The Ukrainian delegation that participated in the annual spring meetings of the International Monetary Fund and the World Bank Group has recently returned from Washington.
Prior to that, the IMF had approved a four-year Extended Fund Facility (EFF) for Ukraine worth USD 15.6 billion. Ukrainian officials, therefore, were not going to the US to ask for money, but to discuss concrete ways to implement their promises.
The head of the National Bank of Ukraine, Andrii Pyshnyi, says that the importance of the new IMF programme for Ukraine cannot be overstated – and not only because it has opened up access to an unprecedented USD 115 billion in total funding.
"First of all, this is a particularly important message that the IMF and Ukraine are sending to the rest of the world. It does not imply but clearly state our Victory, supported by a powerful coalition of external partners, and no," Mr Pyshnyi emphasises.
Add to that Ukraine’s successful implementation of the monitoring programme in record time, an unprecedented visit to Kyiv by IMF managing director Kristalina Georgieva, and changes in the IMF policy to be used by other countries. It is yet another extremely important context, no less valuable than money.
Questions remain, however, whether the IMF programme is as good as it seems.
No politics, just figures
Oleksandr Paraschii, head of research at Concorde Capital, estimates that the IMF programme provides for Ukraine to receive up to USD 15.6 billion in loans over 48 months. During this period, the IMF plans to receive USD 12.1 billion from Ukraine in the form of interest and repayment of previously issued loans.
"That is, we will receive only USD 3.5 billion net from the IMF over 48 months. This is just three percent out of USD 115 billion of Ukraine's net external financing for this period, according to the IMF," he said.
The IMF plans to earn 6.9 percent per annum on lending to Ukraine under the new programme, something that Mr Parashchii calls an ‘extortionate’ interest.
For instance, the European Union will not charge Ukraine interest under the EUR 18 billion macro-financial assistance programme until 2027. Canada will charge only 1.5 percent per annum for its CAD 2.4 billion tranche. Ukrainian banks give the government money at a 2.5 percent interest in euros and 4.85 percent in dollars – of course, for shorter terms than the IMF.
"We will start repaying the tranches in four and a half years after we receive them, and will fully repay them in ten years," Mr Parashchii explains. "Such conditions are much worse than the EU offers us: a 35-year debt with repayment after ten years."
"The IMF's terms are similar to those offered by Canada, but Canada charges us less interest."
Taxes at any cost
The memorandum with the IMF includes, among other things, prevention of money emission for offsetting the budget deficit. However, it is impossible to make sure that there will be no ‘urgent’ need to print money in times of war, says Volodymyr Dubrovskyi, senior economist at CASE Ukraine.
The memorandum also prohibits any reduction in budget revenues during the programme period. In fact, there has been a substitution of concepts, a person familiar with the matter told LIGA.net.
Instead of a ban on ‘reducing budget revenues’, the IMF programme should have mentioned a ban on ‘increasing the budget deficit’, as a ban on reducing revenues means a moratorium on reasonable tax reforms. This means that even absolutely necessary measures, such as rebooting the tax and customs authorities, cannot be taken.
Instead, the Ukrainian government should look for ways to reduce public spending. But it seems that the government would rather give up trying to find a compromise with the managers of public funds, shifting the responsibility for their inaction to the alleged IMF recommendations.
"Responsible fiscal policy is possible if both tax revenues and public spending are reduced at the same time," Mr Dubrovskyi believes.
Anti-corruption 'Don Quixote'
An important requirement of the IMF is carrying out judicial reform in Ukraine – which, however, is not enough to effectively fight corruption, says Volodymyr Dubrovsky.
The basis of corruption opportunities in Ukraine is primarily discretion in legislation; therefore, it is now necessary to reduce legislative discretion as much as possible while rebooting state institutions.
The IMF does not seem to understand this – at least, the memorandum says nothing of it. Currently, the IMF is still using the principle of harmonising legislation and preserving institutional memory.
In Ukraine, however, it is often the institutional memory of government agencies that needs to be completely rebooted, as is the case with the tax and customs authorities.
"I used to talk a lot with IMF experts. They often sincerely do not understand Ukrainian realities," Mr Dubrovskyi explains.
"Their expertise is mainly in purely economic matters. This is not an organisation that has ever seriously dealt with anti-corruption institutional reforms in its history."
Therefore, the danger is that the IMF's anti-corruption recommendations for Ukraine, proposed by the Ukrainian government itself, are designed to leave the country's biggest corruption opportunities out of the IMF’s attention.
Away with illusions
The IMF memorandum says nothing about breakthrough economic growth, ‘catching up and outdoing’ someone, or becoming a new Taiwan, says Yevhen Dubohryz, an economic expert.
He adds that agreements with the IMF are not about accelerated development, but about recovery and creating preconditions for future development; in short, turning a bad, unstable economy into a somewhat stable one.
"There are no recipes for rapid accelerated growth. Here, everyone goes through the process on their own. Or not, as one country that ‘never misses a chance to miss a chance’," Mr Dubohryz believes.
In addition, there are currently no prerequisites for Ukraine’s economic breakthrough – what is written in the memorandum with the IMF is the necessary conditions to start "digging the foundation for the foundation" of future economic growth.
What to do next
An IMF loan programme during a time of war is a victory – no sarcasm – no matter how pathetic it may sound. But the programme must be implemented.
The current agreement with the IMF is the thirteenth in a row, and Ukraine has not fully implemented any of the twelve previous ones. There have always been some ‘insurmountable circumstances’ to get out of its obligations.
"It's all about trust in Ukraine as a country. We have already broken our promises so many times that I don't know what the perception of Ukraine is there," Mr Dubohryz says.
"When I talk to foreign economists and financiers, I often hear words like, ‘corrupt country’ and ‘untrustworthy, unreliable’."
Therefore, the implementation of the current agreement with the IMF should be a matter of honour for the Ukrainian authorities – especially since the terms of the memorandum are absolutely realistic to implement.
"We don't need to do something so remarkable. It's enough not to make 'breakthrough decisions', all those 'reforms for the common good'. In general, we need to stop these discussions at the highest level, at least until we implement the agreement," Mr Dubohryz adds.
He believes that it is a big mistake to think that the IMF does not see or understand something; it sees and understands everything, and is very good at ‘separating the wheat from the chaff’ and talk from work – and so Ukraine has to fulfil its responsibilities.