Week's balance: IMF mission arrives in Kyiv, Rada restarts its work, and Fiscal Service sees top reshuffle

After a long summer vacation, legislators returned to work and adopted a number of important laws; representatives of the IMF, the country's key creditor, flew to Kyiv to negotiate a new bailout tranche; while the State Fiscal Service saw its chief being replaced – these are the main economic news of the outgoing week.

The outgoing week revived the economic life after a long summer lull - parliamentarians returned from their summer holidays and started their fall session. At the opening meeting, Prime Minister Volodymyr Groysman urged the people's deputies, despite the upcoming elections, to demonstrate their ability to make responsible decisions. He also said that Ukraine should, in the medium term, get rid of the burden of external debts, which significantly limit the development of the domestic economy and hinder the rise of living standards.

Cheered up by the PM, the deputies showed some good results in their first working week. One of the most important decisions was the voting for the legislative introduction of the "single window" mechanism at the customs, taking into account the proposals of President Petro Poroshenko. The adoption of the law was positively evaluated in business circles. The European Business Association believes that the innovations will make customs clearance formalities faster as well as decrease the number of controlling agencies. According to the EBA Executive Director, Anna Derevyanko, the law will also help overcome corruption schemes at customs.

Incidentally, in early July, the Rada has already passed this law, but the head of state later vetoed it, having submitted his own proposals. Introducing amendments to the law, the president's envoy in the Rada, Iryna Lutsenko, noted that it is proposed to remove the norm on reimbursing to agricultural producers 30% of the cost of special railcars for grain transportation. Poroshenko's main claim is that this does not ensure the achievement of social goals of supporting agricultural producers, since only large enterprises will be able to claim support. "The majority of agricultural producers are farmers – that is, 75% of the total number of agricultural enterprises. The volume of crop production is 11%. Therefore, the volume of crop production does not require the purchase by most Ukrainian farms of special rail cars for the transportation of grain," Lutsenko explained.

Another important decision was the exclusion of the export of chopped wood from the moratorium on the export of timber. The deputies supported the president's proposal to introduce protective measures with regard to roundwood exports for the sake of forest conservation. Thus, moving unprocessed timber across the border beyond customs control will entail imprisonment of three to five years. At the same time, illegal logging will put violators in jail for up to three years. The new legislation has increased chances for further cooperation with the IMF. After all, one of the requirements of Ukraine's creditor was to abolish the moratorium on chopped wood exports.

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Also, the Rada abolished the state regulation of the sugar industry. According to the deputy head of the Committee on Agrarian Policy, Hryhoriy Zabolotny, the existing regulation created absurd situations. "The established minimum price for the sale of sugar beet before September 1 amounted to UAH 11.2, while today the selling price on the market is UAH 10.5, i.e. producers cannot sell products because there is a Cabinet of Ministers resolution that prohibits selling at a lower price. This is nonsense," he said.

A positive news for the "green" energy sector was the decision of the Verkhovna Rada to simplify the procedures necessary for investors in the construction of renewable energy facilities. This should increase the investment attractiveness of the construction of facilities in the field of wind power and solar generation.

The Verkhovna Rada adopted a law on cross-border cooperation, which is designed to improve the effectiveness of joint projects with the European Union member states to improve border infrastructure.

In addition, the Rada ratified a number of significant agreements on economic cooperation with Thailand and Turkey. The documents foresee the development of contacts between businesses, setting up joint ventures and representative offices of companies in the territories of the two countries, as well as the  work of the Joint Commissions on Trade.

"Bunch of problems"

In the first week of autumn, the Cabinet was also active. On Wednesday, Prime Minister Groysman announced the start in October of an active fight against shadow employment. According to him, it is planned within a month to inform employers of penalties envisaged for hiring employees without officially registering them.

"In a month, in October, we will begin to implement all the norms that are provided to us by law in order to protect the rights of workers and restore social justice. Nobody has given anyone the right to leave people without pension through their irresponsibility," the prime minister said.

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Groysman said that both unregistered employees and employers who abide by law report to the government about the existing problem.

This week, the government also took up the implementation of new state construction codes. "We have done a tremendous job with associations, with architects, to create normal quality conditions and construction norms in the state. We want to create a comfortable environment in cities, towns, communities, so that those who design buildings and structures do it the way it is done in civilized countries," Groysman said.

At the same time, he said about resistance to reforms combating shadow schemes: "We're facing a bunch of problems. Now it's about this construction business that simply destroys Ukrainian cities and communities, and doesn't allow people living a normal life within their territories of influence. This is another fight with the clans. When we started to fight smuggling, a contraband machine rose against us. I just don't get it… When we started to fight with the roundwood [smuggling], there rose the 'loggers.' When we started publishing textbooks, we saw the blocking, too," the head of government said.

Meanwhile, the government has not forgotten about the issues of the road industry. By its decision, the Cabinet redistributed funds for the construction and reconstruction of highways of national importance. This step is due to the lack of design documentation for road repairs in some areas. The decrease in expenditures is envisaged in Volyn, Zhytomyr, Ivano-Frankivsk, Kyiv, Mykolayiv, and Chernivtsi regions. Cost increase will be in Vinnitsia, Dnipropetrovsk, Kirovohrad, Odesa, Poltava, Khmelnytsky, and Cherkasy regions.

IMF mission arrives in Kyiv

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The long-awaited news came last week as the mission of Ukraine's key creditor, the International Monetary Fund, started its work in Kyiv. According to the statement by the IMF permanent representative in Ukraine, Gosta Ljungman, the mission will work in Kyiv until September 19 to discuss the next steps of cooperation, including financial assistance.

The importance of this news is difficult to overestimate. After all, the situation in the economy remains troubled: the hryvnia continues to tremble, the state budget deficit is growing (according to the State Treasury it reached UAH 13.4 billion), and international reserves in August fell to $17 billion. And this is not to mention the forthcoming external debt payments that will cost billions. In addition, the current program of cooperation between Ukraine and the IMF worth $17.5 billion, of which Ukraine received $8.7 billion, ends in the spring of 2019. Therefore, the stability of the country's economy depends on the successful completion of the current IMF mission's visit. Receipt of the Fund's bailout tranche and related financing from other partners will contribute to strengthening financial stability in Ukraine, and will also send a positive signal to market players.

The National Bank believes that there are no threats to negotiations, and that Ukraine will receive the next tranche before year-end.

"We expect that the negotiations will be successful and that we will reach a consensus on receiving the next tranche this year," NBU Governor Yakiv Smolii said. He also said that the forecast for the growth of Ukraine's international reserves by the end of the year could be revised upward.

"Today, we retain the forecast, published two months ago. Our reserves will amount to $20.7 bln at the end of this year. The next forecast will be published in late October. Perhaps, we will correct it, taking into account the interventions held and the possible receipt of financing," Smolii said.

Meanwhile, there are some grounds for fears of IMF cooperation freeze. According to some economists, further receipt of tranches from the Fund is possible only after an increase in the price of gas for the population. But the government is constantly postponing this historic decision. However, in the outgoing week Groysman called such price rise "inevitable," and promised to conclude the discussion on the issue before the end of September.

"My task, with the inevitability of price changes, is to work out all mechanisms for additional social aid to protect people," the prime minister said.

"The forecast has not changed: we expect growth in gas tariffs by about 25% this year and 15% next year," deputy head of the NBU, Dmytro Solohub, told reporters.

Fiscal service at cross-roads

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In the outgoing week, acting head of the State Fiscal Service, Myroslav Prodan, resigned. As Acting Finance Minister Oksana Markarova said, the decision was made in connection with the start of preparations for a competition to fill the vacant position of the SFS head.

"In order to avoid a conflict of interest, acting head Myroslav Prodan decided to resign. The government backed this decision, and for the period before the contest, Oleksandr Vlasov, who headed the "Phantom" unit of the State Fiscal Service, will be in charge," she said.

However, there are real doubts on whether Prodan will be able to win a competition for the position of head of the SFS. The fact is that earlier, Prosecutor General Yuriy Lutsenko accused the official of law vioaltions.

"Somewhere at the beginning of this year we received a report about possible violations by Mr. Prodan, that are not related to his former position in Vinnytsia region. They are related to his current activities," Lutsenko said.

According to him, the PGO has sufficient materials, but the investigation must provide the evidence base. "If the investigation provides the necessary evidence, the case will be forwarded to the body, which must implement it. At the moment, an investigation is under way, I'm not hiding this," said the Prosecutor General.

Prodan tried to respond the the Prosecutor General's accusations. He suspended the head of the Odesa Customs Oleksandr Vlasov pending the official investigation of the theft of 37 containers with cloth and other goods. At the same time, Prodan said that he has grounds to assert complicity in this crime of the PGO operatives. Prodan noted that the information announced by Yuriy Lutsenko at the end of August on the detection in warehouses of 37 containers of unaccounted goods requires further clarification. He asked the leadership of the Prosecutor General's Office to provide information on offenses. "I appeal to the Prosecutor General's Office with a request. You have been blackmailing me, my relatives, my contacts for two months already, claiming that you have something on me. If you've got anything, put it forward," Prodan said.

The next week promises to be no less interesting. The government should complete its work on the draft budget for 2019 and submit it to the Parliament for consideration; time inexorably pushes the Groysman Cabinet to cross the Rubicon in the long-delayed issue of gas tariffs for the population; while the State Statistics Service will publish data on foreign trade for eight months of 2018.

Oleksandr Kunytsky

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