IMF head advises Ukraine to get rid of electricity and heating subsidies, share tax burden more fairly

Ukraine can become a European lion in terms of economic growth rates, but it should continue the necessary reforms, International Monetary Fund (IMF) Managing Director Kristalina Georgieva emphasized at a discussion of the project "Ukraine: On the Front Lines of the Future" organized by the Victor Pinchuk Foundation in Davos on the sidelines of the World Economic Forum.

"Electricity, heating are still subsidized… We know why the country does this, but we need to get rid of it. There is still work to be done in terms of the fiscal situation. Now we are considering how to make the distribution of the tax burden fairer. It is not easy, but it must be done," she said.

"I look back on the history of my country and I can tell you that it was very painful. After the euphoria of the disappearance of communism, came the harsh reality that economic recovery requires sacrifices. So this is the number one issue - unfinished business," the IMF head emphasized, recalling the experience of Bulgaria.

Georgieva noted that it is also necessary to remove everything that is an obstacle to the dynamism of the private sector and paid special attention to security and the availability of labor.

According to her, during a meeting with business leaders in Kyiv last week, some of them put the problem of access to labor, which needs to be resolved, above the problem of security. The head of the IMF said that the Fund is ready to provide assistance on such practical issues as the return of Ukrainians home, addressing the problem of structural unemployment, and the integration of veterans.

She added that it is also incredibly important that Ukraine completes its accession to the European Union in a reasonable timeframe, because it is a magnet for the Ukrainian economy, so that it fully integrates into Europe.

"Thirdly, you must believe in yourself like a lion. So get up in the morning and roar. Confidence matters. And I tell you from my own experience, the Bulgarian experience, that it will not be easy. But if you have this confidence and demonstrate it day after day, if you put aside internal disputes, if you bury corruption forever, of course you will succeed," Georgieva summed up the task.

Regarding achievements, she noted that during the war, Ukraine managed to achieve better results in reforms than before the war, among other things, the 4-year Extended Fund Facility opened in the spring of 2023 had undergone eight revisions.

As reported, in the EFF program, the Ukrainian government committed to adopting a roadmap for the gradual liberalization of the gas and electricity markets within six months of the end of martial law with a time-limited implementation plan for the period after its lifting.

"Such a roadmap is also part of the EU-Ukraine Plan and will cover reforms of special obligations (SOEs), plans for gradual tariff increases/tariff setting methodologies, debt resolution mechanisms, and a comprehensive scheme to protect the most vulnerable households," the program stated.

In turn, the IMF noted that by mid-2025, gas and electricity tariffs for households would cover approximately half of the market price.