Stuck in "beacons." What conditions of the IMF program did Ukraine fail to meet, and what are the potential consequences?
During the negotiations between Ukraine and the IMF, some difficulties have arisen. Failure to meet one of the program's conditions may delay the allocation of the next tranche. Additionally, "Naftogaz" has unexpectedly reached out to the Fund with a request. Details of the negotiations are covered in a report by RBC-Ukraine's special correspondent Yuriy Doshchatov.
One of the "beacons" of the program may delay the new tranche
"Naftogaz" wants funds for gas imports
The seventh review of the EFF credit program from the International Monetary Fund, which began on February 20, may not conclude as favorably as the previous six. According to RBC-Ukraine, as a result of the mission's work, a preliminary condition may emerge for Ukraine (prior actions). Only after this condition is met will the issue of allocating the next – eighth – tranche be submitted for approval at the IMF Board of Directors meeting.
In the review of the memorandum with the IMF, Ukraine has not fulfilled two "structural beacons," which are conditions for the continuation of funding.
One of the "beacons" of the program may delay the new tranche
The first "beacon" – the repeal of the so-called "Lozovoy amendments". This refers to changes in several codes adopted by the Rada back in 2017. Among other things, these amendments limit the duration of pre-trial investigations into crimes. It was stipulated that if a case is not solved within the designated timeframe, the criminal proceedings must be closed. The existence of such limitations creates conditions under which corrupt individuals can evade punishment.
The condition for repealing the "Lozovoy amendments" appeared in the memorandum with the IMF in the summer of last year. The deadline for fulfilling this "beacon" has already been postponed twice. According to the latest version of the memorandum, it was to be completed by the end of December 2024. However, the Rada has been unable to make a decision. The last attempt to amend the legislation on this matter occurred in mid-January, but the draft law was not included in the agenda.
Business is opposed to the repeal of these "amendments," fearing that investigations into criminal cases may become endless. A source familiar with the negotiation process reported that discussions on this issue with the IMF are ongoing, and it is possible that the deadlines for fulfilling this condition may be postponed once again.
The IMF mission's negotiations with representatives of the Ukrainian government (photo: t.me/Denys_Smyhal)
The second unmet "beacon" – the establishment of a new Administrative Court. This condition appeared in the memorandum with the IMF at the end of 2023. The new court is intended to replace the liquidated District Administrative Court (OASK).
The new court will handle cases against national government bodies (e.g., the NBU, NABU, NAPC). The deadline for fulfilling this "beacon" has also been postponed several times. However, according to information from the publication, the IMF mission is now taking a firmer stance on this issue and is not inclined to extend the deadlines further.
The Deputy Head of the Rada's Finance Committee, Yaroslav Zheleznyak, also believes that the IMF will not be able to postpone the fulfillment of this condition. The failure to adopt the law on the Administrative Court poses a risk for receiving the next tranche from the IMF within the expected timeframe.
According to sources at RBC-Ukraine familiar with the negotiation process with the IMF, the establishment of the Administrative Court, if a decision is not made in the coming days, will most likely become a preliminary condition (prior actions) for the continuation of funding.
"If there is a discussion regarding the 'Lozovoy amendments,' then regarding the court – the 'beacon' will likely become a preliminary condition," said a source familiar with the negotiation process with the IMF. Thus, the allocation of the next tranche, expected to be $917.5 million, will only be possible after the relevant law is adopted.
"Naftogaz" wants funds for gas imports
As part of the program review, the leadership of the NJSC "Naftogaz of Ukraine" met with representatives of the IMF mission. This usually does not happen very often – only in cases where there are conditions related to the gas sector in the program. Currently, there are no such conditions.
However, the acting head of NJSC Roman Chumak met with the mission on February 21 to discuss the challenges of the heating season and ensuring gas supplies for consumers. He described the situation as "challenging." "Yes, it is challenging, but not critical. Naftogaz is importing gas in volumes necessary to balance the system and meet the needs of all consumer groups," Chumak was quoted as saying by the press service of Naftogaz.
The acting head of NJSC "Naftogaz of Ukraine" Roman Chumak
Sources from the publication reported that the meeting was prompted by "Naftogaz's" desire to negotiate funding for gas imports. Discussions are not about specific amounts, but rather about gas volumes. "At the first stage, we are talking about 1 billion cubic meters of gas," said a source familiar with the negotiation process.
It is worth noting that the search for funds for gas imports is being pursued not only by NJSC but also by the leadership of the Ministry of Energy. German Galushchenko recently stated that Ukraine needs to import 1 billion cubic meters of gas. Last week, he visited Brussels to negotiate the possibility of financing imports or receiving gas as a grant. However, the Ministry of Energy has not reported on the outcomes of these negotiations.
According to Reuters, Ukraine plans to import up to 800 million cubic meters of gas from Europe in February and March.
As for the IMF, according to sources from the publication, no response has yet been given to NJSC's request. However, the mission representatives were surprised by such a request, as the necessity for increased gas imports was not raised during the last program review in December 2024.
The Trump Factor
Although the current review of the program with the IMF may be more complicated than previous ones, the influence of the new White House administration on the Fund's operations has not yet manifested itself. However, experts noted back in November of last year that if Trump wins, the IMF's level of loyalty to Ukraine may decrease.
The U.S. holds the largest quota in the IMF's capital - 17.4% and the highest number of votes - 16.5%, which allows the country to influence decision-making.
"So far, there are no complications; the IMF team is positively inclined, despite Ukraine's weak fulfillment of its commitments," said a source involved in the negotiation process.
However, the risks of a change in the IMF's approach to Ukraine remain in the long term, believes the head of the analytical department at Concorde Capital, Alexander Parashiy. "There are risks that Trump will impact the relationship between the IMF and Ukraine... But our situation is such that even if the program goes according to plan, this year we will pay the IMF $380 million more than we will receive, and over the 2025-2027 years – $1.7 billion more. Therefore, fruitful cooperation with Ukraine is a (somewhat) guarantee of timely repayments from Ukraine to the IMF," he commented to RBC-Ukraine.
The analytical company ICU believes that it is highly likely that the program review will proceed without any negative surprises. “Delays in fulfilling structural beacons are unlikely to have critical significance for this review. The experience of Ukraine's cooperation with the IMF under the current program demonstrates the Fund's willingness to remain flexible as long as there is confidence that structural beacons will eventually be fulfilled,” the company's analytical department stated.
At the same time, ICU also admits that the IMF's approach to working with Ukraine may change in the future. “There are risks that the IMF's position in future program reviews may be stricter regarding deadlines for structural beacons. However, this should not become a significant obstacle to cooperation,” they noted at ICU.
If positive expectations are confirmed, funding from the IMF this year will amount to $2.712 billion. The funds will be allocated in four tranches: $917.5 million in March, $809.6 million in June, $539.8 million in August, and $445.3 million in December.