Key creditor of Ukraine – the international monetary Fund in early October published a report on the state of Affairs in Ukraine’s economy and made recommendations for further change until the end of the year. For the first time in the history of relations with the IMF Kiev was not just a list of some of the global proposals is sufficient for software of the first trenches, and a set of very specific goals in the most problematic areas. Hard and unpopular decisions, akin to the already implemented increase in tariffs will have to be taken in the banking sector, the taxation of farmers, pension reform, electronic Declaration and in the revolution of the earth.
The conditions of lending will allow the country to receive the fourth credit tranche of $ 1.3 billion by the beginning of December. And, as noted by the first Deputy Prime Minister – Minister of economic development and trade Stepan Kubiv, important here is not the amount of the credit tranche, and a positive assessment of the reform authority.
But will continue the reform? Almost every paragraph of the structural beacons, declared by the Fund, subject to political and economic discussions. And the trouble is that their resolution has gone counter to the General direction issued by Kiev tips.
In particular, the Verkhovna Rada on Thursday, almost constitutional majority hastened to extend for another year – this time to 2018 the moratorium on sale of agricultural land. The deputies justified this step by the need to take a break to prepare high-quality regulatory framework in the sphere of land relations. Sixteen of the ban on the sale of land was not enough.
Meanwhile, on the reform program, the Parliament together with the government had in September to draw up a package of bills for the phased introduction of the land market from January 1, 2017. The introduction of land turnover has been and will remain one of the main demands of the IMF to Ukraine as a de facto shadow land exists, but the state never gets any income.
“The use of a large array of agricultural land is largely confined to the existing legislation prohibiting the owners of land plots to sell the land to more effective owners or use it as collateral for loans, the IMF said. – Changes in legislation will open up the opportunity for the implementation of land deals that will bring the government economic benefits, income and tax revenues”.
By the way, about necessity of opening the land market said earlier the President Petro Poroshenko, and many authoritative experts.
“That land reform can be one of the most important determinants of a country’s development and rural development. Of course, should be the conditions for the opening of the market (land – UNIAN), but we believe that anything is possible. You can reduce the risk that the market will not be transparent, it is possible to make constraints that will not allow the abuse and make the market work in favor of development of the country. And that, apparently, one of the most important priorities. The extension of the moratorium (on the sale of land – the UNIAN) is a bad decision. And then you need to find a political consensus,” said co-chair of the Strategic group of advisers to support Ukrainian reforms Ivan Miklos.
The IMF “land” demarsh has not yet commented on, but in October in Kiev waiting for an assessment mission of the Foundation. Surely the question of land market is one of the Central issues in the upcoming discussions.
The land issue is not only faced with Ukraine. The list of IMF recommendations for the improvement of underdeveloped and our ailing economy is about 150 pages of fine print with graphs and tables. The following are the most important points of the program.
In the banking sector, the Fund proposes to focus on the recapitalization of banks, to improve the management of state-owned banks and the Deposit guarantee Fund, improve banking supervision and to adopt a plan of measures in case of failure of systemic banks. The IMF endorsed the efforts of the National Bank of Ukraine on the creation of a healthy banking system and recommended “to continue these measures with the same zeal.”
In the tax area, the IMF insists on the abolition of the simplified taxation system for legal entities, as well as the abolition of the special regime of VAT for agricultural enterprises, introduced in January of the current year for a period of 12 months.
“Special regime of VAT for agricultural enterprises was adopted as a temporary measure, but we believe that it is not necessary to keep it after January 1, 2017. From this date onward must be applied the General regime of taxation of agricultural producers”, – stated in the report of the Fund.
Decisions on pension reform are due by the end of the year. And Ukraine need to determine the model of the functioning of the whole system, which would avoid the deficit of the Pension Fund. The mechanisms of such a model – raising the retirement age, the abolition of pension, the balance of pensions, the introduction of elements of a funded system.
“Until the end of December are expected to increase the retirement age. We are talking about that before the end of the year we need to determine the model of pension reform. Point – commented on the recommendations of the IMF, Finance Minister Oleksandr danylyuk. – Perhaps this model (which will be elected – UNIAN) will include a gradual increase in the retirement age, but how much is yet no question. Will work the interdepartmental group, we will find a solution. And it will be our sovereign decision. Task – to build a fairer system of pension provision, to ensure that gave pensions to pensioners.”
In the sphere of the public sector management IMF recommends transparent privatization on market conditions, those companies which have already announced for sale, as well as to conduct an audit of the remaining state assets, separating them into strategic targets (not for sale), the company that will be sold later, and the companies that will be eliminated.
In the energy sector of Ukraine propose to introduce quarterly review of prices for gas and heating for the population if these rates differ from the import parity level by more than 10%, as well as to ensure that subsidies for housing and communal services did not exceed budgeted amounts. Moreover, in the field of subsidies the government is recommended to engage in the monetization of payments and submit draft decisions in this area already in March 2017.
The government argues that the requirements of the Fund – despite their stiffness is important and, in General, feasible. “We talk about common solutions, – commented on the situation Finance Minister danyluk. – Do we need to stabilize the pension system? Definitely! If we see that the system is unbalanced, it is necessary to make decisions.”
At the same time, Danilyuk made it clear that “thin place” in implementing the requirements of the IMF is not making reforms and not the actual building solutions and their promotion and passage, including in Parliament. “I would not have predicted the behaviour of Parliament. The Parliament elected by the people, and the deputies are responsible before the people. Parliament elected the current government, and therefore we should have common positions,” – said danyluk.
This drew the attention and Miklos. In the comment of the UNIAN reports, he stressed that the main challenges observed today in the relations of the government and the Verkhovna Rada. “We see that the main difficulty there, because the coalition is not as effective. It is impossible now to repeat the situation of 2015, when only a third of government decisions passed Parliament. This is unacceptable,” said Miklos.
Risks and benefits of Ukraine
About the risks in relations with the Parliament and warned others interviewed by UNIAN experts. Chief economist at Dragon Capital Elena Belan claims that October will be the most critical from the point of view of the execution of structural beacons of the IMF program. And room for manoeuvre in Kiev a little. According to the expert, the main requirements, including, first and foremost, a model of pension reform or program implementation of electronic declaring of incomes of officials will have to demonstrate in the near future. The involvement of Parliament in this process will be very active.
This is also said to and principal analyst of “Alfa-Bank” (Ukraine), Alexei Blinov. In his opinion, the Parliament’s position will be crucial and fundamental task. “For example, overdue tasks on improving the legislation on bankruptcy set a new deadline – the end of September 2016. However, the bill was sent 8 September for a repeat first reading. Bill then scored only 184 votes of the 226 needed – said Blinov. – Or the bill system for automated seizure of funds in legal proceedings. Initially, Ukraine has undertaken to adopt these standards by the end of 2015. In may 2016, the bill was sent for a repeat first reading and since then have not been considered. Ukraine during the last revision of the EFF had requested to postpone the task at the end of September 2016. However, the law is still not addressed.”
The Director of Case Ukraine Dmytro Boyarchuk is convinced that time is also working against Ukraine now. “Very correct” the IMF requirements are not met not only because of the problems the government – the Verkhovna Rada, but also because of lack of time. “I don’t think it (the fulfillment of the conditions of the fourth tranche – the UNIAN) the prospect of the next three months,” – said the expert.
In turn, the head of the Analytical group Da Vinci Anatoly Baronin drew attention to the fact that Ukraine was in a situation of “between a rock and a hard place”. According to experts, on the one hand reforms in response to the challenges of today can become the key to growth. But on the other, a number of IMF requirements according to Baronia, is a classic, conservative schemes of solutions which do not take into account the national specifics of the recipient, and can even lead to the deterioration in the socio-economic sphere. For example, raising the retirement age, I’m sure Baronin, effectively if there is no shortage of jobs, but not in conditions of considerable unemployment among citizens aged 17-45 years. “The issue of privatization – another conservative scheme, which doesn’t work in war and low investment attractiveness. In the end, the winners will be the local PPG or Russian capital, the amount offered just above the primary rate”, – noted Baronin. No less gently, he urged to consider tax reform, focusing rather on issues of tax administration, rather than, for example, on their rates. “Changes in taxation should relate mainly to the flexibility and ease of administration. To raise the stakes early today, both in the direction of increase and in the direction of reducing them,” – said the expert.
What the result will be the solutions and whether they will be accepted in time – still an open question. But it is obvious that we must not tarry. Co-head of Strategic group of advisors supporting reforms of Leszek Balcerowicz in the comments UNIAN said: “the Choice you have is very simple: can be either stagnant or dynamic growth – not in the next year or two, but in the future – even a 5-6% GDP growth per year. And the politicians who make the decisions. But you need to move comprehensively and quickly.” Balcerowicz sure that the situation in Ukraine was and remains complex, and the achieved macroeconomic stability is fragile.
Active promotion of the country on the path of reforms will give the opportunity to maintain the stability of the national currency market and to attract development of financial resources from investors and international institutions.
In particular, funds from International monetary Fund, which in March 2015 has allocated Kiev to 7.62 billion. with a total lending programme of 17.5 billion dollars.
To break the balance is not difficult to recover it again would be nearly impossible. Especially, if Ukraine will once again lose trust in the main financial partner of the country, and with it foreign partners and investors.