IMF long-term advice to Ukraine is to gradually raise utility tariffs to cost-recovery levels

The International Monetary Fund (IMF)'s long-term advise to Ukraine is to gradually find ways to raise utility tariffs to the cost-recovery level, while ensuring adequate and well-targeted support to protect vulnerable households.

The Director of the International Monetary Fund, Kristalina Georgieva, called on Ukraine to continue its reform trajectory, which includes the abolition of subsidies for heating and electricity to strengthen its economy, using the metaphor of a lion to signal Ukraine's potential as a strong economic player in the future.

She voiced her recommendations during a discussion of the project "Ukraine: on the Front Lines of the Future" at the World Economic Forum in Davos. A spokesperson later told Ukranews that the IMF realizes that, in the current circumstances, the authorities are appropriately focused on addressing damaged energy infrastructure.

Georgieva noted that the Ukrainian authorities carried out a number of reforms and achieved better results during the war than before the full-scale invasion. But in order to become the economic lion of Europe, subsidies should be abandoned.

The Managing Director was referring to the need for reforms in the future to gradually increase gas, electricity, and heating tariffs for households to cost-recovery levels, while ensuring adequate and well-targeted support to protect vulnerable households.

"Electricity, heating are still subsidized... We know why the country does this, but we need to get rid of this. There is still something to work on from the point of view of the fiscal situation. Now we are considering how to make the distribution of the tax burden fairer. It's not easy, but it needs to be done," Georgieva said.

The IMF managing director also stressed the importance of reviewing the tax system and removing barriers to the private sector. In her opinion, a strategic step for Ukraine is to accelerate its accession to the European Union, which will be an incentive to attract investment and strengthen the economy.

In addition, Georgieva stressed the importance of self-confidence and trust in one's own strengths and called on Ukrainians to believe in themselves like lions.

"Get up in the morning and roar," the IMF managing director joked.

She said that she visited the power plant and was amazed at how Ukrainians restored electricity supply: after the strike on the facility, they restored power to 75% of consumers in just 14 hours, without complaining, but working with all their dedication.

"My impression of Kyiv is simple and honest: cold, dark, much harder than in 2023, but the city is functioning. The streets are clean, the traffic lights are working, people are doing their daily work. They don't complain or whine - and that's impressive," Georgieva said.

Recall that Ukraine is preparing to introduce VAT for individual entrepreneurs with income of over UAH 1 million as part of a new program with the International Monetary Fund.

Previously, the International Monetary Fund announced a staff-level agreement on a four-year program worth about USD 8.1 billion.