Business met with the Minister of Finance of Ukraine

28/ 03/ 2023

Today, the European Business Association met with the Minister of Finance of Ukraine, Serhii Marchenko, to discuss the state budget, the IMF support program, changes in the tax and customs system, etc. Our meeting was also joined by Deputy Minister of Finance Svitlana Vorobey. Thus, Serhii Marchenko emphasized that a tremendous amount of work had been done that resulted in securing the 4-year IMF support program, although it should be noted that the negotiations were difficult. The program is different from the previous ones, as it is the first time the IMF has introduced support for a country at war. The final decision of the IMF Board on the Extended Fund Facility (EFF) Arrangement is expected in the near future. The first tranche of funding from the IMF is expected in the spring. There are two stages of implementing the Arrangement – for wartime and then post-war recovery. The first stage includes fiscal and monetary measures, while the second includes changes and reforms for recovery and integration into the EU. In the context of recovery, Mr Marchenko said that last week the World Bank released a study on the damage and losses suffered by the Ukrainian economy, which will be the basis for communication with donors. Thus, the World Bank updated its estimate of the funds that Ukraine needs for recovery and reconstruction. The need has increased to $411 billion. At the same time, the Minister is convinced that Ukraine has come as close as possible to covering its needs for this year. If our partners fulfil their commitments, the country will be able to finance its needs. By the way, thanks to the support of our partners, the supply and demand of foreign currency look stable, so the Minister does not see any currency risks. The key areas of recovery will include energy infrastructure, demining, the destroyed or damaged housing, social infrastructure (schools, hospitals, etc.), and establishing conditions for business development in Ukraine (credit and grant programs, war risk insurance, etc.). However, the key task is to create the conditions for financing the military budget (as the state budget currently receives UAH 80 billion in revenues, while UAH 130 billion is spent on the military campaign per month). Last week, the Verkhovna Rada supported amendments to the state budget that increased spending on military needs. According to Serhii Marchenko, this year it is important to collect the planned taxes, however, no major tax changes are planned. It was agreed to hold a separate meeting on the excise tax, as Ukraines integration into the EU requires harmonization of regulations, including excise taxes on alcoholic beverages. In the context of tax issues, businesses drew attention to the complexity of interaction with the tax authorities. The Ministry of Finance emphasized that, indeed, there are problems, but the authority is constantly working to improve the situation, for example, the risk monitoring system. And, according to their information, the percentage of blocked invoices is decreasing. And in April, changes are planned to CMU Resolution No. 1165 on the Electronic VAT administration system. The draft of the new changes is aimed at separating legal and illegal businesses (the task is to set up the system so that it sorts such invoices better). Customs reform, as well as the fight against corruption, are topical issues. So in the near future, there will definitely be changes in integrating databases, sharing the experience with European colleagues, etc. In the context of business support, Serhii Marchenko said that the Affordable Loans 5-7-9 program is the only one for business lending during the war period. Therefore, it will be continued, given the ongoing war and the difficult economic situation. The portfolio guarantees program continues to operate, and if there is a need to increase the volume, the bank must apply to the regulator and discuss it. Also, investment insurance is a global practice. MIGA is currently creating a War Risk Insurance Fund for Ukraine. So, we hope that we will soon see the first insured investments by this fund. For its part, the EBA will do everything possible to conduct proper communication on the global stage to brand the country and attract new investments to Ukraine. We sincerely thank Serhii Marchenko for the meeting and look forward to further dialogue and separate meetings on the agreed issues with the business.

Thus, Serhii Marchenko emphasized that a tremendous amount of work had been done that resulted in securing the 4-year IMF support program, although it should be noted that the negotiations were difficult. The program is different from the previous ones, as it is the first time the IMF has introduced support for a country at war. The final decision of the IMF Board on the Extended Fund Facility (EFF) Arrangement is expected in the near future. The first tranche of funding from the IMF is expected in the spring. There are two stages of implementing the Arrangement – for wartime and then post-war recovery. The first stage includes fiscal and monetary measures, while the second includes changes and reforms for recovery and integration into the EU.

In the context of recovery, Mr Marchenko said that last week the World Bank released a study on the damage and losses suffered by the Ukrainian economy, which will be the basis for communication with donors. Thus, the World Bank updated its estimate of the funds that Ukraine needs for recovery and reconstruction. The need has increased to $411 billion. At the same time, the Minister is convinced that Ukraine has come as close as possible to covering its needs for this year. If our partners fulfil their commitments, the country will be able to finance its needs. By the way, thanks to the support of our partners, the supply and demand of foreign currency look stable, so the Minister does not see any currency risks. The key areas of recovery will include energy infrastructure, demining, the destroyed or damaged housing, social infrastructure (schools, hospitals, etc.), and establishing conditions for business development in Ukraine (credit and grant programs, war risk insurance, etc.).

However, the key task is to create the conditions for financing the military budget (as the state budget currently receives UAH 80 billion in revenues, while UAH 130 billion is spent on the military campaign per month). Last week, the Verkhovna Rada supported amendments to the state budget that increased spending on military needs. According to Serhii Marchenko, this year it is important to collect the planned taxes, however, no major tax changes are planned. It was agreed to hold a separate meeting on the excise tax, as Ukraine’s integration into the EU requires harmonization of regulations, including excise taxes on alcoholic beverages.

In the context of tax issues, businesses drew attention to the complexity of interaction with the tax authorities. The Ministry of Finance emphasized that, indeed, there are problems, but the authority is constantly working to improve the situation, for example, the risk monitoring system. And, according to their information, the percentage of blocked invoices is decreasing. And in April, changes are planned to CMU Resolution No. 1165 on the Electronic VAT administration system. The draft of the new changes is aimed at separating legal and illegal businesses (the task is to set up the system so that it sorts such invoices better).

Customs reform, as well as the fight against corruption, are topical issues. So in the near future, there will definitely be changes in integrating databases, sharing the experience with European colleagues, etc.

In the context of business support, Serhii Marchenko said that the “Affordable Loans 5-7-9” program is the only one for business lending during the war period. Therefore, it will be continued, given the ongoing war and the difficult economic situation. The portfolio guarantees program continues to operate, and if there is a need to increase the volume, the bank must apply to the regulator and discuss it. Also, investment insurance is a global practice. MIGA is currently creating a War Risk Insurance Fund for Ukraine. So, we hope that we will soon see the first insured investments by this fund. For its part, the EBA will do everything possible to conduct proper communication on the global stage to brand the country and attract new investments to Ukraine.

We sincerely thank Serhii Marchenko for the meeting and look forward to further dialogue and separate meetings on the agreed issues with the business.