Press Release No. 23/88

IMF and Ukrainian Authorities Reach Staff Level Agreement on a US$15.6 Billion Extended Fund Facility (EFF) Arrangement

March 21, 2023

• The Ukrainian authorities and IMF staff have reached a staff-level agreement on a set of macroeconomic and financial policies that would be supported by a new 48-month Extended Fund Facility (EFF) Arrangement.
• The EFF, with requested access of SDR 11.6 billion (about US$15.6 billion), or 577 percent of quota, aims to support the Ukrainian authorities anchor policies that sustain fiscal, external, price and financial stability, and support the ongoing gradual economic recovery, while promoting long-term growth in the context of post-war reconstruction and Ukraine’s path to EU accession.
• The staff-level agreement reflects the IMF’s continued commitment to support Ukraine and is expected to help mobilize large-scale concessional financing from Ukraine’s international donors and partners.

Washington, DC: At the request of the Ukrainian authorities, an International Monetary Fund (IMF) team led by Mr. Gavin Gray held discussions in Warsaw with Ukrainian officials, during March 8-15, 2023, on a 4-year economic program that, subject to approval by the Executive Board, would be supported by the IMF under the Extended Fund Facility (EFF).

Mr. Gavin Gray issued the following statement today:

“I am pleased to announce that the IMF team has reached staff-level agreement with the Ukrainian authorities on a 4-year IMF-supported program, with access requested of SDR 11.6 billion (about US$15.6 billion), or 577 percent of Ukraine’s quota. This agreement is subject to approval by the IMF Executive Board, with Board consideration expected in the coming weeks.

“The staff-level agreement reflects the IMF’s continued commitment to support Ukraine and is expected to help mobilize large-scale concessional financing from Ukraine’s international donors and partners over the duration of the program.

“In addition to the horrific humanitarian toll, Russia’s invasion of Ukraine continues to have a devastating impact on the economy: activity contracted by 30 percent in 2022, a large share of the capital stock has been destroyed, and poverty levels have climbed. Acute macroeconomic challenges persist due to the scale of the shock and the expansion of the fiscal deficit. The authorities have nevertheless managed to maintain macroeconomic and financial stability, thanks to substantial external support and skillful policymaking. The authorities’ commitment to good economic management was also evidenced by the strong performance under the Program Monitoring with Board Involvement (PMB) (Press Release 23/46).

“A gradual economic recovery is expected over the coming quarters, as activity recovers from the severe damage to critical infrastructure, although headwinds persist, including the risk of further escalation in the conflict. Developing a single baseline outlook scenario under exceptionally high uncertainty is exceedingly challenging, as a range of outcomes are plausible. On that basis, staff currently sees real GDP growth for 2023 ranging from -3 to +1 percent.

“The overarching goals of the authorities’ program are to sustain economic and financial stability in circumstances of exceptionally high uncertainty, restore debt sustainability, and support Ukraine’s recovery on the path toward EU accession in the post-war period. The program has been designed in line with the new Fund's policy on lending under exceptionally high uncertainty, and strong financing assurances are expected from donors, including the G7 and EU. In view of the exceptionally high uncertainty, the requested IMF-supported program envisions a two-phased approach:

• The first phase, currently envisioned during the first 12-18 months of the program, will build on the PMB, to strengthen fiscal, external, price and financial stability by (i) bolstering revenue mobilization, (ii) eliminating monetary financing and aiming at net positive financing from domestic debt markets, and (iii) contributing to long-term financial stability, including by preparing a deeper assessment of the banking sector health and continuing to promote central bank independence. New measures that might erode tax revenues will be avoided. The authorities are also committed to continuing reforms to strengthen governance and anti-corruption frameworks, including through legislative changes.

• The second phase would shift focus to more expansive reforms to entrench macroeconomic stability, support recovery and early reconstruction, and enhance resilience and higher long-term growth, including in the context of Ukraine’s EU accession goals. During the second phase, Ukraine would be expected to revert to pre-war policy frameworks, including a flexible exchange rate and inflation targeting regime. In addition, fiscal policies would focus on critical structural reforms to anchor medium-term revenues through the implementation of a national revenue strategy, together with strengthening public finance management and introducing public investment management reforms to support post-war reconstruction. Enhancing competition in the vital energy sector, while reducing quasi-fiscal liabilities would complement the post-war reform efforts.

“The mission met with NBU Governor Pyshnyy and Finance Minister Marchenko, and other senior public officials, and would like to thank the authorities for the open and constructive discussions and the close collaboration that have brought us to today’s staff-level agreement.”