Ukraine's talks with IMF are 'difficult', prime minister says

By Olena Harmash

(Reuters) - Talks with the International Monetary Fund regarding Ukraine's financing needs are proving difficult, Prime Minister Denys Shmyhal said on Tuesday, despite Ukraine's continued economic growth.

Despite nearly 31 month of fighting since Russia's Feb. 2022 invasion, Kyiv has managed to maintain macroeconomic and financial stability, backed by nearly $100 billion in economic aid from its Western partners.

The IMF's monitoring mission is in Kyiv this week for the fifth review of its $15.6 billion lending program to Ukraine.

Shmyhal said the discussion of financing plans for 2025 had been "difficult" and "complicated", without elaborating on what the stumbling blocks were.

"It is a difficult work, not an easy mission... Talks with the IMF are complicated, there are many challenges. In fact, the mission is looking into 2025," Shmyhal told a news conference.

The IMF and Ukraine's government have been discussing possible tax increases to boost revenues and reduce an expected budget deficit of $35 billion next year - only $20 billion of which is covered.

The government also needs funds to cover about $12.2 billion in defence spending for the remainder of this year.

Until now, Ukraine has been targeting defence spending of about 1.7 trillion hryvnias ($41.5 billion) for 2024. But with fighting intensifying and Kyiv ramping up its mobilisation efforts, more money is needed for ammunition and soldiers' wages.

Shmyhal said the government's main priorities were to provide budget financing for the army, maintain macroeconomic stability and ensure energy resilience during the winter.

Continued cooperation with the IMF was key to ensuring predictable and sustainable financing for Ukraine both this year and next, he added.

Shmyhal said Ukraine's tax revenues were about 75 billion hryvnias above target so far this year. He also reiterated plans to increase borrowing and to raise a "war tax" to be paid by residents and businesses.

Shmyhal said Ukraine's gross domestic product grew by 3.7% in the second quarter of the year.

Official data showed GDP was up by 2.7% in July year-on-year thanks to a good harvest, stable routes for Ukrainian exports, and increased state defence spending.

Inflation picked up to 7.5% year-on-year in August, the statistics service said.

(Reporting by Olena Harmas, Editing by Christina Fincher)