The Ministry of Finance of Ukraine published the Memorandum on the conditions for receiving EU macro-financial assistance in 2023

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The memorandum of understanding, signed by Ukraine and the EU on January 16, contains 20 points in four blocks, the progress of which will depend on the allocation of the second and next tranche of expanded EU macro-financial assistance of $18 billion.

Document on Friday published by the Ministry of Finance of Ukraine.

“Support within the framework of the instrument is provided on the condition that the state authorities of the country undertake to gradually cancel the temporary emergency measures in the field of economic and financial policy, which were introduced during the war, at the appropriate time and in the appropriate sequence”, – it is also stated in the document.

According to it, it is particularly concerned with monetary policy and exchange rate system, regulation of the financial sector, management of state-owned enterprises, free movement of capital, as well as taxation regimes, excise duty and trade regimes.

“The state authorities of the country (Ukraine) also undertake, after the abolition of martial law, to restore the created institutes of economic and financial policy in their pre-war powers,” the memorandum emphasizes.

According to it, before the European Commission allocates the second and each subsequent tranche, Ukraine must provide a statement on the fulfillment of the stipulated conditions, and the European Commission must verify it on the basis of consultations with Ukrainian authorities and, where possible, with competent international organizations.

“The security situation and its impact on the country during each assessment, including relevant regional differences, must be duly taken into account by the commission,” the document also states.

According to it, Ukraine will have the opportunity to submit a request for an interest rate subsidy every year until the end of February of the previous year, which can be granted subject to political preconditions.

In addition, the European Commission may revise this memorandum in the middle of the period, taking into account the development of Russia’s military aggression and its consequences for the financial needs of Ukraine.

Macro-financial assistance in the form of a loan with a term of up to 35 years with a grace period of 10 years consists of the first tranche of EUR3 billion and subsequent tranches, which can be paid in installments of about EUR4.5 billion per quarter.

The appendix to the memorandum contains 20 points, which are divided into four blocks: “Rule of law”, “Energy”, “Structural reforms and effective governance” and “Macro-financial stability”.

The section “Rule of Law” contains the most points – seven. In particular, it is about the selection in the first quarter and the appointment in the second quarter of the new head of NABU, the restoration with a term in the third quarter of the High Council of Justice and the High Qualification Commission of Judges taking into account the work of the Ethics Council, as well as further strengthening by the end of the year of the potential of the Specialized Anti-Corruption Prosecutor’s Office (SAP) .

In addition, the task of improving the procedure for the selection of judges and secondary legislation in the field of anti-money laundering, in particular regarding beneficial ownership, the development and adoption of a comprehensive strategic plan for reforming the entire law enforcement sector, and the criminalization of large-scale smuggling of all goods is set.

In the section “Structural reforms and effective governance”, there are five points, in particular, the promotion of customs administration reform with gradual improvement over the year of IT systems, personnel management and anti-corruption measures, improvement of the process of selecting independent members of supervisory boards and boards for the largest state-owned enterprises, and bringing legislation into compliance with the requirements of the law “On Administrative Procedure”, which was adopted in February of last year and will enter into force in December of this year.

In the same block, the Action Plan for deregulation and improvement of the business climate is expected in February, the improvement of the electronic construction portal and other similar regulations by April, up to the digitization of the issuance of licenses by the end of the year, as well as the gradual bringing of the public procurement system into compliance with EU legislation and preservation of the central role in procurement for health care of SE “Medical Procurement of Ukraine”.

The other two blocks have four points each. In the part of energy, it is about strengthening the legal and administrative framework for the use of high energy efficiency standards, preparation in the second quarter of the Action Plan for the restoration of the energy infrastructure destroyed by Russia with reference to the goals of the green transition and progress by the end of the year in the implementation of the road map for the integration of the e/e market with European

Another point is regarding improving the work of the gas sector by electing the Supervisory Board of Naftogaz of Ukraine and certifying the gas storage operator in the first quarter and launching in the second quarter the corporate restructuring of the Operator of the Gas Transport System of Ukraine in accordance with the agreed target model.

Finally, in the “Macro-Financial Stability” section, a roadmap echoes the Memorandum with the IMF for the phasing out of temporary emergency tax measures in the first half of the year and measures to support the stability of the banking system. Two other items with a deadline in the third quarter relate to the improvement of the bankruptcy procedure, in particular with the possibility of writing off the debts of individuals, as in the EU, and the strengthening of the insurance market with verification by the National Bank of Ukraine of the ownership structures of insurers and their compliance with prudential requirements.

The memorandum also provides for reporting on the use of funds and monitoring of the macroeconomic and fiscal situation and structural policies.

As reported, on January 17, the European Commission allocated the first tranche of EUR3 billion to Ukraine.

The monthly need to finance the deficit of the state budget in 2022, according to the Ministry of Finance and the government, was about $5 billion, but only in December this amount was fully raised from external sources, while in the remaining months the National Bank had to cover the shortfall in the form of the purchase of OVDP – for the total the amount of UAH 400 billion per year.

This year, the government plans to reduce the state budget deficit to $3-4 billion per month (a total of $38 billion per year), counting on funding from the US, the IMF and the EU, as well as to attract $17 billion for emergency recovery.

According to the Ministry of Finance, the total amount of EU macro-financial assistance received since the beginning of the war reached EUR 10.96 billion. Another $626 million was allocated in the form of grants.

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