​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)

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
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
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

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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

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

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.”

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