These policies contributed to a fall in budget revenues (in March 2022, the authorities only managed to collect 36.7% of the monthly planned tax) and a growing deficit. In the first weeks of the conflict, the government cut taxes substantially, reducing the income tax rate from 18% to 2%, abolishing VAT and customs duties on imports, and removing duties on fuel. Despite the panic and risk that the state may collapse, the Ukrainian government was able to take contrarian but important steps to stabilise the economy. But it was at this point that one of Ukraine's greatest strengths emerged. The first months of the war were a real stress test for the state machine and wider society. Despite a pre-war image of being a corrupt and institutionally weak country with a serious lack of state capacity, Ukraine has demonstrated its ability to cope with even the most difficult of challenges. In other words, the objective is to achieve all the structural changes that other European countries have been going through for years in a short period of time. Ukrainian policy-makers should emphasise labour productivity growth – and use the aftermath of the war as a chance to modernise the economy and state apparatus, including implementing low-carbon production, improving the energy intensity of the economy, and using advances in information technologies and fintech to improve government services. With the right planning, Ukraine can shift its focus, turning disadvantages into opportunities. The good news is that Ukraine is capable of recovering. These problems will require creativity from the country’s leaders. Source: International Monetary Fund (IMF)
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