IMF chief urges Ukraine to conduct pension reform, deliberate tax policy
Further progress in fiscal reforms is the key to ensure medium-term sustainability in Ukraine, Managing Director of the International Monetary Fund (IMF) Christine Lagarde said on occasion of the issue of the third $1 billion tranche to Ukraine under the Extended Fund Facility (EFF) program.
"The authorities need to avoid tax policy changes that lead to higher deficits. The focus should be on improving tax and customs administrations. Moreover, parametric pension reform is crucial to reduce the pension fund's large structural deficit, help reduce fiscal deficits and public debt, and create room to bring pensions to sustainable levels over time," she stated.
"Monetary policy has been skillfully managed and financial sector reforms have started to yield results. Priority should continue to be given to reducing inflation and rebuilding international reserves, also to make room for the gradual removal of remaining administrative measures. The authorities need to further strengthen the banking system through recapitalization, unwinding of related-party lending, and resolution of impaired assets," Lagarde said.
"A sustainable recovery requires completing the structural transformation of the economy, where much remains to be done, including combating corruption and improving governance. Creating a level-playing field and ensuring equal application of the rule of law is essential to raise investment. A decisive start needs to be made with the restructuring and divestiture of state-owned enterprises, and prosecuting high-level corruption cases," a fund press release reads citing Lagarde.
"Ukraine's international partners have contributed to efforts to strengthen the economy with considerable financial and technical support. These remain important for the success of the program. The completion of the restructuring of sovereign debt held by private bondholders was an important step to put debt back on a sustainable path. It is important that the resolution of remaining sovereign arrears proceeds promptly," the IMF chief added.
"Ukraine is showing welcome signs of recovery, notwithstanding a difficult external environment and a severe economic crisis. Activity is picking up, inflation has receded quickly, and confidence is improving. Gross international reserves and bank deposits have risen. While the social and economic cost of the crisis has been high, growth is expected to be higher in the period ahead. This progress owes much to the authorities' program implementation, including sound macroeconomic policies, bold steps to bring energy tariffs to cost-recovery levels, and measures to rehabilitate the banking system. Determined policy implementation, however, remains critical to achieve program objectives, given the significant challenges ahead," the document reads.
