Staff Level Agreement with IMF Reached on Fourth Review of Extended Fund Facility Arrangement

The mission of the International Monetary Fund, which worked in Warsaw from 27 to 31 May 2024, has completed their work regarding the fourth review of the Extended Fund Facility (EFF) Arrangement for Ukraine.

The IMF team and the Ukrainian authorities have reached staff-level agreement (SLA). The agreement is subject to approval by the IMF Executive Board, with Board consideration expected in the coming weeks. After that, Ukraine would have access to SDR 1,669.82 million (about USD 2.2 billion).

Understandings were also reached on an updated set of economic and financial policies to sustain macroeconomic stability and advance forthcoming economic reforms.

"Ukraine’s four-year EFF Arrangement with the IMF, which forms part of a USD 122 billion international support package, continues to provide a strong anchor for the authorities’ economic program in times of exceptionally high uncertainty. Performance under the program has remained strong despite the challenges of the war, with all quantitative performance criteria met, and one structural benchmark met and another implemented with a short delay,"  IMF Mission Chief for Ukraine Gavin Gray said in his statement.

IMF staff praised skillful policymaking of the Ukrainian authorities and the adaptability of households and firms, which together with sizable external financing, helped maintain macroeconomic and financial stability. This is showcased by the better-than-expected GDP growth in 2023 and robust economic activity in Q1 2024, as disinflation has continued and foreign exchange reserves remained adequate. However, downside risks are high and rising as the war continues. The IMF expects the economic activity to slow in the second half of 2024, reflecting the large-scale russia’s attacks on the energy sector of Ukraine, and inflation to pick up moderately.

The financial sector remains stable and liquid, with reforms continuing apace despite the war. Priorities ahead include strengthening bank resolution, supervision, credit, and capital market infrastructure. Considerable focus will be placed on increasing financial inclusion, especially in the liberated territories and in regions close to ongoing hostilities. Its low level is hampering economic activity; so, the NBU will focus on diagnostic work involving IMF and World Bank staff to develop an appropriate policy response.

With well-anchored inflation expectations and attractive hryvnia instruments, the NBU will be able to press forward with the monetary policy easing. For its part, a flexible exchange rate acting as an internal and external shock absorber for the economy and the foreign exchange market will thereby help safeguard their resilience. A further judicious and staged approach to liberalizing FX controls in line with the Strategy should support the economic recovery without posing risks to macrofinancial stability.

The IMF has pointed that fiscal financing needs remain very high in 2024. The budget needs to be executed consistent with financing constraints and the need to restore fiscal and debt sustainability. To ensure fiscal sustainability, Ukraine needs to accelerate the implementation of the tax policy and revenue administration reforms envisioned under the National Revenue Strategy. A near-term priorities are strengthening tax and customs administration and building public trust through anti-corruption reforms and measures to adequately protect personal taxpayer information.

"After a challenging period of liquidity strains earlier in the year due to external financing delays, external budget support for 2024 resumed and should continue to be disbursed on a timely basis to help maintain economic stability," Gavin Gray said.

IMF staff also noted that authorities were making progress toward a commercial external debt restructuring on terms consistent with the program, which is essential to create space for high priority expenditures and to help bring debt back to sustainable levels. At the same time, the 2025 Budget will require measures to advance domestic revenue mobilization, given still-elevated spending needs.

"Today we have reached a certain historic milestone in our cooperation with the IMF. The Board's approval of the fourth review will make the EFF the most effective program for Ukraine among all IMF programs at this stage. For the first time, our country will have undergone so many successful reviews under one program. This significant progress is a joint achievement of Ukraine and the IMF," said NBU Governor Andriy Pyshnyy.