World Economy

Budget Delay May Affect Ukraine Financial Stability

Budget Delay May Affect Ukraine Financial StabilityBudget Delay May Affect Ukraine Financial Stability

The delay in the adoption of the national budget for 2016 agreed with the International Monetary Fund poses a threat to the economic and financial stability of Ukraine, the National Bank of Ukraine reported on its website.

“Further delay or the adoption of the budget not coordinated with the program goals of the memorandum with the International Monetary Fund could jeopardize the economic and financial stability in our country, which is a prerequisite for the National Bank’s achieving its objective–price stability,” the central bank press service said citing NBU Head Valeriya Gontareva, Interfax reported.

According to the report, such a situation could partially neutralize the positive changes observed in the Ukrainian economy in recent years, in particular, a gradual recovery of production, a slowdown of inflation, improvement in the balance of payments and stabilization in the banking sector.

The report also notes the importance of adopting amendments to the Tax Code, which provide for the improvement of tax administration and reduction of fiscal burden on the economy.

“At the same time, the adoption of the budget, proposed by the ministry of finance and agreed with the EFF program of the IMF, will allow to not only avoid certain risks but also complete the second review of the IMF program. As a result, the flow of money from the fund and related international funding for a total of about $5 billion will recover,” reads a statement.

IMF said on Friday it was concerned by signs Ukraine’s Parliament might reject a proposed tax code and budget for 2016, warning that this could further disrupt its $17.5 billion bailout program, Reuters reported.

Disagreement in parliament over critical tax reforms and the draft budget has held up the disbursement of a third $1.7 billion tranche from the IMF at a time when divisions in the ruling coalition have raised concerns the government could fall.

The government has sought to compromise on its tax proposals with parliament, but the IMF said lawmakers’ discussions on Thursday amounted to an effective rejection of the reforms required under the IMF program.

“Approval of a budget consistent with the program objective of reducing the general government deficit to 3.7% of GDP is a key condition for the completion of the (IMF aid) program,” David Lipton, the IMF’s first deputy director, said in a statement.

“Approval of a budget that deviates from program objectives for 2016 and the medium-term will interrupt the program and inevitably disrupt the associated international financing.”