Serhii Marchenko, Minister of Finance of Ukraine

The annual meeting of the International Monetary Fund (IMF) and the World Bank, traditionally held in October, is one of the key events for the international economic and financial environment. This time, it was held in Marrakesh, Morocco and gathered representatives from over 190 countries and financial institutions. For Ukraine, the forum has become the possibility to directly discuss with the partners how to better counter the aggressor, save the Ukrainian economy, carry out reforms and contribute to the country’s recovery. Serhii Marchenko, Minister of Finance of Ukraine, told Ukrinform in an exclusive interview whether Ukraine will get sufficient external support as we move forward with the IMF programme implementation and what will happen to our economy.

FOREIGN AID: WHAT TO EXPECT NEXT YEAR?

- The Ukrainian Prime Minister told his international counterparts at the meeting of the International Monetary Fund and the World Bank this week that Ukraine would require $42 billion in foreign investments to cover the budget deficit in the upcoming year. Following the outcomes of your meetings in Marrakesh, are the partners ready to fully support Ukraine?

- Yes, the partners are ready to fulfil the commitments they undertook when we prepared the Extended Fund Facility (EFF) programme in cooperation with the International Monetary Fund. They promised to support Ukraine for the next four years, and none of the nations that ratified these commitments are planning to revisit them. What is more, we receive sufficient assurances both from the United States and the European countries of their continued support for Ukraine as long as we need it.

- What additional reserves can Ukraine use on its part to reduce the budget deficit? For instance, does the government consider changing the rules for selling excisable goods in Ukraine, reforms in the gambling business or other possibilities? Or will we focus on the reduction of expenses?

- We have very limited fiscal manoeuvres. I will start with the simplest: under current conditions, we cannot afford to change policies. We consider temporary measures to tax excessive bank revenues, which is feasible. But, unfortunately, this step is temporary and not decisive.

We cannot cut on expenses. You can see that the budget we submitted already contains drastic cuts in capital expenses.

When it comes to other steps, we consider any measures, including excise tax and fight against illegal gambling business and its legalisation. All of it is included in our activity avenues. However, I will tell you frankly that even if we address all these internal issues, this will not let us cover the need for external funding.

- In Ukraine, there are plenty of worries, even among experts, that it might be tough or even impossible to get a certain amount of outside help in the upcoming year. What is the government’s stance on this matter?

- If some experts made an effort to help explain to our partners why this need must be met considering the military budget rather than questioning the Minister of Finance or the government in terms of our needs, I would find it easier to work in the international arena. I will explain it: the military campaign is financed by us exclusively out of taxes and domestic borrowing and makes up half of the budget. This is very hard to implement, but we are trying to do even more than is expected of us to implement this campaign. At the same time, social and humanitarian needs emerge, which we need to meet too.

Furthermore, I am astonished by the viewpoint of certain experts who hold the belief that it is imperative to narrow the need for external funding to reduce our dependence on foreign aid.

The sole viable approach to reducing the dependence on foreign aid in our situation is to increase the GDP over the long term. Therefore, we are discussing the expansion of the domestic market and, consequently, the expansion of the taxable base. However, this is a matter of the long-term perspective, which cannot be resolved instantly.

Another way is to win the war tomorrow and cut expenses on the military budget. But other problems will appear immediately – we will have a gigantic number of war veterans and many pressing unresolved issues. Therefore, it will be impossible to drastically change the dependence on foreign assistance during the year (after the hostilities end – ed.). Minimizing this dependence is a matter of a five- or even ten-year programme.

Frankly, such expert discussions distract lots of attention and effort, including our partners’.

HOW WILL THE GDP GROW?

- The IMF forecasts the growth of Ukrainian GDP this year at 1–3%. You mentioned that you were targeting 4.7%. What are the assumptions behind these expectations, and what are the main factors that influence them?

- We are being guided by the results of nine months since the beginning of the year. The pace of economic activity and economic process recovery is sufficiently positive. This year, we had a good harvest, which improved our prospects. Resolving inflation problems adds considerable positive aspects. In addition, the level of consumption in the country is rather high. At the same time, the rhythmic arrival of foreign aid enables an encouraging perspective by the end of the year.

All these elements, combined with actual budget revenues, suggest that the gross domestic product could reach between 4 and 5% this year. When I am talking about that 4.7% figure, we’re within the bounds of the most recent consensus forecast and revised expectations from the Ministry of Finance. Therefore, this indicator is quite attainable. I will tell you more, the IMF has already stated that it would revise its forecast concerning Ukraine’s macroeconomic prospects in the near future.

- Is it enough to just preserve the pace for Ukraine to achieve the 4.7% figure, or do we need to speed up?

- I believe, with the current pace, this indicator is attainable. Yet, it will be harder to retain it next year. Again, foreign aid plays a major role here. Any modifications in the foreign revenue configuration have a significant impact on the subsequent economic outcomes.

IMF PROGRAMME: IS UKRAINE STILL ON TRACK?

- We are approaching the second evaluation of the IMF’s programme for Ukraine, which is scheduled to occur in late November or early December of this year. Does Ukraine have enough time to meet all deadlines and structural guidelines?

- Yes, this is a priority, and a key one. I am optimistic that the required legislation will be approved during the forthcoming sessions of the Parliament, thereby enabling us to proceed with the revision of the programme with the necessary structural guidelines fulfilled. We are doing our best to meet the obligations of the Ministry of Finance and the National Bank of Ukraine. There are certain inquiries regarding the adoption of the relevant legislation. However, I presume that the implementation will be carried out considering the necessity and significance of this matter.

- By the way, what is the amount of the new tranche that Ukraine expects?

- The amount is fixed; it is nearly $0.9 billion. Based on the results of the two revisions, we expect a total of $5.4 billion next year.

- Is it necessary to complete certain elements of the EFF programme during the current review? Will the Advance Fund be able to allocate another tranche to the country in times of war? Are the rules the same as during peacetime?

- I am not ready to say now that we will be treated lightly if we significantly break our promises and do not do what we are supposed to do. I am uncertain whether they are capable of meeting us halfway, even though we are currently in a state of war.

The international discourse regarding Ukraine is undergoing a certain transformation, and it is imperative to consider this change. Nothing is given for nothing, and nothing is guaranteed. On the sidelines, there are more and more discussions that do not include the issue of Ukraine on the agenda.

UKRAINE’S SUPPORT INFLUENCES THE STABILITY IN THE WORLD

- In this context, how much has the latest escalation in the Middle East distracted the international financial community from Ukraine?

- Certainly, the focus has shifted, and this is obvious. Currently, it can be observed in the columns of prominent newspapers and on television news. We are explaining to our partners and key organizations that putting off aid to Ukraine only encourages the aggressor and leads to the spread of conflicts and wars to the rest of the world. Therefore, Ukraine is the key to solving this problem. If we had received all the assistance we needed in 2022, the present circumstances would have been entirely different.

The aggressor must feel the appropriate resistance and must be punished. A precedent will be created for other conflicts if the aggressor is not punished timely. This is the explanation I give at every meeting and appeal to help us safeguard our sovereign right to defend ourselves and prevail in this war.

FOREIGN DEBT RESTRUCTURISATION

- The EFF programme for Ukraine envisions a gradual restructuring of external borrowings, and specific agreements are expected to be reached in the upcoming year. How is the work progressing in this area?

- We are still on schedule, and we are working on it.

- Can you be more specific?

- There are no details yet, as there is a lot of uncertainty about the future. Second, one of our key tasks is to retain access to capital markets after the programme is completed (IMF – ed.). However, once again, given the degree of uncertainty, it is premature to speculate on the potential arrangements.

We still have time until September 1 of the following year to resolve all of these issues.

REFORMS, TIME, PRIORITY

- Is the issue of reforms in Ukraine a pressing matter in negotiations with international partners? What are the first things they pay attention to?

- This isn’t a fresh idea, it is a classic set of reforms – in the realm of the legal system, fighting corruption, ensuring macro stability, and implementing fiscal measures. The packages are the same, but the question of time is considered, as well as the order in which they should be completed. We are now confronted with the question of priority. We believe that fostering a favourable business environment within the country should be given greater priority. This will provide us with further opportunities for development.

But there are no requirements here. The idea that someone is forcing something on us is wrong.

- Where are obligations and deadlines indicated? How to perceive the memorandum with the IMF?

- The memorandum is an agreed position; it is not forced on us. This is a matter of debate. And we would prefer that this approach of “imposition” be avoided entirely. The motivation of the Government of Ukraine to ensure reforms is what we talk about when speaking of our interests and opportunities. And there are no other wishes here.

Another issue is that sometimes certain reforms take more priority because our partners have a different perspective - and we are willing to discuss it. But this does not mean that we are not prepared to fulfil them.

THE PRIMARY OUTCOME IS THE RESULT FOR THE COUNTRY

- To conclude, you had many meetings in Marrakesh...

- There have been over seventy meetings, and their intensity is unparalleled to that of the meetings held in Washington. Everything that had been planned was accomplished.

- Can you tell me what your biggest accomplishments are and what are you bringing to Ukraine?

- Personally, I have restrained and optimistic expectations following the results of the meetings. Here’s why. Both before and during the negotiations, as well as afterwards, extensive work is carried out. The actual meetings are the culmination, where you can see the emotional state of the parties, which is not something you can feel via Zoom or email correspondence. The importance of personal interaction is immense, as without it, progressing would be a struggle.

As the Minister of Finance, I am particularly interested in how much money Ukraine has in a single treasury account, whether the flow of foreign aid to Ukraine is secured, and whether this aid helps us get through a tough time. This is my main task. The primary objective is to guarantee the outcome, and I am here for this.

Yaroslav Dovhopol, Marrakesh (Morocco)