Political intrigues put under threat Ukraine's chances to receive international financial support in time

In March Ukraine received a record amount of £9 bn from international financial support. In particular, £1,4 bn from the World Bank and £880 mln from the IMF. Both tranches are linked to certain conditionalities which Ukraine was responsible to meet to receive this money.

However, even the fact that the state budget needed international financial support badly, some political and personal interests were very close to ruin the chance of getting help. Especially the case of adoption of the draft law on financial markets which the Head of the National Securities and Stock Market Commission and some Deputies from the Office of the President tried to block. More details in our recent issue of the digest on Ukraine's progress in fulfilling international obligations.

Moreover, we have huge risks for the following financial tranches this year. As of now, the main threat is the adoption of the draft law on restarting the Economic Security Bureau of Ukraine. This step is the benchmark of the Memorandum with the IMF and the conditionality of the Ukraine Plan within the program of the financial support from the European Union "Ukraine Facility". On April 11 the Parliament voted in the first reading the relevant draft law #10439 on the ESBU restart which, however, doesn't meet all crucial requirements from international partners.

The adopted text even after the revision of the Committee on Finance, Tax and Customs Policy doesn't include provisions requested by 16 key business associations, nor it complies with requirements from the IMF and G7.

As of now, starting from tomorrow, MPs have 14 days to submit their amendments to the draft law #10439 for the second reading. We know that MPs Iaroslav Zhelezniak and Anastasiia Radina will submit their amendments which are aimed to comply with the final law on the restart of the ESBU with the requirements of G7 and the Memorandum with the IMF. Moreover, we expect a lot of amendments, particularly from MP Zhelezniak, which will prevent the Parliament from too fast consideration in case all requirements from business and international partners won't be included in the text.

The draft law can't be prepared for the next plenary meeting which will be held on April 24-25 because of procedural restrictions. That's why we expect that the Parliament will consider the draft law in the second reading not earlier than during the plenary meetings on May 8-9. However, the exact day will depend on how fast the Committee will be able to revise all amendments and finalize the text.

We will insist on the whole range of amendments which are necessary to ensure the real restart of the ESBU and meeting all requirements of business and international partners. Among key provisions which have to be added for the second reading are the following:

The selection commission shall submit for appointment only one candidate for the position of Director of the BES.
Strengthen selection procedures of BES personnel by providing in the law stages of the competition and other tools for ensuring transparency and the merit-based nature of the process.
The law should establish the decisive role of independent experts nominated by international partners in the attestation and selection commissions of BES staff.
Provide in the law definition and elements of integrity, as well as the standard of proof (reasonable doubt) in attestation and recruitment procedures.
Alight the labor legislation with the law on BES concerning grounds for dismissal of BES employees due to unsuccessful attestation results.

During the consideration of the draft law the chair of the faction Sluga Narodu David Arakhamiia admitted that the text for the first reading doesn't meet all the necessary provisions. He publicly promised that all the amendments and provisions required within our international agreements will be included in the text for the second reading.

The President signed the draft law on financial markets, after a conflict of interest of the NSSMC's head was removed. On 22 March the President signed the draft law #5865 on strengthening the independence and institutional capacity of the National Securities and Stock Market Commission (NSSMC). The draft law was waiting in the OP for almost four weeks despite the fact that the draft law #5865 was one of the conditionalities for Ukraine to receive £1,5 bn from the World Bank guaranteed by Japan.

The reason of the delay we covered in Issue 46. The Head of the NSSMC Ruslan Magomedov signed a letter in which he asked to veto the draft law #5865 as it doesn't include the provisions of increasing salaries and creates a conflict of interest for Mr. Magomedov himself by banning a person to work in the NSSMC if he/she has a relative related to the professional market players.

The draft law #5865 was unblocked last week as the Verkhovna Rada adopted the draft law #9667-1 which isn't related to the financial markets, but includes an amendment which removes the conflict of interest of the NSSMC's head. The relevant amendments in other draft laws as well as the amendments on raising salaries for the NSSMC's members haven't passed. Business associations appealed to the President and other authorities to ensure crucial reforms in Ukraine.

Twenty-one Ukrainian business associations, including IT-Ukraine Association, CEO Club, Ukrainian Business Council, Chamber of Commerce and others, made a public appeal to the President, the Cabinet of Ministers and the Verkhovna Rada with a demand to ensure the crucial steps for business. The list of requirements from business includes three institutional reforms, in particular the restart of the Economic Security Bureau of Ukraine (with the competition selection of the Director with a decisive vote of the international representatives in the competition commission and recertification of staff within one year after this) and the restart of the State Customs Service (to update the draft law #6490d). These draft laws are among conditionalities of Ukraine's financial programs with the IMF and the European Union (Ukraine Facility).

The President signed the draft law on ethical lobbying. On 2 March the President the draft law #10337 on ethical lobbying submitted by the Cabinet of Ministers. It's one of Ukraine's obligation within the EU integration process.

The law comes into force in two months after the National Agency on Corruption Prevention (NACP) launches a public register, but no later than 01 January 2025. Moreover, the Verkhovna Rada will consider in the second reading the draft law #10373 on administrative responsibility for violations under the lobbying law during the plenary meetings on 20-21 March. Moreover, on 21 March the Verkhovna Rada adopted in the second reading the draft law #10373 on administrative responsibility for violations under the lobbying law.

The Cabinet of Ministers approved the draft law on increasing a fuel excise duty. The Cabinet of Ministers has approved a draft law that will gradually increase fuel excise rates till the year 2028. For example, the excise on gasoline for cars will be increased from 213,5 euros per 1000 liters to 359 euros per 1000 liters.

The draft law will be submitted to the Parliament any time soon. ARMA started to sell seized assets via Prozorro.Sale. The first online auction took place on March 6.

The first seized asset put up for electronic auction was 1.2 thousand tons of wheat grain. Earlier this year the CMU adopted the resolution which obliged the Asset Recovery and Management Agency (ARMA) to sell seized assets under its management via online auctions in the Prozorro.Sale system. It is aimed to enable non-transparent sales as it was, particularly, when seized Russian ammonia (42 thousand tons) and Belarusian potassium (1200 tons) were sold below market value using non-transparent platform.

The state budget then lost about 50 million hryvnas, according to the Parliamentary Temporary Investigative Commission's evaluation. The President signed the draft law which should cancel a tax evasion scheme on tobacco market Last week the President signed the draft law #9662 with the amendments to the Tax Code regarding the digitalization of the tax services in Ukraine.

Among other provisions the draft law should stop a tax evasion scheme on illegal tobacco market regarding an exaggeration of raw material losses in tobacco production. Moreover, on 15 March the Cabinet of Ministers approved the draft law on a slight increase in excise duties on tobacco products and transition from rates in hryvna to euro from July 1, 2024. We expect the draft law to be submitted to the Verkhovna Rada any time soon.

According to the State Tax Service statistics, the volume of retail sales of cigarettes in 11 regions has fallen 8,11 million hryvnas in February 2024. It indicates that the illegal tobacco market in Ukraine is growing, although it has already hit the record high of 23% according to the recent Kantar Group research. From April to August 2023 the volume of legal retail sales of cigarettes increased monthly, with the aggregate demand remained unchanged.

However, since September 2023 there has been a sharp reduction in legal retail sales of cigarettes. Experts link such trend with the inaction of law enforcement, particularly the Economic Security Bureau, which don't investigate and close illegal tobacco producers although the Parliamentary Temporary Investigative Commission on Economic Security reported all found evidence.

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