The mission of the International Monetary Fund regarding the fourth review of the Extended Fund Facility (EFF) program with Ukraine, which worked in Warsaw from May 27 to 31, 2024, has completed its work.
The representatives of the IMF and the Ukrainian authorities reached an agreement at the staff level (Staff-Level Agreement, SLA). The relevant agreement must be approved by the IMF Board of Directors, which will consider it in the coming weeks. After that, Ukraine will have access to financing in the amount of SDR 1,669.82 million (about USD 2.2 billion equivalent).
Agreements were also reached on an updated set of economic and financial policy measures aimed at supporting macroeconomic stability and promoting economic reforms to be implemented in the future.
“EFF’s four-year agreement with the IMF, which is part of a package of international support in the amount of 122 billion dollars. The US continues to be a strong anchor for the government’s economic agenda in times of extremely high uncertainty. Despite the challenges of the war, the program’s performance indicators remain high: all quantitative performance criteria were achieved and one structural beacon was completed on time, while the other was completed slightly late,” said Gavin Gray, head of the IMF mission to Ukraine, in a statement.
IMF specialists noted the skillful policy of the Ukrainian authorities, the adaptability of households and companies, which, together with significant external financing, made it possible to maintain macroeconomic and financial stability. This is evidenced by stronger-than-expected GDP growth in 2023 and sustained economic activity in the 1st quarter of 2024 against the background of ongoing disinflation and a sufficient level of international reserves. At the same time, the risks of worsening the situation remain high as the war continues. The IMF expects that in the second half of 2024, the recovery of economic activity will slow down due to Russia’s large-scale attacks on Ukraine’s energy sector, and inflation will rise moderately.
The financial sector remains stable and liquid, and the pace of reform is significant despite the war. Future priorities include: strengthening banking regulation, supervision, lending and capital markets infrastructure. Considerable attention will be paid to increasing the level of financial inclusion, especially in de-occupied territories and in regions close to active hostilities. Its low level is a restraining factor for economic activity, so the National Bank will focus on diagnostic work with the involvement of experts from the IMF and the World Bank in order to develop effective measures.
Provided stable inflation expectations and the attractiveness of hryvnia instruments are maintained, the National Bank will be able to continue easing monetary policy. At the same time, a flexible exchange rate as a means of adapting the economy and currency market to internal and external shocks will contribute to maintaining their stability. Further balanced and gradual easing of currency restrictions in accordance with Strategies should support economic recovery without creating risks for macro-financial stability.
The IMF noted that budget financing needs in 2024 remain very high. The implementation of the budget must take into account financial constraints and the need to restore fiscal and debt sustainability. In order to ensure fiscal sustainability, Ukraine needs to accelerate the implementation of tax reforms and revenue administration provided for in the National Revenue Strategy. The priorities for the near term are strengthening of tax and customs administration, as well as strengthening of public trust through anti-corruption reforms and measures to properly protect taxpayers’ personal data.
“After a difficult period of liquidity deficit at the beginning of the year caused by delays in external financing, international budget support for 2024 has recovered. In the future, it should be provided on time to enable Ukraine to maintain economic stability,” Gavin Gray said.
The IMF experts also noted the progress of the Ukrainian authorities in the restructuring of the commercial external debt under the conditions stipulated by the program. It is important to create space for priority spending and bring the debt back to acceptable levels. At the same time, the 2025 budget will require domestic revenue mobilization measures, given the still high expenditure needs.
“Today we approached a certain historical milestone in cooperation with the IMF. The Council’s approval of the fourth review will make the EFF the most productive program for Ukraine among all programs with the Fund at this stage. For the first time, our country will pass such a number of successful viewings under one program. This significant progress is a joint result of Ukraine and the IMF,” said NBU Chairman Andriy Pishniy.
For reference
On March 31, 2023, the Board of Executive Directors of the International Monetary Fund approved a four-year extended financing program for Ukraine. The program is implemented in two stages (war and post-war) and provides access to credit funds from the IMF in the amount of SDR 11.6 billion (equivalent to USD 15.6 billion).
Tranches under the program are provided based on the results of the views. In 2023, Ukraine received three tranches from the IMF for a total amount of SDR 3.3 billion (USD 4.5 billion). This year, Ukraine has already received one tranche from the IMF in the amount of SDR 663.9 million (about USD 880 million equivalent). And in general, in 2024, the government will be able to receive four tranches from the IMF with a total volume of SDR 4 billion (USD 5.4 billion equivalent).
