IMF Questions Ukraine’s Additional Spending as New Loan Talks Begin

The International Monetary Fund is raising concerns about several Ukrainian budget measures as negotiations begin on a new four-year loan package, people familiar with the matter told Bloomberg.

Among the IMF’s worries are tax breaks for the processing industry and for self-employed entrepreneurs. The Fund argues that such exemptions could weaken Ukraine’s fragile fiscal position as the war with Russia extends into its fourth year, Bloomberg sources said.

The IMF also questioned a proposal to grant Ukrainians free rail travel for distances of up to 3,000 kilometers (1,864 miles), a measure intended to support state-owned railway company Ukrzaliznytsia (Ukrainian railway). The Fund warned that the plan could weigh on the budget and strain the economy, according to Bloomberg sources. 

Now, Ukraine is seeking a second IMF loan since the financing that was first planned for the scenario when the hostilities ended in 2026, but Russia extended the full-scale invasion of Ukraine into its fourth year and shows no sign of ending it. 

The size of a new IMF loan has not been formally discussed, but early estimates put it at about $8 billion, Bloomberg wrote in September. 

The IMF has supported Ukraine by way of a four-year Extended Fund Facility program approved in March 2023, worth around $15.6 billion. This is the first IMF program in history granted to a country involved in an active war. The IMF changed its rules to allow lending to countries facing “exceptionally high uncertainty,” its March 2023 press release says.

Other Topics of Interest

Zelensky Thanks Starmer for Ukraine Support After UK PM Announces Resignation

Zelensky thanked Keir Starmer for his support of Ukraine after the UK prime minister announced his departure, opening a leadership transition in London.

In August, the Fund sent a letter to Ukraineʼs parliamentary finance committee head Danylo Hetmantsev raising concerns over draft tax legislation. Prime Minister Yuliia Svyrydenko later told IMF representatives that the bills in question were not yet finalized, the media outletʼs source said.

The IMF told Bloomberg News that the new program will aim to maintain macroeconomic stability, boost domestic revenues, ensure debt sustainability, and preserve external balance. It also plans to promote governance and anti-corruption reforms to support growth.

The Fund is urging Kyiv to end preferential pricing for consumers and move toward a liberalized gas market. Russia’s recent attacks have wiped out nearly 60% of Ukraine’s gas production, Bloomberg wrote.

The IMF wants Ukraine to reduce its shadow economy, which it estimates at more than 30% of total output. The Fund has pressed for the removal of tax exemptions often used by self-employed businesses.

Ukraine seeks financial support from international partners as Russia intensifies its attacks

Ukraine’s economy remains under pressure as Russian attacks intensify, targeting energy infrastructure and causing widespread power outages. To ease hardship, the government has advanced several support measures, including the rail-travel plan for Ukrzaliznytsia now under IMF scrutiny.

Apart from IMF support, Ukraine is seeking a €140 billion ($162 billion) reparation loan from the European Union, to be fully backed by frozen Russian assets.

However, EU leaders failed to approve the plan after Belgium refused to endorse it, citing concerns over possible legal and financial retaliation from Moscow. Most of the frozen funds are held by Euroclear, a Brussels-based clearing house.

Talks between the European Commission and the Belgian government on Friday also ended without progress, leaving uncertainty over the future of Ukraine’s financial support.

The International Monetary Fund (IMF) urged caution on the EU’s planned reparations loan for Ukraine, warning of “any implications for the international monetary system.”

Svyrydenko denied the claim and told reporters that the IMF’s potential new program would proceed independently of the EU’s planned reparations loan, Interfax Ukraine reported on Monday.

“There is no reason to panic,” Svyrydenko said. “We are coordinating all financing mechanisms, and our partners have confirmed their support for Ukraine.”

Previously, Finance Minister Serhiy Marchenko told Ukraine’s lawmakers that for 2026, the identified need for external financing currently amounts to $18.1 billion, based on an estimated average US dollar annual exchange rate of Hr. 45.7.

The estimate differs from the central bank’s figure of an “unidentified” gap of $12.7 billion for Ukraine’s needs in 2026. Ukraine’s central bank does not publish its forecast on the exchange rate.

Ukraine spends around 60% of its budget on the war effort against Russia and depends heavily on Western allies to cover pensions, public sector wages, and humanitarian programs.