IMF Proposes Gradual Phaseout of Ukraine’s Energy Subsidies and Higher Tariffs
The IMF has proposed gradually phasing out special obligations for energy companies while raising household electricity and gas tariffs, paired with targeted social assistance. Its two scenarios produce different tariff levels and fiscal savings, with the most ambitious case raising electricity prices to 9.7 hryvnias per kilowatt-hour and gas prices to 22 hryvnias per cubic meter including VAT.
Key points
- Energy subsidies and related fiscal measures cost an estimated 3.7% of Ukraine’s GDP annually in 2024–2026.
- Current household electricity and gas tariffs cover 41% and 49% of respective supply costs, with state energy companies covering much of the difference.
- The IMF proposes reducing special obligations by 20% in the first year, 60% in the second and another 20% in the third.
- Scenario A would raise electricity tariffs to 9.7 hryvnias per kilowatt-hour and gas tariffs to 22 hryvnias per cubic meter including VAT by year three.
- Scenario B would raise electricity tariffs to 6 hryvnias per kilowatt-hour and gas tariffs to 17.2 hryvnias per cubic meter including VAT by year three.
- The IMF estimates full implementation would save 3.2% of GDP under Scenario A and 1.5% under Scenario B.
- Tariff increases should be accompanied by targeted assistance for households unable to pay the full cost of energy.
Why it matters
The proposal could reduce a substantial fiscal burden and improve the transparency of energy-market financing, but it would also materially increase household energy costs. Its feasibility therefore depends on whether targeted assistance can protect vulnerable households. The two IMF scenarios also imply substantially different tariff increases and fiscal savings.
What happened
In a report prepared after an IMF technical mission to Kyiv on June 14–19, 2026, IMF budget-affairs experts proposed two scenarios for gradually replacing special obligations with higher household electricity and gas tariffs and targeted social assistance. Under both scenarios, special obligations would be reduced by 20% in the first year, 60% in the second year and another 20% in the third year.
Scenario A assumes current market conditions persist. By the third year, the electricity tariff would reach 9.7 hryvnias per kilowatt-hour and the gas tariff 22 hryvnias per cubic meter including VAT. Overall increases would amount to 141% for electricity and 104% for gas, while full implementation would save 3.2% of GDP.
Scenario B assumes a return to stable postwar conditions in the medium term and higher supply efficiency, including reconstruction costs. The corresponding tariffs would be 6 hryvnias per kilowatt-hour for electricity and 17.2 hryvnias per cubic meter including VAT for gas. Increases would total 52% and 60%, respectively, and the IMF estimates savings of 1.5% of GDP.
The IMF does not currently recommend introducing separate social tariffs for electricity or gas. It instead urges that tariff increases be accompanied by targeted assistance for people unable to pay the full cost of energy.
Background
Ukraine’s current household electricity tariff is 4.32 hryvnias per kilowatt-hour, after an 83% increase in May 2023 and a 64% increase following the government’s May 31, 2024 decision. Special obligations and analogous measures were estimated to cost 3.7% of GDP annually in 2024–2026, including about 1.8% for electricity subsidies and 1.4% for gas subsidies. Naftogaz and Energoatom cover much of the gap between regulated tariffs and actual costs through their own balance sheets, making fiscal commitments and spending less transparent.
Separate social tariffs would require sophisticated energy-distribution monitoring that Ukraine reportedly does not yet have and would need to comply with the EU’s Third and Fourth Energy Packages. The IMF’s recommendations appear in its October analytical report, “Assessment of Budget Expenditure on Energy Subsidies and Reform Options.”