The IMF mission that worked in Warsaw from 6 to 10 November 2023 has completed its work regarding the second review of the Extended Fund Facility (EFF) Arrangement for Ukraine.
"The mission’s work has resulted in a Staff-Level Agreement (SLA) on Ukraine’s fulfillment of the terms of the program and on an updated set of economic and financial policies for the next period.The agreement is subject to approval by the IMF Executive Board, with the Board consideration expected within a month," said Gavin Gray, IMF Mission Chief for Ukraine.
Ukraine met all quantitative performance criteria for end-June and indicative targets for end-September, as well as most structural benchmarks. Based on these results, the IMF Executive Board will consider making a second-tranche disbursement of SDR 663.9 million (equivalent to USD 900 million) to Ukraine.
During the mission’s work, IMF staff were convinced that although the war against Ukraine continues to have a devastating impact on the population and the economy, macroeconomic and financial stability have been maintained, thanks to prudent policymaking as well as continuous and timely external support. The NBU’s recent move to managed exchange rate flexibility, in line with its Strategy for Easing FX Restrictions, Transitioning to Managed Flexibility of the Exchange Rate, and Returning to Inflation Targeting, has proceeded successfully. It is an important step toward restoring the pre-war monetary policy framework and helps strengthen the resilience of the economy to external shocks.
The financial system remains stable, liquid, and highly provisioned thanks to extensive anti-crisis measures, but continued vigilance is warranted given war-related uncertainty. Bank diagnostics, reforms to banking oversight, strengthening the governance at state-owned banks (SOBs), and contingency planning remain high priorities.
The recent adoption of legislation to restore asset declarations and align the AML/CFT law with the FATF standards are important achievements. Further steadfast implementation of structural reforms, including in governance, anti-corruption and public investment management, will be crucial in laying the foundations for strong and sustained growth, and support Ukraine on its path to EU accession.
The Ukrainian authorities need to stand ready to take additional revenue measures and should continue their efforts to mobilize financing from the domestic market. Timely disbursement of committed external support will be critical for budget financing and macroeconomic stability. In addition, to support anticipated recovery and reconstruction spending, it will be important to ensure mechanisms for managing donor funding are integrated in budget processes, and in line with best practices on public financial management and transparency.
In the course of the second review of the program, IMF experts highly appreciated the remarkable resilience of the Ukrainian economy. Recent economic data point to a stronger-than-expected economic recovery in 2023 and a substantial pullback in inflation amid strong international reserves and a stable FX market.
With this in mind, IMF staff are expecting a stronger recovery of the Ukrainian economy. They upgraded their estimate of Ukraine’s real GDP growth for 2023 to 4.5%, up from the previous range of 1% to 3% estimated when the first EFF review was completed. However, growth is expected to soften to a range of 3% to 4% in 2024 as the war continues, and downside risks to the outlook remain large.
The IMF staff and the Ukrainian authorities also held discussions for the 2023 Article IV consultation. The IMF mission welcomed the recommendation of the European Commission to open negotiations on Ukraine's accession to the EU, noting that Ukraine has major upside potential once the war tapers off, provided that economic policy and reforms are implemented correctly and adequate financing is disbursed. Well-managed post-war reconstruction coupled with decisive reforms (including on public investment management, governance, and business environment) in the context of EU accession should stimulate the return of migrants and investment flows needed to set the economy on a sustainably stronger growth footing and help to achieve Ukraine’s broader development goals.
The second review confirmed the tangible progress achieved by the financial sector and Ukraine in the implementation of the program, both in sustaining macroeconomic and financial stability in wartime, and the implementing structural reforms to ensure post-war recovery and Ukraine's accession to the European Union. I am grateful to IMF colleagues for their effective cooperation. Let's keep up the good work," said NBU Governor Andriy Pyshnyy.
On 31 March 2023, the IMF Executive Board approved a four-year Extended Fund Facility arrangement for Ukraine.
The program is being implemented in two stages (wartime and post-war). It provides access to SDR 11.6 billion in credit financing from the IMF (an equivalent of USD 15.6 billion).
Disbursements under the program will be conditional on the results of quarterly reviews. This year, Ukraine stands to receive a total of SDR 3.3 billion (equivalent to USD 4.5 billion) in three disbursements. That includes the SDR 2 billion (equivalent to USD 2.7 billion) that Ukraine received in April.
This arrangement is part of a USD 115 billion total support package from international partners that is designated for Ukraine under the baseline scenario, and of a USD 140 billion package under the pessimistic scenario.