The IMF staff completed its mission on 17 February 2023 in Warsaw by reaching a Staff-Level Agreement (SLA) with Ukrainian authorities on the first and final review under the Program Monitoring with Board Involvement (PMB).
This agreement, which is subject to IMF Management approval, paves the way to discuss a possible fully-fledged Fund-supported program that will provide financing for Ukraine.
During the concluding meeting with NBU Governor Pyshnyy and Finance Minister Marchenko, the IMF Mission Chief for Ukraine Gavin Gray stressed the strong performance of Ukrainian authorities under the PMB. Ukraine has met all quantitative and indicative targets, as well as all the structural benchmarks.
Structural benchmark assigned to the NBU under the current PMB – to prepare a Terms of Reference for bank diagnostics – was met on 26 January 2023. Main quantitative targets of the PMB assigned to the NBU include: ensuring adequate international reserves, limiting direct financing of the budget deficit by the central bank in 2022, and abandoning the use of this instrument altogether in 2023. Respective targets have also been achieved, among other things, thanks to efforts to raise international assistance and measures taken by the NBU and the government to revive the domestic debt market.
Moreover, the IMF mission discussed the NBU’s measures to increase attractiveness of assets in local currency and to reduce risks posed by large liquidity surplus of the banking system to price and macrofinancial stability. In particular, it was emphasized that the NBU’s response – which, among other things, lied in raising required reserve ratios – was prudent.
“The National Bank of Ukraine is responding prudently to excess liquidity in the banking system, including by raising reserve requirements, and to increase the attractiveness of assets in local currency with the aim of safeguarding price and external stability. Since the outbreak of the war, far-reaching emergency measures introduced under martial law have helped preserve financial stability. Preparations are now underway to gradually unwind emergency measures, with the aim of realigning local norms with international standards. The NBU is updating its financial sector strategy as a priority, of which a key pillar will be an independent valuation of banks’ assets when conditions allow,” Gavin Gray said.
The IMF Mission Chief pointed out the progress Ukraine is making in reforms to strengthen governance, anti-corruption, and ensure rule of law, and the efforts of Ukrainian authorities in laying the foundations for post-war growth. He underlined that measures to increase the efficiency and transparency of public finances and governance will be critical.
“We are grateful to our IMF colleagues for thorough analysis and high appreciation of the steps taken by the Ukrainian party under the Monitoring Program. We also thank for full support provided to Ukraine in conditions of the full-scale russian military aggression. In the coming weeks, we will actively work on the Extended Fund Facility program design with the IMF in order to start it as soon as possible,” underlined NBU Governor Andriy Pyshnyy. “Today everybody understands that the issue of time is more important for Ukraine as ever, both in terms of maintaining the resilience of our country and its subsequent reconstruction. That’s why we cannot wait. We are ready to launch reforms, ready to start implementing long-term plans today. We have enough expertise and a core foundation of commitment to our state and Ukrainian people.”
The IMF staff mission headed by Gavin Gray came to Warsaw for 13-17 February to review Ukraine’s performance under the PMB. The NBU Governor Andriy Pyshnyy, his two deputies Sergiy Nikolaychuk and Yuriy Heletiy, directors and experts from the departments in charge of price and financial stability, as well as representatives of the European Integration and International Programs Office worked with the mission onsite. Other NBU Board members and experts joined the discussions virtually.