​Draft fiscal bills could ‘reverse progress’ in stabilizing Ukrainian economy – IMF

People sit next to a board showing  exchange rates in central Kiev. (Reuters / Valentyn Ogirenko)
The International Monetary Fund has warned Ukraine against the adoption of the new fiscal law package which it claims could “significantly undermine the progress” made in correcting the country’s “economic imbalances.”

Poul M. Thomsen, the Director of the IMF’s European Department, issued a statement on Sunday, in which he criticized the recent legislative initiatives of the Ukrainian parliament which, according to Thomsen, “would roll back important policies” within the IMF-supported program.

He emphasized that the overriding concern of the IMF is caused by “the recent package of seven draft bills in the fiscal area,” which is planned to be put before the Ukrainian parliament the next week and would touch “the areas of pension reform, energy sector reform and expenditure rationalization.”

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The statement says that the fiscal impact of these bills could reach nearly 2 percent of GDP in the remainder of 2015 and 3.5 percent of GDP in 2016, therefore, substantially undermining “the ongoing efforts to restore fiscal sustainability and macroeconomic stability in Ukraine.”

In addition, Thomsen was fiercely critical of the bill 1558-1 that implied the conversion of foreign currency loans into hryvnas in order to ease the debt burden of those “few”, who had taken out such consumer, business or real estate loans. The adopted bill also envisages the possibility of writing down 85 percent of debt with a two year long moratorium on debt collection.

The passage of this bill would “impose a significant cost on banks and through them on most banks’ depositors and borrowers, for the benefit of the few,” Thomsen argued.

This bill was earlier sharply criticized by the National Bank of Ukraine which claimed that its enactment would destroy the country’s financial system.

“If all the foreign currency credits given to the residents are converted to hryvna at the rate of 5.05 hryvnas for $1, the country’s banking system will take losses amounting to around 100 billion hryvnas,” the bank’s press service said on July 2, the day when the bill was adopted, as quoted by RIA Novosti.

Speaking about the general situation in Ukraine, the IMF director said that “the Ukrainian authorities are making decisive progress toward addressing long standing economic imbalances, notwithstanding the difficult economic and financial environment.”

He emphasized, however, that “reversing economic reforms for the sake of short term gains has been detrimental to Ukraine’s economy in the past” so the country “needs to stay on the course of reforms, economic modernization and responsible macroeconomic policies.”