IMF announces mission to Ukraine to review first EFF program, discusses reducing shadow economy to 45% of GDP

An International Monetary Fund (IMF) mission will visit Ukraine in the coming weeks for the first review of the four-year, $8.1 billion Extended Fund Facility (EFF), which opened in late February, and will discuss domestic financing, IMF spokesperson Julie Kozack said.

"During the review mission, which will take place in the coming weeks, staff will, of course, discuss with the authorities the status of reform commitments, including two related to VAT," she said at a traditional briefing on Thursday, according to an Interfax-Ukraine correspondent.

As reported, in the new program, Ukraine committed to adopting a law introducing VAT for simplified taxpayers and on imported parcels worth less than EUR 150 by the end of March. Regarding the former, according to Ukrainian officials, an agreement was reached with the Fund in mid-April to defer its implementation for a year. Meanwhile, the bill on parcels was passed in its first reading, but its second reading is being delayed.

Kozack recalled that, as part of the approval of the new program, the Ukrainian authorities agreed to a comprehensive reform program designed to achieve the government’s EU accession goals. This program is designed to both unlock significant external support and increase domestic financing, which is crucial to meeting Ukraine’s very significant financial needs.

"We support the government’s efforts to expand the tax base, particularly by reducing the size of the informal sector. For example, the informal sector is currently estimated at 45% of GDP. Therefore, bringing part of this sector out of the shadows and into the formal economy, where these enterprises and firms contribute to tax revenues, will be very important for Ukraine, in addition to several other revenue mobilization measures," the Fund’s press secretary noted.

She clarified that, among other things, this would be discussed during the mission, but additional information would be provided after these discussions are completed.