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

The International Monetary Fund mission for the fifth review of the Extended Fund Facility (EFF) program with Ukraine, which was in Kyiv from September 4 to 10, 2024, has concluded its work. 

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. Upon approval, Ukraine will gain access to funding of SDR 834.8 million, equivalent to approximately USD 1.1 billion. 

“Ukraine’s EFF Arrangement with the IMF, continues to provide a strong reliability for the authorities’ economic program in times of exceptionally high uncertainty. Performance under the program has remained strong despite the war, with all quantitative performance criteria for end-June met, as well as the structural benchmark due for this review”, said Gavin Gray, IMF Mission Chief for Ukraine.

The IMF emphasized that the skillful policymaking of Ukrainian authorities, the adaptability of households and firms, and robust external financing has helped support macroeconomic and financial stability. Real GDP grew by 6.5 percent yoy in Q1 2024 and gross international reserves were adequate at USD 42.3 billion as of 1 September.

According to the IMF's forecast, economic growth in Ukraine is expected to slow down in the second half of 2024 due to the impact of russia’s attacks on energy infrastructure and the ongoing effects of the war on the labor market and business expectations. The forecasted real GDP growth for 2024 is 3%, with inflation projected at 9%. Addressing the energy deficit ahead of the winter is critical, requiring coordinated efforts, including with international partners. The IMF forecasts economic growth of 2.5-3.5% for 2025, although the risks to the outlook remain exceptionally high.

The IMF also noted the stability and liquidity of the financial sector and the rapid pace of reforms, despite the challenges of martial law. To preserve financial stability and enhance preparedness for potential shocks, priorities include strengthening the bank rehabilitation framework, contingency planning, and bank governance.

Upside risks to inflation have reduced the scope for further easing through the end of the year, however the monetary policy stance remains appropriate and consistent with achieving the inflation target over the medium term. The exchange rate should continue to function as a shock absorber and adjust to fundamental market factors, contributing to the maintenance of external stability. Appropriate monetary policy combined with the framework of managed exchange rate flexibility should help prevent excessive exchange rate volatility and the de-anchoring of FX and inflation expectations. A prudent and gradual approach to easing FX controls, in line with the approved Strategy, should be maintained and coordinated, while ensuring consistency with the overall policy mix.

Timely and predictable external financial support, on terms consistent with debt sustainability, remains indispensable to for the maintenance of economic stability. At the same time, the 2025 Budget needs to respect financing constraints and debt sustainability objectives. Determined domestic revenue mobilization efforts are also critical.

“We have reached understandings for the next stage of the program on policy settings and reforms to sustain macroeconomic stability as the war continues. Effective coordination between fiscal and monetary authorities remains crucial. Continued prudent governance shall lay a solid foundation for future economic growth,” said NBU Governor Andriy Pyshnyy. “We appreciate the constructive discussions and the friendly atmosphere during our meetings with the IMF team. We are committed to advancing the necessary reforms to implement the program and uphold Ukraine's macrofinancial stability. We have every reason and continue to rely on the IMF's ongoing support for our country.”

During the discussions, the Ukrainian side called on the IMF not to resume cooperation with russia and expressed concern about the IMF's plans to send a mission to russia for consultations under Article IV of the IMF’s Articles of Agreement. Ukrainian authorities emphasized that russia is waging a war of aggression against Ukraine, undermining international principles and rules and increasing geo-fragmentation.  Instead of resuming cooperation with the aggressor country, it is necessary to further deepen its isolation. This is an important prerequisite for Ukraine's victory, which, in turn, is necessary to ensure global macrofinancial stability, as the IMF has repeatedly emphasized.