Ukrainian Economy in Brief – Newsletter, 17 May, 2023

At the end of May, the Verkhovna Rada will consider in the first reading the Draft Law (DL) №8401 on tax policy and administration prepared under the Program Monitoring Board (PMB). This DL is benchmark №3 in the Memorandum with the IMF.

The DL suggests a package of tax policy and administration measures that would restore the pre-war setup of critical policy and administration components such as the elimination of tax incentives for individual entrepreneurs and the resumption of documentary inspections. According to the Memorandum, the law should be adopted by end-June 2023.

The Cabinet of Ministers approved the DL to implement the corporate governance reform at the Gas Transmission System Operator (GTSO). It’s the commitment of Ukraine under the Structural Benchmark №12 of the Memorandum with the IMF.

The DL has to transfer the GTSO shareholding from the MGU gas company to the Ministry of Energy and establish corporate governance with the supervisory board in it.

After its publication the DL was roughly criticized by Sergiy Makogon, the ex-head of the GTSO. He claims that the DL doesn’t meet the requirements of the Memorandum and can’t provide proper corporate government reform for the Operator.

Considering this, the DL requires the assessment of the IMF representatives before submitting and considering in the Parliament.

The Financial Stability Board approved the concept of a new financial sector strategy.

Other Topics of Interest

Ukraine’s GDP Growth is Downgraded, But It’s Doing ‘Marvelously,’ IMF Rep States

The IMF praised Ukraine’s government for steering the economic policy during wartime, even though the fund downgraded its growth outlook due to Russia’s strikes on energy infrastructure.

The development of the strategy is stipulated in paragraph 45 of the Memorandum with the IMF. Among the key elements of the strategy are steps to safely unwind exceptional measures and the assessment of the stability of banks. The Financial Stability Board is going to approve the strategy by the end of June after considering all propositions and amendments.

World Bank priorities development

The Ministry of Finance and the National Securities and Stock Market Commission submitted significant critical remarks to the draft law №9212 on the mandatory funded pension system.

As we predicted in previous newsletters, the draft law isn’t supported by key government stakeholders and most likely won’t have enough votes to be adopted by the Parliament. Particularly the MoF emphasized the need for extra budget spending of about Hr.45.6 bn.

Thus, it’s unlikely that the process of adopting the DL in the Parliament will be quick.

Other key economic issues 

The Verkhovna Rada will adopt the draft law №9107-1 on nationalizing banks of sanctioned owners at the end of May.

 The DL is already included in the parliamentary agenda. The Parliament adopted the DL in the first reading at the beginning of April, but couldn’t win enough votes to adopt it in the second reading during the last plenary week.

The first meeting of the working group on designing draft laws to provide fair payment for Ukrainian defenders.

The working group discussed several categories of military servants who need pay raises. The key task of the group is to find internal budget resources to fund such raises. As a result, the working group is going to present a so-called “stimulus package” to address all the discussed issues instead of amendments in the DL №8312 which set a salary cap for civil servants and state-owned enterprise (SOE) employees.