Press Release No. 24/195

IMF and Ukrainian Authorities Reach Staff Level Agreement on the Fourth Review of the Extended Fund Facility (EFF) Arrangement

May 31, 2024

• The International Monetary Fund (IMF) staff and the Ukrainian authorities have reached staff-level agreement (SLA) on the fourth review of the 4-year Extended Fund Facility (EFF) Arrangement. Subject to approval by the IMF Executive Board, Ukraine would have access to about US$2.2 billion (SDR 1,669.82 million).
• All quantitative performance criteria were met, and structural benchmarks for the review were either met or implemented with a short delay. Understandings were also reached on an updated set of economic and financial policies to sustain macroeconomic stability and advance economic reforms.
• The Ukrainian economy continued to achieve resilient growth and disinflation through Q1 of 2024. However, risks are high and rising as the war continues, and the outlook for the remainder of the year remains highly uncertain.

Warsaw, Poland: An International Monetary Fund (IMF) team led by Mr. Gavin Gray held discussions in Warsaw with Ukrainian officials, during May 27-31, 2024, on the Fourth Review of the country’s 4-year EFF Arrangement, building on policy dialogue and outreach that took place in Kyiv on May 23-24. Upon the conclusion of the discussions, Mr. Gray issued the following statement:

“IMF staff and the Ukrainian authorities have reached staff-level agreement on the Fourth Review of the EFF. The agreement is subject to approval by the IMF Executive Board, with Board consideration expected in the coming weeks.

“Ukraine’s four-year EFF Arrangement with the IMF, which forms part of a US$122 billion international support package, continues to provide a strong anchor for the authorities’ economic program in times of exceptionally high uncertainty. Performance under the program has remained strong despite the challenges of the war, with all quantitative performance criteria met, and one structural benchmark met and another implemented with a short delay.

“Over two years of Russia’s war in Ukraine has had a devastating impact on the country and its people. Nevertheless, skillful policymaking, the adaptability of households and firms, and sizable external financing helped maintain macroeconomic and financial stability. This resilience is showcased by the better-than-expected growth outturn in 2023 and sustained activity in 2024Q1, as disinflation has continued and foreign exchange reserves remain adequate. However, as the war continues, downside risks are high and rising. Economic activity is expected to slow in the second half of 2024, reflecting the recent large-scale attacks on the energy sector and war-related effects on confidence, while inflation is expected to pick up moderately in the second half of the year.

“After a challenging period of liquidity strains earlier in the year due to external financing delays, external budget support for 2024 resumed and should continue to be disbursed on a timely basis to help maintain economic stability. Fiscal financing needs remain very high in 2024, and the budget needs to be executed consistent with financing constraints and the need to restore fiscal and debt sustainability. The authorities are making progress toward a commercial external debt restructuring on terms consistent with the program, which is essential to create space for high priority expenditures and to help bring debt back to sustainable levels. The 2025 Budget will require measures to advance domestic revenue mobilization, given still-elevated spending needs.

“With real interest rates still high, monetary policy easing can continue, given well-anchored inflation expectations, and consistent with achieving the medium-term inflation target. The exchange rate should continue acting as a shock absorber and thereby help safeguard external stability. A judicious and staged approach to liberalizing FX controls should continue in line with the National Bank of Ukraine’s strategy, while ensuring consistency with the overall policy mix to preserve macroeconomic stability and support the recovery.

“To ensure fiscal sustainability, the implementation of the tax policy and revenue administration reforms envisioned under the National Revenue Strategy should be accelerated. A near-term priority is strengthening tax and customs administration, including by addressing compliance issues, and building public trust through anti-corruption reforms and measures to adequately protect personal taxpayer information. Robust legislative reforms to strengthen the Economic Security Bureau’s ability to effectively address major economic crimes should be swiftly adopted, while adopting amendments to the Customs Code in line with international best practice will also be critical in the coming months.

“The authorities remain committed to continuing structural reforms to strengthen governance and lay a robust foundation for durable growth, while pursuing a path to EU accession. In this regard, additional critical governance and anti-corruption reforms include strengthening the criminal procedural code, creating a new high administrative court, and completing the first ever external audit of the National Anti-corruption Bureau.”

“Fiscal risks, including from state-owned enterprises (SOEs) and the energy sector, need to be carefully monitored to ensure that public resources are well-spent and debt sustainability is decisively restored. To this end, strengthening the assessment of fiscal risks in the SOE and energy sector and robust implementation of the recently adopted SOE corporate governance law are important.

“The financial sector remains stable and liquid, with reforms continuing apace despite challenges under Martial Law. Priorities ahead include strengthening bank resolution, supervision, credit, and capital market infrastructure. The low level of financial inclusion, particularly in conflict-impacted areas, is hampering economic activity; diagnostic work to develop an appropriate policy response is underway.

“The mission met with Finance Minister Marchenko, National Bank of Ukraine Governor Pyshnyy, and other senior public officials, and would like to thank them and all technical teams for their close collaboration, and open and constructive discussions.”