## 1ukrea2022002

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---

### Executive summary — context and macro impact
- Russian invasion caused large loss of life, large population displacement, and significant infrastructure damage.
- Economic impact:
  - Real GDP has severely contracted.
  - Inflation has risen sharply.
  - Trade has been significantly disrupted.
  - The fiscal deficit has ballooned to unprecedented levels.
- Policy responses:
  - Monetary and exchange rate policies adapted to preserve financial and exchange rate stability.
  - Exchange rate was devalued to help stabilize FX reserves.
  - Fiscal policy prioritized defense, social benefits, humanitarian needs, and critical infrastructure repairs; non-priority expenditures reduced where possible.
- Key risks and uncertainties:
  - Uncertainty around the size of financing needs is extremely elevated and highly dependent on the length and intensity of the war.
  - Economic risks include potential additional damage to critical infrastructure or new disruptions to the agricultural and energy sectors.

### Request for Fund support and program monitoring
- Initial and new requests:
  - Ukraine’s purchase under the Rapid Financing Instrument (RFI) on March 9, 2022, helped meet emergency financing needs.
  - Authorities request financial assistance under the new food shock window of the RFI.
- Staff recommendation:
  - Staff supports the request; access proposed at SDR 1,005.9 million (about US$1.3 billion), equivalent to the maximum available amount of 50 percent of quota.
- Debt sustainability and safeguards:
  - Very high uncertainty makes precise assessment of debt sustainability difficult.
  - Staff assesses commitments from Ukraine's official bilateral creditors and donors provide sufficient safeguard assurances for a purchase under the RFI.
- Program Monitoring:
  - Authorities request a Program Monitoring with Board Involvement (PMB) to anchor macroeconomic and financial stability, support appropriate policies, ensure transparency and accountability in procurement, and pave the way for an eventual full-fledged Fund-supported program.

### Macroeconomic policies — fiscal, monetary, and monetary financing
- Fiscal policy:
  - Priority spending on defense, social benefits, humanitarian needs, and some critical infrastructure repairs.
  - Fiscal deficit excluding external grants estimated at 13.9 percent of 2022 GDP as of end August 2022 (measured from below the line).
  - With large external grants, overall end-August fiscal deficit was about 8 percent of 2022 GDP.
  - Financing through end-August included external loans of about US$9 billion (6 percent of GDP) and domestic net bond financing of about UAH 194 billion (4.2 percent of GDP).
- Monetary and exchange rate policy:
  - Administrative FX and capital controls; suspension of regulatory and supervisory enforcement actions; postponement of bank audits; forbearance on restructured loans.
  - Cash rate on the shadow FX market deviated around 25 percent by end-June; mid-July NBU devalued the exchange rate peg by 25 percent.
  - Key policy rate (KPR) is 25 percent; local currency government debt securities offered at around 14–16 percent (negative real returns).
  - NBU interventions and policy measures helped stabilize FX reserves.
- Monetary financing and base money:
  - Domestic bank financing limited; partial monetary financing of the fiscal deficit occurred.
  - NBU purchases of government war bonds largely sterilized by FX sales and banks’ purchases of NBU overnight certificates of deposits.
  - Nominal base money growth was 15.2 percent as of end-August.
  - Currency in circulation grew 17.6 percent y/y as of end-August.
  - Credit to the private sector expanded by about 7 percent y/y as of August (driven mainly by government-supported lending to corporates).

### Recent developments and outlook (selected findings)
- War and geography:
  - Active combat localized mainly in Donetsk, Luhansk, Kherson and Zaporizhzhia.
  - War estimated to impact areas accounting for about 15 percent of pre-war GDP (down from about 40 percent in March).
- Human and capital impact:
  - Over 7 million Ukrainians—about a fifth of the population—have left the country, with a similar number internally displaced.
  - Registered unemployed per job vacancy jumped from 6 to 12 since the beginning of the war.
  - Survey data points to an unemployment rate of up to 40 percent.
  - World Bank estimates poverty rates could increase tenfold to 21 percent.
- Infrastructure damage and reconstruction:
  - World Bank Rapid Damage and Needs Assessment estimates physical damage of US$97 billion as of June 2022.
  - Reconstruction costs estimated at US$349 billion.
  - Operational disruptions especially large in metals (5 percent of pre-war GDP) and agriculture (12 percent of pre-war GDP).
- GDP and inflation:
  - Flash estimates: GDP growth declined by 37.2 percent y/y in 2022Q2, after a 15.1 percent y/y fall in 2022Q1.
  - GDP expected to contract by about 35 percent for the year.
  - Headline inflation: 23.8 percent y/y in August 2022.
  - Core inflation: 19.1 percent y/y in August 2022.
  - Headline inflation projected to reach 30 percent by the end of 2022.
- External sector and reserves:
  - Current account moved into surplus as grants more than offset a widening trade deficit.
  - Agriculture exports in August about 30 percent below 2021 levels.
  - Imports fell by 20 percent y/y.
  - Overall current account surplus of about US$1.3 billion as of end-July.
  - Gross international reserves: US$24.3 billion as of September 23 (compared to US$30.9 billion at end-2021).
  - NBU monthly FX sales reached US$4 billion by June; mid-July devaluation and other measures eased FX market pressures.
- Fiscal financing and debt:
  - Government financing through end-August: external loans about US$9 billion (6 percent of GDP) and domestic net bond financing about UAH 194 billion (4.2 percent of GDP).
  - Stock of NBU war bonds: 6.2 percent of 2022 GDP as of end August and 6.9 percent of 2022 GDP as of September 20, 2022.
  - Public debt projected to reach 87.8 percent of GDP by end-2022 and stabilize around that level under the baseline.
- Financial sector resilience:
  - As of mid-September, 87 percent of bank branches remain operational; online banking services fully available to clients with internet connectivity.
  - Hryvnia retail deposits grew 24.5 percent since the onset of the war to end-August; foreign currency deposits declined by 6.6 percent in US dollar terms.
  - Official NPL ratio as of end-May was 16.5 percent (rises to 32.2 percent when PrivatBank’s legacy related-party NPLs are included).
  - Banking system recorded US$1.1 billion (UAH 33 billion) of loan loss provisions between March and May.

### Outlook for 2023 (baseline projections)
- Growth: staff baseline projects growth to rise to 3.5 percent in 2023.
- Inflation: expected to decline but remain high, around 22.5 percent y/y by year end 2023.
- Exports: projected to pick up only gradually; imports expected to remain robust to support the war effort and rehabilitation.
- Estimates exclude imports required for extensive reconstruction and defense equipment delivered in kind.

### Risks to the outlook
- Prolonged war would further increase loss of life, deterioration of physical and human capital, and economic scarring.
- Intensification of the war in 2023 would dampen growth and potentially increase defense spending and energy finance strains.
- Shortfalls in external financing for 2023 could increase risk of excessive monetization of the deficit, threatening price and exchange rate stability.
- Renewed loss of port access or insufficient alternate logistics capacity could deter planting decisions and affect global food security.
- Contingent liabilities from large SOEs in the energy sector and from the banking sector could add to financing needs.

### Monetary and exchange rate policy actions (NBU timeline and commitments)
- Immediately after war outbreak:
  - Fixed exchange rate at UAH 29.2549/U.S. dollar.
  - Implemented capital flow management measures and restrictions on bank account withdrawals.
  - Suspended changes to the KPR, keeping it at 10 percent initially.
- In June:
  - Increased the KPR by 1,500 bps to 25 percent.
- In July:
  - Devalued exchange rate peg by 25 percent to UAH 36.5686/U.S. dollar.
  - Tightened capital flow management measures; imposed tax on FX purchases; restored import taxes.
- NBU signaled:
  - intention to keep the KPR at 25 percent until 2024Q2;
  - willingness to hike further should risks materialize.

### Financial stability and emergency measures
- Business continuity: banks migrated IT to the cloud; administrative FX and capital controls introduced.
- Cash withdrawal limits:
  - FX deposit withdrawals capped at UAH 30,000 (US$815) per day.
  - Hryvnia daily cash withdrawals limited to UAH100,000 (US$2,700).
- Banks can access unsecured funding up to 30 percent of late-January retail deposits (maturity up to one year).
- NBU enforcement actions suspended for prudential breaches; audits and stress testing postponed.
- Loans restructured during martial law exempt from reclassification for credit risk.
- Banks prohibited from related party lending, capital distributions, and bonus payments.

### Fiscal position, 2022 financing needs, and Text Table 1 figures
- Fiscal deficit projected close to 20 percent of GDP at end-2022 (subject to high uncertainty).
- Without external grants (US$ 10.5 billion, about 8.4 percent of GDP), deficit would have been about 28 percent of GDP.
- Tax revenues projected to drop by about 3.0 percent of GDP.
- Current expenditures estimated to increase by about 24 percentage points of GDP; defense spending projected to reach 27 percent of GDP.
- Deferral of debt service from private bondholders, G7 and Paris Club members estimated to save about US$6 billion in debt service through end-2023.
- Assuming limited NBU purchases of war-bonds and timely disbursement of US$31.5 billion of committed external loans and grants, the residual financing gap would be about US$4 billion (2.8 percent of GDP).
- Text Table 1. 2022 Fiscal Financing Needs (as presented)
  - Total gross financing needs: 1359    41.3    29.8
  - Fiscal deficit: 90627.519.8
  - Amortization: 45413.89.9
  - Domestic debt: 40312.28.8
  - External debt: 511.61.1
  - Total financing: 1230    37.4    26.9
  - Domestic debt issuance: 50515.411.1
  - External financing from IFIs and Bilaterals: 66820.314.6
  - Other (one-offs): 00.00.0
  - Deposit drawdown (+) / Buildup (-): 571.71.2
  - Financing gap: 1294.02.8

### Budgeting and policy priorities for 2023
- 2023 budget constrained by available financing envelope; should account for stability considerations.
- Staff engagement under PMB to ensure voted budget consistent with reasonable financing assumptions and promotes fiscal and external stability.
- Actions to allow room for priority expenditures:
  - protect the tax base from further erosion;
  - enhance revenue mobilization (including repealing exemptions and payment deferrals under Martial Law);
  - broaden the tax base to meet infrastructure and social development needs.
- Reviving domestic debt market would alleviate pressure on monetary financing.

### Governance, reconstruction, and safeguards
- Maintain policies from past Fund-supported programs to preserve donor confidence.
- Transparency and accountability safeguards needed to:
  - sustain donor support;
  - prevent misappropriation;
  - ensure high-quality reconstruction.
- Key measures: procurement transparency, preserve anticorruption enforcement, maintain corporate governance in SOEs and banks.
- Reconstruction requires coordinated normalization of fiscal, monetary, and exchange rate policies; restoring financial sector health; gradual liberalization of capital flows; strengthening governance; and restoring a well-functioning PFM system including fiscal risk management.

### Balance of payments, cereal export shortfall, and official financing (key numbers)
- Projected grain exports: about 30.5 million metric tons (Mt) in 2022 compared to 50.8 Mt in 2021, producing a shock to export receipts of more than US$4 billion.
- Cereal export shortfall exceeds 0.8 percent of GDP eligibility threshold (shock is over 3 percent of GDP).
- Text Table 2. Official Financing (in US$ billions) — 2022 (proj.)
  - Underlying BOP gap 1/4: 2.0
  - Disbursed and prospective official financing 2/30.2
    - IMF: 1.4
    - Other: 28.8
      - Multilateral: 2.6
      - European Union: 10.3
      - Bilateral loans: 3.5
      - Bilateral grants: 10.5
      - EIB, EBRD, and others: 1.8
  - Remaining Gap: 11.8
  - Use of gross reserves: 6.5
  - IMF RFI (Oct. 2022): 1.3
  - Unidentified fiscal financing need: 4.0

### Assessment for IMF support under RFI food shock window
- Staff assess Ukraine qualifies for emergency financing under the food shock window.
- Access of 50 percent of quota, SDR 1,005.9 million (about US$1.3 billion), is appropriate given the cereal export receipt shortfall.
- Under staff baseline, gross external financing needs currently amount to US$42 billion.
- A drain on gross international reserves of US$6.5 billion in 2022 (consistent with maintaining reserve coverage above 80 percent of the Fund’s ARA metric) would imply a remaining financing gap of US$5.3 billion, of which the proposed purchase would cover US$1.3 billion.
- Additional safeguards required due to unprecedented uncertainty; assurances from official bilateral creditors and donors provide sufficient safeguards for this purchase.
- With proposed RFI purchase, stock of total Fund credit expected to peak this year at 4.1 percent of GDP and 23 percent of gross reserves.
- Debt service to the Fund would peak at 1.2 percent of GDP and 9.8 percent of gross reserves in 2023 and 2025, respectively.

### Staff appraisal and authorities' commitments
- Staff supports the authorities’ request for emergency financing of 50 percent of quota under the RFI food shock window.
- Proposed purchase expected to catalyze further official multilateral and bilateral financial assistance.
- Authorities request PMB to reinforce commitments to macro-financial stability, domestic resource mobilization, and donor support, as a step toward a potential full-fledged Fund-supported program.

### Debt Sustainability Analysis (DSA) — key judgments and baseline projections
- DSA judgment: balance of probabilities suggests Ukraine has an unsustainable level of debt given the war impact; very high uncertainty impedes precise requirements to restore sustainability.
- Baseline assumes cumulative external concessional financing in 2023–24 similar to 2022 (around US$30 billion for the two years, with frontloading).
- DSA highlights that debt vulnerabilities would be contained if Ukraine receives sufficiently large financing in the form of grants, highly concessional loans, and/or debt relief.
- Annex I — Baseline public debt (percent of GDP):
  - Public debt:
    - 2021: 47.6
    - 2022: 87.8
    - 2023: 87.5
    - 2024: 88.3
    - 2025: 87.4
    - 2026: 87.4
    - 2027: 88.1
  - Primary deficit:
    - 2021: 1.1
    - 2022: 16.3
    - 2023: 5.8
    - 2024: 3.2
    - 2025: 1.9
    - 2026: 0.4
    - 2027: -0.6
  - Gross financing needs:
    - 2021: 5.9
    - 2022: 29.7
    - 2023: 21.5
    - 2024: 22.4
    - 2025: 21.7
    - 2026: 19.3
    - 2027: 18.7
  - Memo: Real GDP growth (percent):
    - 2021: 3.4
    - 2022: -35.0
    - 2023: 3.5
    - 2024: 3.4
    - 2025: 3.2
    - 2026: 3.8
    - 2027: 3.0
  - Memo: Inflation (GDP deflator; percent):
    - 2021: 25.1
    - 2022: 28.6
    - 2023: 27.3
    - 2024: 16.0
    - 2025: 10.0
    - 2026: 6.5
    - 2027: 5.0
- DSA mechanical signals:
  - Overall: High; Final assessment: High; Sustainability assessment (mechanical signal): Unsustainable.
  - Mechanical modules (debt fan chart and GFN financeability) signal high sovereign stress and very high uncertainty around forecasts.
  - Prob. of missed crisis, 2022-2027: 100.0 pct.
  - Prob. of false alarm, 2022-2027: 0.0 pct.
  - GFN financeability index reported as "7.6".

*IMF staff report excerpt (chapter 11).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The Russian invasion of Ukraine that started over seven months ago has caused large loss of life, large population displacement, and significant infrastructure damage.
- Economic impact:
  - Real GDP has severely contracted.
  - Inflation has risen sharply.
  - Trade has been significantly disrupted.
  - The fiscal deficit has ballooned to unprecedented levels.
- Policy responses:
  - Monetary and exchange rate policies were quickly adapted to preserve financial and exchange rate stability.
  - To help reverse significant international reserves loss, the exchange rate was devalued, helping to stabilize FX reserves and maintain overall macroeconomic and financial stability.
  - Fiscal policy prioritized spending on defense, social benefits, humanitarian needs, and critical infrastructure repairs where possible.
- Key risks and uncertainties:
  - Uncertainty around the size of financing needs remains extremely elevated and is highly dependent on the length of the war and its intensity.
  - Economic risks include potential additional damage to critical infrastructure or new disruptions to the agricultural and energy sectors.

### Request for Fund Support
- Initial support:
  - Ukraine’s purchase under the Rapid Financing Instrument (RFI) on March 9, 2022, helped meet emergency financing needs and catalyze donor support.
- New request:
  - In light of persistent urgent balance of payments needs and a large shortfall in cereal exports, the authorities request financial assistance under the new food shock window of the RFI.
  - Staff supports the request; access proposed at SDR 1,005.9 million (about US$1.3 billion), equivalent to the maximum available amount of 50 percent of quota.
- Debt sustainability and assurances:
  - Very high uncertainty makes precise assessment of debt sustainability difficult.
  - Staff assesses that commitments from Ukraine's official bilateral creditors and donors provide sufficient safeguard assurances for a purchase under the RFI.
  - A combination of appropriate macroeconomic policies and exceptional financing from Ukraine’s creditors and donors would be able to restore medium-term viability under a range of scenarios.
- Program Monitoring:
  - To further strengthen collaboration with the Fund and maintain large donor support, the authorities are requesting a Program Monitoring with Board Involvement (PMB).
  - The PMB is expected to provide a framework to anchor macroeconomic and financial stability, support appropriate policies, ensure transparency and accountability in procurement, and pave the way for an eventual full-fledged Fund-supported program when conditions allow.

### Macroeconomic Policies
- Fiscal policy:
  - Geared to priority spending on defense, social benefits, humanitarian needs, and some critical infrastructure repairs.
  - Non-priority expenditures have been reduced to the extent possible.
  - The fiscal deficit excluding external grants is estimated to have reached 13.9 percent of 2022 GDP as of end August 2022 (measured from below the line).
  - With large external grants, the overall end-August fiscal deficit was about 8 percent of 2022 GDP.
  - Financing through end-August included external loans of about US$9 billion (6 percent of GDP) and domestic net bond financing of about UAH 194 billion (4.2 percent of GDP).
- Monetary and exchange rate policy:
  - Administrative FX and capital controls were adopted, along with suspension of regulatory and supervisory enforcement actions, postponement of bank audits, and forbearance with respect to restructured loans.
  - The cash rate on the shadow FX market deviated from the official pegged rate by around 25 percent by end-June; in mid-July the NBU devalued the exchange rate peg by 25 percent.
  - The key policy rate (KPR) is 25 percent; local currency government debt securities were offered on the primary market at around 14–16 percent (negative real returns).
  - NBU interventions and policy measures helped stabilize FX reserves.
- Monetary financing and base money:
  - Domestic bank financing has been limited, resulting in partial monetary financing of the fiscal deficit.
  - NBU purchases of government war bonds on the primary market have been largely sterilized by FX sales and banks’ purchases of NBU overnight certificates of deposits.
  - Nominal base money growth was 15.2 percent as of end-August (compared to 13.1 percent y/y at end-January).
  - Currency in circulation grew 17.6 percent y/y as of end-August.
  - Credit to the private sector expanded by about 7 percent y/y as of August, driven mainly by government-supported lending to corporates.

### Recent Development and Outlook (points 1–10)
- War and geography:
  - Seven months after the start of the Russian invasion there is no clear end in sight.
  - Active combat remains intense but has become more localized, mainly in Donetsk, Luhansk, Kherson and Zaporizhzhia.
  - The war is estimated to impact areas that account for about 15 percent of pre-war GDP (down from about 40 percent in March).
- Human and capital impact:
  - Over 7 million Ukrainians—about a fifth of the population—have left the country, with a similar number internally displaced.
  - Labor market dislocations: conscription of men aged 18–60, outward migration (mainly of highly skilled women), and internal displacement.
  - The number of registered unemployed per job vacancy jumped from 6 to 12 since the beginning of the war.
  - Survey data points to an unemployment rate of up to 40 percent.
  - Real wages (excluding defense) have declined significantly.
  - World Bank estimates poverty rates could increase tenfold to 21 percent.
- Infrastructure damage and reconstruction:
  - World Bank Rapid Damage and Needs Assessment estimates physical damage of US$97 billion as of June 2022 (over half of pre-war GDP), mainly to residential buildings, roads and bridges.
  - Reconstruction costs estimated at US$349 billion.
  - Operational disruptions and loss of capacity have been particularly large in the metals sector (5 percent of pre-war GDP) and agriculture (12 percent of pre-war GDP).
- GDP and inflation:
  - Flash estimates: GDP growth declined by 37.2 percent y/y in 2022Q2, following a 15.1 percent y/y fall in 2022Q1.
  - GDP is expected to contract by about 35 percent for the year (same forecast as April 2022 WEO; worse than the 10 percent contraction estimated at the March RFI request).
  - Headline inflation: 23.8 percent y/y in August 2022 (up from 10 percent y/y in January 2022).
  - Core inflation: 19.1 percent y/y in August 2022.
  - Headline inflation projected to reach 30 percent by the end of 2022.
- External sector and reserves:
  - Current account moved into surplus as current transfers (grants) more than offset the large and widening trade deficit.
  - Agriculture exports in August were about 30 percent below 2021 levels despite the grain corridor.
  - Imports fell by 20 percent y/y.
  - Overall current account surplus of about US$1.3 billion as of end-July.
  - Gross international reserves: US$24.3 billion as of September 23 (compared to US$30.9 billion at end-2021), supported by large external financing disbursements.
  - NBU monthly FX sales reached US$4 billion by June; mid-July devaluation and other measures subsequently eased FX market pressures.
- Fiscal financing and debt:
  - Government financing through end-August included external loans about US$9 billion (6 percent of GDP) and domestic net bond financing about UAH 194 billion (4.2 percent of GDP).
  - Net domestic financing covers NBU, banks, and non-banks; stock of NBU war bonds was 6.2 percent of 2022 GDP as of end August and 6.9 percent of 2022 GDP as of September 20, 2022.
  - Large financing disbursements resulted in an accumulation of deposits in the banking sector (including NBU) of about 2.3 percent of GDP.
  - Public debt projected to reach 87.8 percent of GDP by end-2022 and stabilize around that level under the baseline.
- Financial sector resilience and risks:
  - As of mid-September, 87 percent of bank branches remain operational; online banking services are fully available to clients with internet connectivity; the non-cash payment system is functioning normally.
  - Hryvnia retail deposits grew 24.5 percent since the onset of the war to end-August; foreign currency deposits declined by 6.6 percent in US dollar terms.
  - Corporate deposits: hryvnia deposits declined by 1.3 percent; foreign currency deposits rose by 3.1 percent.
  - Banks remain highly liquid; LCR and HQLA remain relatively high for the majority of banks.
  - Licenses of four small banks (2.8 percent of system assets) revoked under Martial Law.
  - Use of the unsecured emergency facility fell from UAH 15.6 billion on March 16 to UAH 0.08 billion as of September 16.
  - The official NPL ratio as of end-May was 16.5 percent (rises to 32.2 percent when PrivatBank’s legacy related-party NPLs are included).
  - Banking system recorded US$1.1 billion (UAH 33 billion) of loan loss provisions between March and May (a four-fold increase over the previous year).
  - Banks’ retail loan portfolios shrank by around 10 percent; mortgage lending came to a halt; corporate lending grew slightly due to government support schemes.
- Outlook for 2023:
  - Staff baseline projects growth to rise to 3.5 percent in 2023, reflecting continued government spending and a modest pickup in private activity assuming continued adjustment to the war dynamics.
  - Inflation is expected to decline but remain high, around 22.5 percent y/y by year end 2023, reflecting residual supply bottlenecks and lagged effects of exchange rate depreciation.
  - Exports projected to pick up only gradually given war-related damage to capacity and logistical constraints; imports expected to remain robust to support the war effort and rehabilitation.
  - Estimates do not include imports required for extensive reconstruction nor demand for defense equipment assumed to be delivered in kind.

*IMF staff discussions were held by videoconference on October 1, 2022, with the authorities; staff comprised G. Gray (head), A. Khachatryan, S. Nadeem, J.G. Poulain, T. Orav, D. Monaghan, V. Stepanyan, I. Shpak, and M. Sydorovych; L. Herrera Prada and N. Gonzales assisted in report preparation.*

### 11.      Risks to the outlook remain exceptionally high and dependent on the length and

### 11.      Risks to the outlook remain exceptionally high and dependent on the length and

### Risks to the outlook
- A prolonged war would further increase the loss of life and the deterioration of physical and human capital, while driving a sharp decline in living standards, exacerbating poverty, and lead to severe economic scarring.
- An intensification of the war in 2023 would:
  - dampen the growth outlook;
  - potentially increase defense spending and add strains on energy finances for the heating season, particularly without associated external financing, posing a risk to the fiscal position.
- Shortfalls in external financing for 2023 would increase the risk of excessive monetization of the deficit, which could threaten price and exchange rate stability.
- The war could continue to strain domestic and global energy and food prices, raising inflation and putting pressure on the fiscal and external positions.
- Renewed loss of port access or insufficient capacity of alternate logistics routes could deter planting decisions for future agriculture seasons, affecting exports and global food security.
- Electricity supply disruptions or further pressure on gas stocks could take an additional toll on economic activity.
- Contingent liabilities from large state-owned enterprises in the energy sector as well as from the banking sector—where asset quality is weakening by a large but yet uncertain size—could add to already large financing needs.

### Monetary and exchange rate policy actions (National Bank of Ukraine)
- Immediately following the outbreak of the war:
  - fixed the exchange rate at UAH 29.2549/U.S. dollar;
  - implemented capital flow management measures and restrictions on bank account withdrawals;
  - suspended changes to the key policy rate (KPR), keeping it at 10 percent due to impairment of the monetary transmission mechanism through the interest rate channel.
- In June:
  - increased the KPR by 1,500 bps to 25 percent to raise the attractiveness of hryvnia assets, ease pressures on FX reserves, and address increasing inflation and exchange rate expectations.
- In July:
  - devalued the exchange rate peg by 25 percent to UAH 36.5686/U.S. dollar in response to continuing pressure on the hryvnia and FX reserves;
  - tightened capital flow management measures, including on withdrawals from abroad;
  - undertook measures to ease imbalances in the FX market, including a tax on FX purchases;
  - restoration of import taxes supported these measures.
- The NBU has maintained the KPR at 25 percent in subsequent MPCs, signaling:
  - intention to keep the KPR at this level until 2024Q2;
  - willingness to hike the policy rate further should risks to inflation and the exchange rate materialize.

### Financial stability and emergency measures
- The NBU and commercial banks implemented business continuity plans; some of the largest banks migrated their IT systems to the cloud.
- Administrative FX controls and capital controls were introduced to preserve FX liquidity and channel it towards priority imports.
- Limited interbank FX trading allowed to facilitate the purchase of critical imports.
- Cash withdrawal limits:
  - FX deposit cash withdrawals capped at UAH 30,000 (US$815) per day;
  - hryvnia daily cash withdrawals limited to UAH100,000 (US$2,700).
- Banks can access unsecured funding with a maturity of up to one year for an amount up to 30 percent of their late-January retail deposits.
- NBU enforcement actions suspended for breaches of prudential requirements regarding capital, liquidity, credit risk, net open positions in FX and for delays in prudential reporting.
- Audits of banks’ financial statements and regular bank stress testing postponed.
- Loans restructured during the martial law period are exempt from reclassification for credit risk; some regulatory risk weights decreased.
- Banks prohibited from related party lending, capital distributions (dividend payments and share buy-backs), and bonus payments.

### Fiscal position, spending, and 2022 financing
- The fiscal deficit is projected to reach close to 20 percent of GDP at end-2022, subject to a high degree of uncertainty.
- Without the revenue boost from large external grants (US$ 10.5 billion, about 8.4 percent of GDP), the deficit would have been about 28 percent of GDP.
- Tax revenues are projected to drop by about 3.0 percent of GDP, primarily driven by declines in taxes on goods and services, CIT, and property taxes.
- Current expenditures are estimated to increase by about 24 percentage points of GDP, primarily driven by:
  - defense spending—projected to reach a record 27 percent of GDP;
  - urgent social spending and other critical needs, including restoring basic livelihoods in war-affected areas.
- Deferral of debt service from private bondholders, G7 and Paris Club members estimated to save about US$6 billion in debt service through end-2023.
- Assuming limited NBU purchases of war-bonds and timely disbursement of the US$31.5 billion of committed external loans and grants (including the proposed RFI purchase and about US$ 2.2 billion already disbursed through the Administered Account), the residual financing gap would be about US$4 billion (2.8 percent of GDP). This gap is primarily driven by needs to support the energy sector and additional defense spending.

### Text Table 1. 2022 Fiscal Financing Needs (as presented)
- In UAH billons / In USD billion / In percent of GDP
- Total gross financing needs
  - 1359    41.3    29.8
- Fiscal deficit
  - 90627.519.8
- Amortization
  - 45413.89.9
- Domestic debt
  - 40312.28.8
- External debt
  - 511.61.1
- Total financing
  - 1230    37.4    26.9
- Domestic debt issuance
  - 50515.411.1
- External financing from IFIs and Bilaterals
  - 66820.314.6
- Other (one-offs)
  - 00.00.0
- Deposit drawdown (+) / Buildup (-)
  - 571.71.2
- Financing gap 
  - 1294.02.8

### Budgeting and policy priorities for 2023
- The 2023 budget will be constrained by the available financing envelope and should take into account stability considerations.
- Staff to engage with authorities in the context of the PMB to ensure the voted budget is consistent with reasonable assumptions on domestic and external financing and helps promote fiscal and external stability.
- To allow sufficient room for priority expenditures, actions required include:
  - protecting the tax base from further erosion;
  - finding avenues to enhance revenue mobilization (including repealing exemptions and payment deferrals under the Martial Law);
  - broadening the tax base to meet infrastructure and social development needs.
- Measures to revive the domestic debt market would alleviate pressure on monetary financing.

### Governance, reconstruction, and safeguards to maintain donor confidence
- Important to implement policies that do not reverse gains from past Fund-supported programs to maintain donor confidence and pave the way for recovery.
- Effective transparency and accountability safeguards are critical to:
  - sustain donor support;
  - prevent misappropriation;
  - ensure high quality reconstruction efforts.
- Key measures should promote procurement transparency, preserve key anticorruption enforcement functions, and maintain good corporate governance in state-owned enterprises and banks.
- Reconstruction requires timely and well-coordinated normalization of fiscal, monetary, and exchange rate policies; restoring financial sector health; gradually liberalizing capital flows; strengthening governance; and restoring a well-functioning PFM-system including fiscal risk management.

### Balance of payments needs, cereal export shortfall, and official financing
- Ukraine is experiencing a major shortfall of cereal export receipts: projected volume of grain exports likely to be around 30.5 million metric tons (Mt) in 2022 compared to 50.8 Mt in 2021, resulting in a shock to export receipts of more than US$4 billion.
- At this scale, the size of the shock (over 3   percent of GDP) substantially exceeds the eligibility threshold of 0.8 percent of GDP for the BOP need associated with a cereal export shortfall.
- Other contributors to large external financing gap: constrained export capacity, loss of international capital market access, capital outflows, FX transactions of Ukrainian migrants, drop in foreign direct investment inflows.
- Text Table 2. Official Financing (in US$ billions) — 2022 (proj.)
  - Underlying BOP gap 1/4 2.0
  - Disbursed and prospective official financing 2/30.2
    - IMF1.4
    - Other28.8
      - Multilateral2.6
      - European Union10.3
      - Bilateral loans3.5
      - Bilateral grants10.5
      - EIB, EBRD, and others1.8
  - Remaining Gap11.8
  - Use of gross reserves6.5
  - IMF RFI (Oct. 2022)1.3
  - Unidentified fiscal financing need4.0
- Notes:
  - 1/ Underlying BOP gap indicates the decrease in reserves absent official financing.
  - 2/ Available data on multi- and bilateral commitments as of September 20, 2022.

### Assessment for IMF support, RFI Food Shock Window, and safeguards
- Staff assess Ukraine qualifies for emergency financing under the food shock window of the Rapid Financing Instrument (RFI).
- Access of 50 percent of quota, or SDR 1,005.9 million (about US$1.3 billion), is appropriate given the cereal export receipt shortfall is substantially larger.
- Under the staff baseline, gross external financing needs currently amount to US$42 billion.
- Official financing being provided by the Fund, the World Bank and other IFIs, the European Union, and bilateral G7 partners; timely disbursements remain critical.
- A drain on gross international reserves of US$6.5 billion in 2022, consistent with maintaining reserve coverage above 80 percent of the Fund’s ARA metric, would imply a remaining financing gap of US$5.3 billion, of which the proposed purchase would cover US$1.3 billion.
- Financing gap estimates remain subject to significant downside risks, concentrated in the energy and agriculture sectors:
  - further disruptions to domestic energy supply or larger-than-expected need to rebuild gas inventories amid high import gas prices could spill over to other activities;
  - earlier than expected lapse of the grain export agreement or slow recovery of agriculture (46 percent of goods exports over 2017–21) pose significant downside risks.
- Additional safeguards required given unprecedented situation:
  - extreme uncertainty makes precise assessment of debt sustainability difficult; balance of probabilities suggests higher risks of debt being unsustainable (see Annex I).
  - assurances from official bilateral creditors and donors to provide financial support on appropriate terms and recognize the Fund's preferred creditor status provide sufficient safeguards to provide financing under the food shock window of the RFI.
- With the proposed RFI purchase, the stock of total Fund credit is expected to peak this year at 4.1 percent of GDP and 23 percent of gross reserves.
- Debt service to the Fund would peak at 1.2 percent of GDP and 9.8 percent of gross reserves in 2023 and 2025, respectively; materialization of downside risks would increase these ratios significantly.
- Official arrears to Russia have not been cleared but are no longer subject to the lending into official arrears (LIOA) policy; Ukraine represented a dispute as to the validity of the Eurobond claim held by Russia in March 2022 and litigation is ongoing.
- Authorities committed to a new safeguards assessment of the NBU to be completed before Board approval of any subsequent arrangement to which the safeguards policy applies; authorities will continue providing staff with the NBU's audit reports and authorize its external auditors to hold discussions with staff.

### Staff appraisal
- Staff supports the authorities’ request for emergency financing of 50 percent of quota under the RFI food shock window.
- Staff assesses Ukraine qualifies for such support given an urgent balance of payments need that, if not addressed, would cause severe economic disruptions.
- The cereal export shortfall exceeds the maximum support available under the food window (50 percent of quota, SDR 1,005.9 million / about US$1.3 billion).
- The proposed purchase is expected to act as a catalyst to further official multilateral and bilateral financial assistance.
- High uncertainty complicates precise assessment of debt sustainability, but staff considers commitments from Ukraine's official bilateral creditors and donors provide sufficient safeguard assurances for a purchase under the RFI as a combination of appropriate macroeconomic policies and exceptional financing from Ukraine’s creditors and donors would be able to restore medium-term viability under a range of scenarios.

*IMF staff report excerpt (chapter 11).*

### 27.      The authorities are committed to taking steps to protect macro-financial stability.

### 27.      The authorities are committed to taking steps to protect macro-financial stability.

### Authorities' commitment and program intent
- The authorities intend to remain in close consultation with staff and are requesting a PMB to strengthen the nature of their commitment to implement policies that are:
  - conducive of macroeconomic and financial stability,
  - foster domestic resource mobilization, and
  - ensure continued donor support,
  - with the aim of paving the way for an eventual full-fledged Fund-supported program when conditions allow it.

### Near-term macro-financial assessment and financing needs
- Staff presents a baseline for 2022 that captures the impact of the war on key macroeconomic variables (GDP growth, fiscal balance, exchange rate, borrowing costs, and financing).
- The result is a substantial step increase in the debt-to-GDP ratio in 2022 and elevated gross financing needs.
- Gross international reserves (end of period): 24.8 (billions of U.S. dollars).
- Months of next year's imports of goods and services (mem.): 3.4.
- Percent of the IMF composite metric (float): 881.8.

### Fiscal stance and public debt (selected figures from the authorities' accounts)
- General government overall balance (billions of Ukrainian Hryvnia): -905.5 (Proj. 2022).
- Revenue (billions of Ukrainian Hryvnia): 1,914.9 (Proj. 2022).
- Expenditure (billions of Ukrainian Hryvnia): 2,820.4 (Proj. 2022).
- Public and publicly-guaranteed debt (billions of Ukrainian Hryvnia): 4,011 (Proj. 2022).
- Nominal GDP (billions of Ukrainian Hryvnia): 4,567 (Proj. 2022).
- Primary balance (billions of Ukrainian Hryvnia): -615.1 (Proj. 2022).

### External sector and balance of payments (selected figures)
- Current account balance (billions of U.S. dollars): -3.7 (Proj. 2022).
- Goods exports (2022, billions of U.S. dollars): 44.2 (Proj. 2022).
- Goods imports (2022, billions of U.S. dollars): -62.8 (Proj. 2022).
- Total external debt (percent of GDP): 199.6 (Proj. 2022).
- Gross international reserves (billions of U.S. dollars): 24.8 (Proj. 2022).
- Gross External Financing Requirement, total financing requirements (Proj. 2022, billions of U.S. dollars): 47.7.
- Total financing sources (Proj. 2022, billions of U.S. dollars): 19.9.
- Official financing (Proj. 2022, billions of U.S. dollars): 16.9.

### Monetary and financial sector (selected figures)
- Broad money (end of period, percent change, mem.): 18.6.
- Base money (end of period, percent change, mem.): 14.8.
- Credit to nongovernment (end of period, percent change, mem.): 8.4.
- Deposit money banks: banks' liabilities (billions of Ukrainian Hryvnia, Act./Proj. 2022): 1,789 (Proj. 2022).

### Fund credit, obligations, and projections
- Stock of existing Fund credit (end of period, SDR, Actual/Proj. 2019–2027): series shown; stock (Proj. 2027) 0.0 (SRD units in table).
- Obligations to the Fund from existing and prospective Fund credit (SDR, Projections): includes projected year-by-year obligations (table entries preserved in source).

### Debt Sustainability Analysis (DSA) — assessment, scenarios, and conclusions
- The balance of probabilities suggests that Ukraine has an unsustainable level of debt given the impact of the war.
- Very high uncertainty makes it difficult to assess with precision what would be required to restore sustainability.
- The DSA baseline assumes cumulative external concessional financing to Ukraine in 2023–24 would be of similar size as that expected in 2022 (i.e., totaling around US$30 billion for the two years, with frontloading).
  - Note: "In the absence of firm commitments at this early stage, the 2023 baseline assumes external financing of about two-thirds of its 2022 level and does not incorporate a large reconstruction effort."
- The DSA highlights that debt vulnerabilities would be contained if Ukraine were to receive a sufficiently large financing envelope to address the severe impacts of the war, and if this support comes in the form of highly concessional loans and other exceptional financing (grants, highly concessional loans, and/or debt relief).
- The DSA uses the Sovereign Risk and Debt Sustainability Framework for Market Access Countries (SRDSF) tools but notes limitations:
  - The SRDSF relies on a single baseline and historical observations that may not capture the structural break from the war.
  - Long-term modules (e.g., reconstruction) were omitted given projection uncertainties.
  - The debt “fan chart” under this DSA exhibits unusually large width, exemplifying scale of risks.

### Key analytical judgments and policy implications
- Near-term vulnerabilities are very high, but risks appear to be becoming more contained given:
  - the scale of financing commitments in place,
  - the agreed debt service suspension, and
  - the authorities’ wartime economic measures.
- Restoring debt sustainability is conditional on:
  - availability of a sufficiently large financing envelope,
  - financing being in the form of grants, highly concessional loans, and/or debt relief, and
  - clarity on timing and size of reconstruction support (which would materially affect growth and debt-carrying capacity).
- The authorities' request for a PMB aims to reinforce policy commitment to stabilize macro-financial conditions and to foster domestic resource mobilization and donor support, as a step toward a potential full-fledged Fund-supported program when feasible.

*Source: IMF staff and Ukrainian authorities (extracted from the provided content unit).*

### Annex Table I.1. Ukraine: Risk of Sovereign Stress

### Annex Table I.1. Ukraine: Risk of Sovereign Stress

### DSA Summary Assessment
- Overall: High
- Near term: n.a.
- Medium term: High
- Long term: High
- Final assessment: High
- Sustainability assessment (mechanical signal): Unsustainable
- Commentary and key judgments:
  - "Unique to the extreme circumstances now prevailing in Ukraine, very high uncertainty makes it difficult, at present, to assess with sufficient precision what would be required to ensure sustainability of Ukraine’s debt, but the balance of probabilities suggests that there are higher risks of debt being unsustainable."
  - "While the balance of probabilities suggests that Ukraine has an unsustainable level of debt., medium term external viability would be restored with eventual normalization of the security situation, and a combination of policy commitments, safeguards assurances from major creditors, and exceptional financing from Ukraine’s creditors and donors"
  - "The overall risk of sovereign stress is high, reflecting high vulnerabilites in the medium-term horizon."
  - "The long-term modules have not been activated, given high uncertainty and data gaps. Future DSAs will need to investigate changes to Ukraine's demographic structure due to the war, notably through large scale movements of refugees, and any potential impact on the sustainability of public pensions."
  - "Medium-term risks are assessed as high, consistent with the mechanical high risk signals from both the debt fan chart and the GFN modules. The fanchart indicates very high uncertainty around the debt trajectory, and financeability tool finds high liquidity risks compared to relevant comparators."
  - "The balance of probabilities suggests that Ukraine has an unsustainable level of debt. However, unique to the extreme circumstances now prevailing in Ukraine, very high uncertainty makes it difficult, at present, to estimate with sufficient precision what would be required to restore sustainability"

*Source: Fund staff.*

### Debt Coverage and Disclosures (Annex Figure I.1)
- Coverage used in the DSA (based on end-2021 debt stock estimates) includes:
  - (i) central government direct debt;
  - (ii) domestic and external government-guaranteed debt (loans and bonds) extended to state-owned enterprises (SOEs);
  - (iii) debt of local governments;
  - (iv) Ukraine’s liabilities to the IMF that are not included in central government direct debt.
- Exclusions and data gaps:
  - Does not include non-guaranteed domestic and external liabilities of SOEs.
  - Data concerning debt consolidation across sectors is not available.
- Subsector inclusion in baseline:
  - Budgetary central government: Yes
  - Extra budgetary funds (EBFs): No
  - Social security funds (SSFs): Yes
  - State governments: Yes
  - Local governments: Yes
  - Public nonfinancial corporations: Yes
  - Central bank: Yes
  - Other public financial corporations: Yes
- Accounting principles and recording notes:
  - Debt coverage uses various bases (cash/non-cash, nominal/face/market values) as applicable; specific cells in the source table indicate a mix of "Not applicable", "expected", and other recording bases.

*Source: Fund staff.*

### Public Debt Structure Indicators (Annex Figure I.2) — key points
- Debt composition (end-June 2022 data noted):
  - Externally held debt accounted for slightly over half: 56 percent of total public and publicly guaranteed debt.
  - Multilateral creditors: 23 percent of total debt.
  - Sovereign Eurobonds: 21 percent of total debt.
  - Domestic debt: mostly held by residents and denominated in hryvnia.
- The DSA does not anticipate major forward-looking changes in composition by currency.

*Source: Fund staff.*

### Baseline Scenario (Annex Table I.2) — Selected time series and projections (Percent of GDP unless indicated otherwise)
- Public debt:
  - 2021: 47.6
  - 2022: 87.8
  - 2023: 87.5
  - 2024: 88.3
  - 2025: 87.4
  - 2026: 87.4
  - 2027: 88.1
- Change in public debt:
  - 2021: -13.0
  - 2022: 40.2
  - 2023: -0.4
  - 2024: 0.9
  - 2025: -0.9
  - 2026: 0.0
  - 2027: 0.8
- Contribution of identified flows:
  - 2021: -9.4
  - 2022: 35.7
  - 2023: -1.5
  - 2024: 2.9
  - 2025: 0.0
  - 2026: -1.3
  - 2027: -1.0
- Primary deficit:
  - 2021: 1.1
  - 2022: 16.3
  - 2023: 5.8
  - 2024: 3.2
  - 2025: 1.9
  - 2026: 0.4
  - 2027: -0.6
- Noninterest revenues:
  - 2021: 36.3
  - 2022: 41.9
  - 2023: 41.9
  - 2024: 39.7
  - 2025: 38.5
  - 2026: 38.7
  - 2027: 39.6
- Noninterest expenditures:
  - 2021: 37.4
  - 2022: 58.2
  - 2023: 47.7
  - 2024: 42.8
  - 2025: 40.3
  - 2026: 39.1
  - 2027: 39.1
- Automatic debt dynamics:
  - 2021: -10.4
  - 2022: 20.7
  - 2023: -6.4
  - 2024: -1.1
  - 2025: -1.2
  - 2026: -1.1
  - 2027: 0.1
- Real interest rate and relative inflation:
  - 2021: -2.7
  - 2022: -4.9
  - 2023: -3.4
  - 2024: 1.7
  - 2025: 1.6
  - 2026: 2.1
  - 2027: 2.6
- Real interest rate:
  - 2021: -9.0
  - 2022: -13.2
  - 2023: -14.6
  - 2024: -5.7
  - 2025: -2.8
  - 2026: -0.3
  - 2027: 1.0
- Relative inflation:
  - 2021: 6.3
  - 2022: 8.4
  - 2023: 11.2
  - 2024: 7.4
  - 2025: 4.4
  - 2026: 2.4
  - 2027: 1.6
- Real growth rate:
  - 2021: -2.0
  - 2022: 25.6
  - 2023: -3.0
  - 2024: -2.9
  - 2025: -2.8
  - 2026: -3.2
  - 2027: -2.5
- Other identified flows:
  - 2021: -0.1
  - 2022: -1.3
  - 2023: -0.9
  - 2024: 0.9
  - 2025: -0.7
  - 2026: -0.6
  - 2027: -0.6
- Contingent liabilities:
  - 2021: 0.0
  - 2022: 0.0
  - 2023: 0.0
  - 2024: 1.7
  - 2025: 0.0
  - 2026: 0.0
  - 2027: 0.0
- Contribution of residual:
  - 2021: -3.5
  - 2022: 4.5
  - 2023: 1.1
  - 2024: -2.1
  - 2025: -0.9
  - 2026: 1.3
  - 2027: 1.8
- Gross financing needs:
  - 2021: 5.9
  - 2022: 29.7
  - 2023: 21.5
  - 2024: 22.4
  - 2025: 21.7
  - 2026: 19.3
  - 2027: 18.7
- Of which: debt service:
  - 2021: 4.8
  - 2022: 13.4
  - 2023: 15.6
  - 2024: 17.6
  - 2025: 19.8
  - 2026: 18.9
  - 2027: 19.2
- Local currency debt service (component of debt service):
  - 2022: 8.7
  - 2023: 12.5
  - 2024: 10.9
  - 2025: 13.0
  - 2026: 13.0
  - 2027: 12.6
- Foreign currency debt service (component of debt service):
  - 2022: 4.7
  - 2023: 3.2
  - 2024: 6.7
  - 2025: 6.8
  - 2026: 5.9
  - 2027: 6.6
- Memo: Real GDP growth (percent):
  - 2021: 3.4
  - 2022: -35.0
  - 2023: 3.5
  - 2024: 3.4
  - 2025: 3.2
  - 2026: 3.8
  - 2027: 3.0
- Memo: Inflation (GDP deflator; percent):
  - 2021: 25.1
  - 2022: 28.6
  - 2023: 27.3
  - 2024: 16.0
  - 2025: 10.0
  - 2026: 6.5
  - 2027: 5.0
- Memo: Nominal GDP growth (percent):
  - 2021: 29.3
  - 2022: -16.3
  - 2023: 31.7
  - 2024: 19.9
  - 2025: 13.6
  - 2026: 10.6
  - 2027: 8.2

- Baseline scenario commentary:
  - "The war leads to a step rise in Ukraine’s debt-to-GDP ratio. Forward-looking assumptions are highly tentative. The DSA assumes war impacts declining, and front-loaded, concessional financial support through 2024."
  - "Debt service assumptions include the August 2022 debt service standstill agreed with private bondholders and warrant holders, but not the recent bilateral standstill, for which data is pending."
  - "The standstill results in a low effective interest rate in 2022-23, which then jumps once postponed payments resume."
  - "The baseline sees a subdued recovery, with inflation slowing over time. The interest rate-growth differential offsets slow fiscal adjustment, given headwinds from elevated spending pressure. This leads to a flat medium-term debt trajectory."

*Source: Fund staff.*

### Realism of Baseline Assumptions and Fiscal Dynamics (Annex Figure I.3)
- Key risk drivers and judgments:
  - Forecast track record based on Ukraine's history points to persistent optimism for medium-term indicators; however, the scale and uncertainty of the war shock necessitate caution.
  - Key debt drivers: the primary deficit (due to high defense spending in the near term) and a likely sluggish recovery.
  - Monetization drives marginal interest rates higher in 2022.
  - The three-year fiscal adjustment based on 2021-24 "seems feasible" but depends critically on the duration of the war and the speed of reversing the very large 2022 deficit.
  - Historical precedent: "Ukraine has previously achieved a relatively large fiscal adjustment of 5.5 percent of GDP, although this will face considerable headwinds from a slow recovery."
  - Assumptions on multipliers and the pace at which the output gap closes are conservative.

*Source: IMF Staff.*

### Medium-term Risk Analysis (Annex Figure I.4)
- Mechanical modules and signals:
  - Both medium-term modules (debt fan chart and GFN financeability) signal high sovereign stress risks.
  - Fanchart indicates very high uncertainty around the forecast and suggests a high probability that debt-carrying capacity is stretched.
  - GFN stress tests find persistently high financing needs, especially in the near term, and limited scope for banks to absorb government debt.
  - As a result, the mechanical signal substantially exceeds the high risk threshold.
- Probabilities (2022–2027):
  - Prob. of missed crisis, 2022-2027 (if stress not predicted): 100.0 pct.
  - Prob. of false alarm, 2022-2027 (if stress predicted): 0.0 pct.
- Index excerpts (as reported):
  - Debt fanchart index: normalized level and weight in MTI shown in source tables (indicative: high).
  - GFN financeability index: "7.6" (index number reported in source figure).
- Commentary summary:
  - "The high risk signal for fanchart width points to a structural break and very high uncertainty around the forecast."
  - "The GFN stress tests find persistently high financing needs, especially in the near term, as well as limited scope for banks to absorb government debt."

*Source: Fund staff.*

### Authorities' Letter of Intent — Key commitments and context (selected paragraphs)
- Principal context and requests:
  - The letter is dated October 1, 2022.
  - Ukraine requested financial assistance from the IMF under the food shock window of the Rapid Financing Instrument (RFI) in the amount equivalent of SDR 1,005.9 million, corresponding to a purchase of 50 percent of Ukraine’s quota.
  - Request that the purchase be disbursed into Ukraine’s SDR holdings account.
  - Request for Program Monitoring with Board involvement (PMB), expected to pave the way for an Upper Credit Tranche arrangement in the near future.
- Macro and humanitarian context (authorities' statements):
  - "In addition to a large loss of life, over a third of Ukrainians have either left the country or been internally displaced, and infrastructure damage is estimated at around 60 percent of 2021 GDP."
  - "GDP is projected to collapse by more than a third this year, and the outlook for next year remains highly dependent on the length and intensity of the war."
- Policy actions and commitments:
  - Exchange rate and monetary policy: devaluation of the exchange rate in July, NBU key policy rate increased from 10 to 25 percent in June, tightening in capital controls.
  - Fiscal policy: compressed non-priority expenditures and reoriented spending towards critical needs and defense.
  - NBU purchases of government war bonds on the primary market have been largely sterilized and base money growth has remained contained.
  - Commitments under safeguards policy: to undergo a new safeguards assessment of the National Bank of Ukraine and continue providing NBU audit reports and auditor access to IMF staff.
  - Commitment not to introduce or intensify exchange and trade restrictions that would compound balance of payments difficulties; gradual removal of restrictions as situation normalizes, in consultation with IMF staff.
  - If RFI funds are used for budget support, commit to a memorandum of understanding between the National Bank of Ukraine and the Ministry of Finance clarifying responsibilities for timely servicing of IMF obligations.
- Financing and risks:
  - Despite large external official multilateral and bilateral support, balance of payments and fiscal financing needs remain large, including a major shortfall of cereal export receipts.
  - Identified risks include prolonged war, renewed loss of port access, pressure on gas stocks, and contingent liabilities from SOEs in the energy sector and from the banking sector.
  - Authorities view RFI support as catalytic for additional official financing to close the residual 2022 financing gap.
- Signature block:
  - Sergii Marchenko, Minister of Finance of Ukraine
  - Kyrylo Shevchenko, Governor, National Bank of Ukraine

*Source: Fund staff.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1ukrea2022002.pdf_