IMF commences critical fiscal policy discussions in Kyiv to address Ukraine’s 2024 budget deficit

An International Monetary Fund (IMF) team commenced discussions with Ukrainian officials on Tuesday.

The talks are aimed at identifying strategies to bolster revenue streams for Ukraine’s war-torn economy and addressing the substantial budget deficit projected for 2024.

Fiscal policies and budget plans under scrutiny

The IMF announced that the meetings in Kyiv would concentrate on evaluating Ukraine’s fiscal policy plans for the remainder of 2024 and the medium term.

This year, the IMF has already disbursed $3.078 billion to Ukraine under its $15.6 billion Extended Fund Facility program.

Ukraine’s government is grappling with a budget shortfall estimated to be between 400 billion hryvnias ($9.8 billion) and 500 billion hryvnias, according to Roksolana Pidlasa, head of the parliament’s budget committee.

Officials and analysts indicate that the government intends to address this deficit through increased taxation and enhanced domestic borrowing.

Defence spending and international aid: Key financial pillars

Ukraine’s 2024 budget dedicates over $40 billion—approximately half of its total expenditures—to the defence sector.

The government remains heavily dependent on international financial aid to support social and humanitarian spending.

The IMF is a crucial multilateral creditor for Ukraine, with its funds forming a significant portion of the $37 billion in foreign aid that Ukraine anticipates receiving this year.

To date, Ukraine has secured about $16 billion from Western partners, as reported by the finance ministry. Since the onset of the Russian invasion in February 2022, foreign aid to Ukraine has amounted to $73.6 billion by the end of 2023.

Economic turmoil and recovery efforts

The invasion has severely disrupted Ukraine’s economy, resulting in massive displacement, widespread destruction of cities and infrastructure, and significant interruptions to supply chains and exports.

Consequently, Ukraine’s economic output plummeted by approximately 29% in 2022.

The economy began showing signs of recovery in 2023, with a growth rate of 5.3% as businesses adapted to the conditions of war.

Despite these gains, the government revised its economic growth forecast for this year down to around 3%, citing a growing energy deficit caused by recurrent Russian missile and drone attacks on Ukrainian power facilities.

Urgency in debt restructuring

In addition to addressing its budget deficit, the Ukrainian government faces the critical task of restructuring its foreign debts amidst the ongoing conflict.

The urgency of this endeavour is underscored by the impending expiration of payment moratoriums on August 1.

As Ukraine navigates these multifaceted challenges, the ongoing discussions with the IMF will play a pivotal role in shaping the country’s fiscal strategy and securing necessary financial support.

The outcome of these talks is expected to influence forthcoming budget adjustments and potential tax increases.