Press Release No. 22/407

IMF and Ukrainian Authorities Reach Staff Level Agreement on Program Monitoring with Board Involvement

November 23, 2022

• Russia’s invasion continues to have a devastating social and economic impact on Ukraine, and the main economic policy challenge facing the authorities is to ensure adequate resources for core functions of the state while continuing to preserve macroeconomic stability.
• Program Monitoring with Board Involvement (PMB) will provide a strong anchor for Ukraine’s macroeconomic policies in challenging times and further catalyze donor support. Strong implementation would help pave the way towards a full-fledged IMF-supported program.
• The PMB includes policies and measures to: (i) boost tax revenues and revive the domestic bond market; (ii) contain monetary financing; (iii) contribute to the long-term stability of the financial sector; and (iv) enhance governance and transparency.

Washington, DC: The Ukrainian authorities have requested a four-month Program Monitoring with Board Involvement (PMB) to support their economic program, anchor macroeconomic policies, and pave the way to a fully-fledged IMF program. An International Monetary Fund (IMF) mission led by Mr. Gavin Gray held virtual discussions with the Ukrainian authorities during November 11-22 to discuss the key elements of their program. At the conclusion of the mission, Mr. Gray issued the following statement:

“The mission and the Ukrainian authorities have reached staff-level agreement on economic policies for a Program Monitoring with Board Involvement (PMB). The agreement is subject to approval by IMF Management and an IMF Executive Board discussion is expected in the coming weeks. The PMB will help provide an anchor for macroeconomic policies and catalyze donor support. Strong policy implementation would help pave the way towards a full-fledged IMF-supported program.

“The war continues to have a devasting social and economic impact on Ukraine, involving substantial civilian deaths, the relocation of more than a third of the population through migration or internal displacement, and colossal damage to infrastructure and productive capacity. Economic activity is expected to stabilize in 2023, with growth at 1 percent under the baseline scenario, following a 33 percent contraction this year. Inflation is projected to remain elevated at around 25 percent on average. With the war ongoing, Ukraine will continue to require substantial external financing to ensure adequate resources for the core functions of the state while preserving economic stability.

“The authorities’ budget for 2023 features a very tight expenditure envelope in view of the significant financing constraints. To help create fiscal space, the authorities intend to take measures to boost tax revenues including through restoring pre-war tax administration practices. New measures that might erode tax revenues will be avoided.

“The availability of timely external financing will support the authorities’ efforts to preserve the core functions of the state, while maintaining economic and financial stability. Achieving these goal will also require concerted efforts to mobilize domestic financing through higher rollover rates on the domestic market against a backdrop of ample liquidity.

“As regards monetary and exchange rate policies, the authorities continue to carefully monitor developments, manage liquidity, and balance the FX market with the overall aim of safeguarding price and exchange rate stability while sustaining adequate international reserves. They are fully committed to upholding the independence and institutional effectiveness of the National Bank of Ukraine (NBU).

“The authorities have skillfully maintained financial stability during the war through emergency prudential and capital flow measures applied to banks and are now appropriately preparing to gradually unwind these measures and restore international norms. To help co-ordinate these efforts, the NBU’s financial sector strategy will be updated and expanded to cover targeted bank diagnostics, recapitalization and non-performing asset resolution frameworks, and further development of contingency plans.

“Renewed efforts are needed toward cementing good corporate governance practices in state-owned enterprises and banks and ensuring the independence of their supervisory boards. The preservation of independent, competent, and trustworthy anti-corruption institutions is essential.

“The IMF team met with Finance Minister Marchenko, NBU Governor Pyshnyy and other senior public officials, and would like to thank the authorities for their open and constructive discussions and looks forward to continuing close cooperation in the period ahead.”