense fighting, with the war concluding by mid-2026, resulting in a decline in the economy in 2025 and stagnation in subsequent years.
The revised overall funding shortage in the downturn scenario is estimated at $187.1 billion, $35.7 billion higher than the base forecast of $151.4 billion for 2023-2027. This requires additional steps to ensure debt sustainability.
During his election campaign, Donald Trump criticized the aid to Ukraine provided by President Joe Biden's administration.
For more on the risks to Ukraine, read the material by RBC-Ukraine.
