Ukrainian Economy in Brief Newsletter

IMF benchmarks in focus

The Verkhovna Rada of Ukraine (VRU) adopted in the first reading of the Draft Law (DL) №8401 on tax policy and administration prepared under the Program Monitoring with Board Involvement (PMB) and the 3d benchmark of the Memorandum. The DL should eliminate tax incentives for individual entrepreneurs, restore documentary inspections and other pre-war set up of tax policy. The DL got 227 MP votes in the first reading – that’s just one vote more than minimum needed for the bill to pass. It indicates a low level of support in the parliament. Considering the time for submitting amendments (14 days) which ends on June 12, and the schedule of the VRU plenary meetings, it’s unlikely that the second reading can take place before July 1.

The Cabinet of Ministers (CoM) fulfilled another two structural benchmarks of the Memorandum with the International Monetary Fund (IMF). The CoM submitted to the parliament the DL №9346 which suggests restoring and strengthening Article 52 of the Budget Code to minimize ad hoc amendments to the budget law (Structural Benchmark #2) and establishing limits on issuance of public guarantee with clear criteria for such provision (Structural Benchmark #7). The DL will be considered at the next plenary meeting of the VRU this week.

The Committee on Energy, Housing and Utilities Services approved the DL №9311 on the corporate governance reform at the Gas Transmission System Operator of Ukraine (GTSO). We reported the crucial norms of the DL in the Issue 6. The committee also decided to consider the important norms of the alternative DL in the second reading. However, after the committee’s meeting the MPs submitted another two alternative DLs. It seems that the committee will handle another meeting to consider them too before voting in the parliament. The parliament will consider the DLs on the GTSO corporate governance reform in the middle of June.

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 Cabinet appointed Ukreximbank’s new supervisory board. It aligns with the obligation to strengthen the governance of state-owned banks (SOBs) under the current IMF Memorandum.

Other key economic decisions

The Verkhovna Rada adopted on the second attempt the DL №9107-1 on nationalizing banks of sanctioned owners. In Issue 6 we reported crucial amendments to the reconsidered version of the DL.

The Verkhovna Rada adopted DL №8250 which allows the government to unblock large-scale privatization and improves the management structure of the State Property Fund of Ukraine.

The parliament adopted in the first reading the DL №9342 on fair payment for Ukrainian defenders. The DL was submitted by the working group of Ukrainian authorities to ensure payment raises for several categories of military servicemen without setting a salary cap for civil servants and state-owned enterprise (SOE) employees. Its implementation will preliminarily require Hr.10 billion ($270 million) in additional budget expenses, Hr.19 billion ($510 million) in 2023 (not counting additional payments to military instructors). There are already several admonitions to the proposed mechanism, including for military representatives in the parliament. Moreover, the bigger increase in budget expenses is expected to implement all agreed amendments in the second reading. Thus, it seems that the DL won’t be approved in the second reading very fast.