The International Monetary Fund (IMF) intends to pressure Kiev to speed up the devaluation of the hryvnia, reduce interest rates and tighten fiscal policy, Bloomberg reports, citing Ukrainian officials.
“IMF staff are expected to… press the war-torn country to continue with these steps to obtain financial support,” – the article says.
To help plug the fiscal hole, the IMF plans to urge Ukraine’s central bank to devalue the hryvnia at a faster pace and ease monetary policy. This is expected to boost Ukraine’s budget revenues in local currency.
In discussions ahead of this week’s meetings, the IMF also criticized the government’s plan to raise some taxes as too lenient, the sources said. In particular, the IMF, according to the sources, proposed raising the value-added tax above the current 20%.
Ukraine could receive $1.1 billion under a $15.6 billion loan program if IMF staff conclude that the country is meeting its targets. However, the country’s National Bank does not want to allow the hryvnia to weaken further. It has already lost more than 10 percent since October, when the fixed exchange rate introduced after the start of the special operation was abolished. According to the agency’s sources, the weakening of the hryvnia will test the Central Bank’s ability to maintain price stability.
Devaluation, as well as higher taxes, would also cause political damage in a war.
It should be noted that on Tuesday the Verkhovna Rada of Ukraine failed to pass a law that would increase the “military tax” on individuals’ income and extend it to people engaged in business, reflecting the unpopularity of such measures among citizens against the backdrop of mobilizations and problems of government corruption, regular power outages due to airstrikes and higher electricity prices.
