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

The mission of the International Monetary Fund (IMF) that conducted the sixth review of the Extended Fund Facility (EFF) program with Ukraine in Kyiv during 11-18 November 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. This will unlock for Ukraine access to about SDR 834.9 million (USD 1.1 billion), bringing total disbursements under the program to USD 9.8 billion.

“Ukraine’s four-year EFF Arrangement with the IMF continues to provide a strong anchor for the authorities’ economic program in times of exceptionally high uncertainty. Program performance remains strong thanks to the authorities’ prudent policies with all quantitative performance criteria for end-September met, as well as the structural benchmarks due for this review," said Gavin Gray, IMF Mission Chief for Ukraine, in his statement.

The IMF emphasizes that Ukraine's economy remains resilient despite the devastating impacts of the full-scale war, now ongoing for 1,000 days. According to the IMF's forecast, real GDP growth in 2024 is expected to reach 4%. The IMF expects economic recovery to slow to 2.5-3.5% next year due to damage to energy infrastructure and labor shortages caused by the war. However, risks remain exceptionally high given uncertainty on the intensity and duration of the war, including from the continued russia’s attacks on energy infrastructure.

The IMF also noted that, given the upside risks to inflation, the pause in the easing cycle remains appropriate. In the event that price pressures continue to rise above the forecast and threaten to unanchor inflation expectations, the tightening of the policies may be warranted. On the other hand, policy easing may become feasible again as inflationary pressures subside.

The exchange rate should continue to serve as a shock absorber and adjust to market fundamentals, while international reserves must be maintained at an adequate level, considering existing risks. The NBU should continue judicious and staged approach to FX liberalization, supported by continued close monitoring, in line with the Strategy for Easing FX Restrictions, Transitioning to Greater Flexibility of the Exchange Rate, and Returning to Inflation Targeting. The FX liberalization efforts should  also align with the overall direction of monetary policy.

The IMF notes that the financial sector remains stable and liquid, with reforms continuing apace despite the challenges posed by martial law. To preserve financial stability and enhance preparedness of the sector for potential shocks, priorities include strengthening the bank rehabilitation framework, contingency planning and further enhancement of risk-based supervision.

According to the IMF's forecast, the state budget deficit in 2025 will remain substantial—around 19% of GDP—due to ongoing defense expenditures. To cover this deficit, Ukraine will require significant external support. A key component of this support will come from G7 initiative to provide Ukraine with a non-repayable loan secured by proceeds from frozen russian assets, to the total amount of USD 50 billion, as part of the Extraordinary Revenue Acceleration (ERA) Loans. The IMF underscores that the successful implementation of this initiative is crucial for maintaining macroeconomic stability.

At the same time, Ukrainian authorities will continue their efforts to mobilize domestic revenues. Implementation of the National Revenue Strategy (NRS), including measures to increase tax compliance, remains a key pillar of restoring fiscal sustainability, improving the business climate, and meeting EU accession criteria. The IMF points out that risks to the budget remain high and the authorities should continue to stand ready to respond to fiscal shocks with broad-based, durable, and efficient measures, such as an increase in the main VAT rate.

"I would like to thank the IMF team for the productive work and constructive discussions, as well as for their wisdom and flexibility on many issues. Our final meeting confirms that we have gained a better mutual understanding and are committed to continuing to make difficult decisions to address significant uncertainty and maintain the country's resilience.

Over the past eight days, the IMF representatives have gained a deeper understanding of our current situation, especially in light of the recent series of attacks by russia. We count on the IMF's continued support and sincerely hope that the seventh review will take place in a more stable environment.  We are already working to ensure its success,” said NBU Governor Andriy Pyshnyy.