## 1ukrea2022003 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [1ukrea2022003 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2022/english/1ukrea2022003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1ukrea2022003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1ukrea2022003.pdf.json) --- ### Context and immediate impacts - Russia’s invasion of Ukraine continues to have a devastating social and economic impact: civilian casualties mounting and over a third of the population displaced. - Kyiv School of Economics estimated direct physical damage to infrastructure at US$127 billion as of September, over 60 percent of pre-war GDP. - Civilian casualties (as of October 23, 2022): at least 16,150 verified civilian casualties (6,370 civilians killed and nearly 9,780 injured). - Migration and displacement (as of October 2022): 7.8 million Ukrainian refugees recorded in Europe and 6.5 million IDPs. - Labor market effects: ILO estimates job losses could reach 2.4 million in 2022, corresponding to a 15.5 percentage point decline in total employment. - Access to basic needs and social impacts: - Up to 16 million people (37 percent of the pre-war population) need water, sanitation, and hygiene assistance. - Some 14.5 million people (a third of the population) need health assistance. - Over 11.2 million people (a quarter of the population) are in need of emergency shelter or vital household items. - 9.3 million people (21 percent of the population) require food and livelihood assistance. - Poverty projections: - World Bank baseline: population share below the national poverty line may more than triple, reaching nearly 60 percent in 2022. - Using global threshold US$6.85 a day (2017PPP): poverty projected to increase from 5.5 percent in 2021 to 25 percent in 2022. ### Macroeconomic performance and outlook - Real activity: - Third-quarter 2022: real GDP decline of 35 percent y/y estimated for 2022Q3. - Real output is projected to contract by 40.5 percent y/y in 2022Q4, bringing the contraction for 2022 as a whole to 33 percent. - About 80 percent of the economy is outside of active combat zones; firms adapting (share of firms stopped working fell from 75 percent in March to 11 percent by September). - Recent strikes assessed to have damaged over 40 percent of the power grid, weighing on 2022Q4 and 2023Q1. - Inflation: - Consumer prices rose 2.5 percent m/m, bringing headline inflation to 26.6 percent y/y in October. - Core inflation: 1.9 percent m/m and 21.5 percent y/y in October. - One-year ahead inflation expectations stabilized at elevated levels. - Projections and scenarios: - Staff central scenario: real GDP growth expected at 1 percent in 2023 (stabilization after difficult winter). - Central scenario inflation profile: expected to remain elevated at 25 percent for the year; end-2023 (eop) inflation under scenarios: Central: 22.5; Downside: 40.0; Upside: 20.0. - Selected 2023 scenario indicators (selected): - Real GDP, growth: Central: 1.0; Downside: -12.5; Upside: 10.0. - Real GDP, as share of pre-war GDP: Central: 68; Downside: 55; Upside: 77. - FX Reserves (US$ billion): Central: 21.0; Downside: 18.0; Upside: 22.9. - External financing needs (US$ billion): Central: 39.5; Downside: 49.0; Upside: 38.9. ### Fiscal outcomes, financing, and risks - Fiscal pressures and outcomes: - Cumulative fiscal deficit excluding grants ballooned to 15.9 percent of GDP in September. - Overall fiscal deficit was about 8.7 percent of GDP in September, on account of substantial external grants. - Expenditures projected to be about 52 percent higher in nominal terms than the initial (pre-war) 2022 budget. - Tax revenues projected to almost reach pre-war budget 2022 revenues in nominal terms, with VAT and excises suffering sharp shortfalls. - Financing through end-October: - External budget support loans totaled US$12.6 billion (8.7 percent of 2022 GDP). - Budget support grants amounted to about US$10.5 (7.3 percent of 2022 GDP). - Monetary financing reached US$10.8 billon (7.2 percent of GDP). - Government deposits in the banking sector (including NBU) accumulated about 3 percent of GDP. - 2022–2023 budget highlights and gaps: - October supplementary budget increased spending by UAH 387 billion, mostly current expenditure (including accrued wages of UAH 233 billion). - Measures to close financing gap identified: - Under-execution of expenditure contracts: UAH145 billion (3.1 percent of GDP). - Higher net VAT due to lower VAT refund claims: UAH16 billion (0.3 percent of GDP). - Additional domestic borrowing: UAH 13 billion (0.3 percent of GDP). - Draws from Treasury Single Account and local account liquidity: about UAH 120 billion (2.6 percent of GDP). - Residual general government financing gap after these measures: UAH 67 billion (1.4 percent of GDP). - 2023 budget targets a deficit (excluding grants) of about UAH 1.3 trillion (21.4 percent of GDP). - Tax revenues projected to decline by about 6 percentage points of GDP. - Current expenditures assumed to decline by 22 percentage points of GDP. - Public sector wage bill set at about UAH 943 billion (16.7 percent of GDP), a 27 percent nominal reduction relative to 2022. - Special fund for repair/reconstruction: authorities estimate up to US$17 billion (about 10 percent of GDP); staff judge absorption capacity likely to limit spending to a maximum of US$8 billion in the year. - Spending initially limited to 50 percent of NBU’s profit transfer for 2023, preliminarily estimated at UAH 35 billion (0.6 percent of GDP). ### Program request, design, and financing needs (PMB) - Authorities requested a 4-month PMB tailored to exceptional circumstances to help implement macroeconomic policies and catalyze donor financing. - PMB main objectives: - Ensure adequate resources for core state functions (above all defense). - Maintain macroeconomic and financial stability. - Enhance revenue mobilization, contain monetary financing, and revive domestic debt markets. - Promote transparency and preserve governance and NBU independence achievements. - External financing needs (staff analysis): - At least US$39.5 billion in a central scenario for 2023. - Could reach up to US$57 billion in a downside scenario. - Frontloaded disbursements would help address strains in early 2023. - PMB structure and conditionality: - Targeted policy actions to support macroeconomic and financial stability. - Parsimonious conditionality monitored by structural benchmarks and quantitative targets, with commitments for timely data provision. - Quantitative targets include floors on the non-defense cash primary balance and on net international reserves; indicative targets include a ceiling on general government borrowing from the NBU and a floor on the overall cash balance excluding grants. - Structural benchmarks (five, all timed End-January 2023) focus on arrears action plan, tax laws (three drafts), social safety net concept note, bank diagnostics terms of reference, and appointment/operationalization of Naftogaz supervisory board. ### Monetary policy, FX, and banking system operations - Monetary stance and actions: - Inflation targeting was replaced by a hard peg to the US dollar, supported by FX controls and a sizeable increase in policy interest rates. - KPR: 25 percent (October); KPR hike in June: 1,500 bps. - Base money growth remained weak, at 12.2 percent y/y as of end-October (also reported as about 12.3 percent y/y in end-October context). - Broad money growth: 19.8 percent y/y as of end-October. - Credit growth: 1.8 percent y/y (-19.6 percent in real terms). - NBU suspended the unsecured refinancing facility on November 5. - FX market, reserves, and trade: - Trade deficit (Jan–Sep): US$9 billion. - Current account surplus (Jan–Sep): US$8.5 billion. - Gross reserves: US$24.7 billion (as of November 15); US$30.9 billion (end-2021). - NBU net FX sales: about US$300 million (August); highs US$0.9–1 billion (pre-July); US$800 million (late September); US$200 million (mid-November). - Cash market gap peak: 17 percent; reduced to 10 percent. - NBU cumulative net FX sales since February 24: US$18.5 billion as of end-November (also reported: NBU recorded US$18.5 billion in net FX sales since February 24 as of end-November). - Banking system operations and asset quality: - Bank branches operational: 89 percent (end-October). - NPL ratio: 16.5 percent (end-May); 32.2 percent including PrivatBank legacy related-party NPLs. - Loan loss provisions: UAH33 billions (Mar–May). - Retail loan portfolio change: around -10 percent. - Liquidity: Banking system liquidity at an all-time high: UAH 361 billion or US$9.9 billion in NBU CDs as of end-November. - Primary market bond yields in the 16-19 percent range; NBU overnight CDs offer 23 percent. - Banks’ rollover rates on government bonds: 37 percent between July-August 2022, rising to 63 percent in October 2022. ### Domestic financing strategy and monetary measures - Policy objective: shift toward domestic financing that eliminates reliance on monetary financing; requires increased domestic issuance given limited near-term external market access. - Authorities’ multi-pronged strategy to improve domestic rollover rates: - Adjust yields on the primary market to match market demand and allow price discovery. - Allow banks to fulfil up to half of their reserve requirements with benchmark government securities, expected to generate a one-time increase in demand of about UAH 40 billion in the primary market. - Conduct bank-by-bank analysis of liquidity conditions to inform auction design. - Reserve requirement measure and design: - Reserve requirements to be increased by 5 percentage points on hryvnia and FX demand deposits. - Banks allowed to meet up to half of reserve requirements with government securities; up to 40 percent of that can comprise existing benchmark securities. - Expected additional primary market demand: around UAH 40 billion, assuming full use. - Drawbacks noted and recommendation to phase out inclusion of government bonds in reserve requirements once conditions permit. - Indicative targets on monetary financing: - PMB establishes an indicative target on monetary financing: for December 2022, ceiling consistent with planned NBU purchases of war bonds of an annual amount of UAH400 billion. - Indicative target for end-March 2023 set at zero. - PMB allows monetary financing of up to UAH 50 billion for 2023Q1 if temporary shortfall in external financing is first covered by higher-than-programmed issuance in the local government bond market. ### Financial sector strategy, diagnostics, and governance - Emergency measures were crucial but temporary; update of financial sector strategy planned to transition away from emergency measures and restore prudential norms. - NBU to prepare Terms of Reference for bank diagnostics by end-January 2023 (Structural Benchmark). - Financial sector diagnostic elements: asset quality review, solvency stress tests, capital shortfall framework, NPL resolution framework, contingency plans for litigation and constitutional challenges. - Governance of SOBs: - Recruitment to renew independent supervisory board members initiated; selection process expected to complete in first quarter of 2023. - Commitment to ensure supervisory boards operate free from political pressure and apply fit and proper assessments rigorously. - Naftogaz and SOE governance: - Appoint and make fully operational the supervisory board of Naftogaz based on transparent and competitive selection procedures (Structural Benchmark, End-January 2023). - Special fund for reconstruction governance commitments: selection criteria, inclusion in budget documentation, inclusion in TSA, safeguards, reporting, and audits. ### Risks, DSA findings, and contingency planning - Risks are exceedingly high and the range of plausible scenarios is extremely wide. - RAM highlights high-likelihood external risks: intensification of the war (Likelihood: High; Overall level of concern: High); commodity price shocks (High/High); abrupt global slowdown (Medium/High); de-anchoring of inflation expectations (Medium/Medium). - Domestic risks: Social unrest (Likelihood: Medium; Overall level of concern: High); loss of reform momentum (Medium/High); local Covid-19 outbreaks (Medium/Medium). - Structural risks: Deepening geo-economic fragmentation (Likelihood: High; Overall level of concern: High); Cyberthreats (Likelihood: High; Overall level of concern: High). - Debt Sustainability Analysis (DSA) key points: - Overall assessment: balance of probabilities suggests Ukraine has an unsustainable level of debt, but very high uncertainty makes precise requirements to restore sustainability difficult to estimate. - Public debt (percent of GDP): Actual 2021: 47.6; 2022: 89.4; 2023: 89.9; 2024: 89.8. - Gross financing needs (percent of GDP): 2022: 30.5; 2023: 18.9; 2024: 22.5. - Fanchart width: 148.0; Probability of debt not stabilizing (pct): 71.2. - Staff assess external financing needs for 2023 of US$39.5–US$57 billion depending on scenario; maintaining coverage of 80 percent of the ARA metric in 2023 would require additional external financing of about US$6 billion. - Contingency planning: authorities need contingency plans, including options to mobilize additional domestic financing to complement donor support under downside scenarios. ### Quantitative targets, structural benchmarks, and monitoring - PMB duration: 4-month PMB with one test date. - Quantitative conditionality test date: end-December 2022. - Additional guidance: end-March 2023 indicative targets included in staff report. - Quantitative Targets (selected values from MEFP Table 7): - Floor on the non-defense cash primary balance of the general government, excluding grants: 2022 (December): 86,950; 2023 (March): -8,240. - Floor on net international reserves (in millions of U.S. dollars): 2022 (December): 15,000; 2023 (March): 11,500. - Floor on the overall cash balance of the general government, excluding grants: 2022 (December): -1,425,762; 2023 (March): -506,476. - Ceiling on general government borrowing from the NBU: 2022 (December): 88,500; 2023 (March): -7,600. - Structural Benchmarks (five; timing: End-January 2023): 1. Develop an action plan to prevent and clear arrears over the course of the 2023 Budget and beyond. 2. Submit to Parliament three draft laws to enhance tax revenues (cancel moratoria on tax audits; remove idiosyncrasies of 2 percent simplified tax; enforce cash registers). 3. Prepare a concept note on social safety net reforms to target new vulnerable groups while safeguarding fiscal sustainability. 4. Prepare a Terms of Reference in consultation with IMF staff describing methodology/processes of bank diagnostics. 5. Appoint and make fully operational the supervisory board of Naftogaz based on transparent and competitive procedures. ### Policy priorities and IMF staff recommendations - Ensure large, frontloaded, and predictable external financial support to maximize PMB success. - Develop contingency plans to respond to shocks and possible materialization of large shocks. - Increase transparency and governance: - Timely tracking and reporting of budget arrears. - Advance decisively on governance reforms and independent anti-corruption institutions to maintain donor confidence. - Fiscal measures: - Implement measures in the 2023 budget to increase tax revenues. - Develop an integrated roadmap of tax policy and administration measures, restoring short-term tax administration and policies to pre-war setup. - Prepare and implement an action plan to prevent and clear arrears. - Domestic financing and debt market: - Foster higher rollover rates on domestic debt markets; maintain overall domestic bank exposure to the sovereign to protect scarce financial resources. - Facilitate elimination of monetary financing in 2023. - Financial sector governance: - Prepare and execute bank diagnostics (methodology and processes) to assess bank capital adequacy and identify NPL resolution priorities. - Appoint and operationalize the supervisory board of Naftogaz through transparent and competitive procedures. ### Reporting, data provision, and institution-level commitments - Data provision obligations and reporting timelines highlighted across the TMU: - NBU: daily operational data on net and gross international reserves; monthly sectoral balance sheets no later than the 25th day of the following month; daily and monthly data on NBU financing operations and mopping up (CDs) in formats/timeliness agreed with IMF staff. - Ministry of Finance/Treasury: monthly consolidated balances of other non-general government entities no later than 25 days after the end of the month; monthly cash-balance reporting no later than 15 days after the end of the month; monthly and quarterly treasury reports to IMF no later than 25 and 35 days after the end of the period respectively. - STS and SCS: STS monthly data on tax arrears and VAT refunds no later than 25 days after the end of the month; quarterly listing of all tax exemptions no later than two months after the end of the quarter. - Naftogaz and GTSO: monthly cash flow data no later than the 25th of the following month. - Ministry of Social Policy: quarterly data on social assistance programs in agreed format (number of households, total value of transfers, outstanding HUS debt, income per capita of participants). - TMU program accounting exchange rate: Official exchange rate for program purposes: 36.5686 (Ukrainian hryvnia per U.S. dollar) as of November 21, 2022. - Authorities consent to IMF publication of Letter, MEFP, TMU, and accompanying Executive Board documents. *Source: EXECUTIVE SUMMARY and extracted sections (1ukrea2022003).* ### EXECUTIVE SUMMARY ### 1ukrea2022003 - EXECUTIVE SUMMARY ### Context and immediate impacts - Russia’s invasion of Ukraine continues to have a devastating social and economic impact: civilian casualties are mounting, and over a third of the population has been displaced. - Kyiv School of Economics estimated direct physical damage to infrastructure at US$127 billion as of September, over 60 percent of pre-war GDP. - Civilian casualties (as of October 23, 2022): at least 16,150 verified civilian casualties (6,370 civilians killed and nearly 9,780 injured). - Migration and displacement (as of October 2022): 7.8 million Ukrainian refugees recorded in Europe and 6.5 million IDPs. - Labor market effects: ILO estimates job losses could reach 2.4 million in 2022, corresponding to a 15.5 percentage point decline in total employment. - Access to basic needs and social impacts: - Up to 16 million people (37 percent of the pre-war population) need water, sanitation, and hygiene assistance. - Some 14.5 million people (a third of the population) need health assistance. - Over 11.2 million people (a quarter of the population) are in need of emergency shelter or vital household items. - 9.3 million people (21 percent of the population) require food and livelihood assistance. - Poverty projections: - World Bank baseline: population share below the national poverty line may more than triple, reaching nearly 60 percent in 2022. - Using global threshold US$6.85 a day (2017PPP): poverty projected to increase from 5.5 percent in 2021 to 25 percent in 2022. ### Macroeconomic performance and outlook - Real activity: - Third-quarter 2022: real GDP decline of 35 percent y/y estimated for 2022Q3. - Real output is projected to contract by 40.5 percent y/y in 2022Q4, bringing the contraction for 2022 as a whole to 33 percent. - About 80 percent of the economy is outside of active combat zones; firms adapting (share of firms stopped working fell from 75 percent in March to 11 percent by September). - Recent strikes assessed to have damaged over 40 percent of the power grid, weighing on 2022Q4 and 2023Q1. - Inflation: - Consumer prices rose 2.5 percent m/m, bringing headline inflation to 26.6 percent y/y in October. - Core inflation: 1.9 percent m/m and 21.5 percent y/y in October. - One-year ahead inflation expectations stabilized at elevated levels. - Exchange rate and monetary stance: - Inflation targeting was replaced by a hard peg to the US dollar, supported by FX controls and a sizeable increase in policy interest rates. - The exchange rate experienced episodic pressure and was devalued by 25 percent in July. ### Fiscal outcomes, financing, and risks - Fiscal pressures and outcomes: - Cumulative fiscal deficit excluding grants ballooned to 15.9 percent of GDP in September. - Overall fiscal deficit was about 8.7 percent of GDP in September, on account of substantial external grants. - Expenditures projected to be about 52 percent higher in nominal terms than the initial (pre-war) 2022 budget. - Tax revenues projected to almost reach pre-war budget 2022 revenues in nominal terms, with VAT and excises suffering sharp shortfalls. - Financing sources through end-October: - External budget support loans totaled US$12.6 billion (8.7 percent of 2022 GDP). - Budget support grants amounted to about US$10.5 (7.3 percent of 2022 GDP). - Monetary financing reached US$10.8 billon (7.2 percent of GDP). - Large financing disbursements also resulted in an accumulation of government deposits in the banking sector (including NBU) of about 3 percent of GDP. - Domestic government bond market: - Net financing from domestic commercial banks has been negative since the beginning of the war despite ample liquidity. - Yields at government auctions have not kept pace with inflation and the increase in the NBU’s key policy rate (KPR), remaining very negative in real terms. ### Program request, design, and financing needs - Authorities requested a 4-month PMB tailored to exceptional circumstances to help implement macroeconomic policies and catalyze donor financing. - PMB main objectives: - Ensure adequate resources for core state functions (above all defense). - Maintain macroeconomic and financial stability. - Enhance revenue mobilization, contain monetary financing, and revive domestic debt markets. - Promote transparency and preserve governance and NBU independence achievements. - External financing needs (staff analysis): - At least US$39.5 billion in a central scenario for 2023. - Could reach up to US$57 billion in a downside scenario. - Frontloaded disbursements would help address strains in early 2023. - PMB structure: - Targeted policy actions to support macroeconomic and financial stability. - Parsimonious conditionality monitored by structural benchmarks and quantitative targets, with commitments for timely data provision. - Expected to catalyze donor coordination and enhance transparency in commitments and disbursements of aid flows. - Strong PMB implementation could pave the way toward a possible future upper credit tranche (UCT) arrangement. ### Key policy areas and commitments under the PMB - Fiscal policy: - Nine months after the start of the war, the fiscal program aims to ensure adequate spending on core functions while maintaining macroeconomic stability and initiating fiscal reform measures. - Authorities incorporated 0.6 percent of GDP in revenue measures in the 2023 budget and committed to further measures to rebuild revenues, including by revoking tax measures introduced under Martial Law. - To strengthen budget execution: prepare an action plan to prevent and clear arrears and develop a concept note to strengthen the social safety net while safeguarding fiscal sustainability. - Domestic financing and monetary policy: - Strengthening government debt rollover rates is desirable and feasible; requires tapping domestic market liquidity and supporting the objective of eliminating reliance on monetary financing in 2023. - NBU plans to increase reserve requirements and allow banks to fulfill them in part through government bond holdings to manage liquidity and incentivize government bond purchases. - Financial sector: - Authorities need to prepare to unwind emergency measures and gradually re-align banking sector norms with international standards as conditions allow. - Commitments include preparing a financial sector strategy and, in the near term, finalizing a terms of reference on bank diagnostics (one aspect of the strategy). - Transparency, governance, and anti-corruption: - PMB includes data reporting requirements; progress on the Ministry of Finance’s authority to collect data is essential. - Commitments to strengthen governance of state-owned enterprises and banks, finalize appointments at independent anti-corruption institutions, and preserve NBU independence. ### Risks, scenarios, and contingency planning - Risks are exceedingly high and the range of plausible scenarios is extremely wide. - Staff’s central scenario assumes economic stabilization in 2023, but further large shocks could preclude fully meeting program targets as originally envisaged. - Authorities need contingency planning to continue responding to shocks, particularly under a severe downside scenario, including further options to mobilize additional domestic financing to complement donor support. *Source: EXECUTIVE SUMMARY (1ukrea2022003).* ### 9. The NBU has tightened monetary policy to help safeguard price and external stability ### 9. The NBU has tightened monetary policy to help safeguard price and external stability ### Monetary policy actions and liquidity management - The NBU kept its KPR at 25 percent in October, citing inflation developments, elevated expectations, the weak economic outlook, and incomplete transmission of the 1,500 bps KPR hike in June. - This implies ex ante real rates given different agents’ inflation expectations in a 1-8 percent range as of September 2022. - On November 5, the NBU suspended the unsecured refinancing facility introduced following the start of the war. - Base money growth remained weak, at 12.2 percent y/y as of end-October, as the NBU has sterilized monetary financing with FX sales and NBU certificates of deposits (CDs). - Staff assess that the monetary financing of the fiscal deficit has not yet had a direct material impact on inflation. Key statistics (monetary): - KPR: 25 percent (October) - KPR hike in June: 1,500 bps - Inflation expectations range (September 2022): 1-8 percent - Base money growth: 12.2 percent y/y (as of end-October) ### FX market, reserves, and trade balance - Trade: imports recovered faster than exports after the initial shock; total imports about three-quarters of pre-war levels. Exports constrained by logistical bottlenecks and destruction of productive capacity. - Trade deficit: US$9 billion for January–September. - Services balance shifted to a deficit due to bank account withdrawals by migrants abroad. - Income balances supported by grants and humanitarian support, yielding a current account surplus of US$8.5 billion for January–September. - FX market pressures eased after the July devaluation; weekly NBU net sales of FX: - About US$300 million in August (down from highs of US$0.9–1 billion prior to July devaluation). - Rebounded to US$800 million in late September due to slow external inflows, seasonal agriculture-related import demand, shortage of physical FX cash, and precautionary demand after Russia’s mobilization announcement. - Eased to US$200 million by mid-November. - Cash market premium: widened to 17 percent after FX pressures, later brought back to 10 percent via measures and inflows. - Gross reserves: US$24.7 billion as of November 15 (down from US$30.9 billion at end-2021), about 3 months of imports, or 80 percent of the Fund’s ARA metric. Key statistics (FX and trade): - Trade deficit (Jan–Sep): US$9 billion - Current account surplus (Jan–Sep): US$8.5 billion - NBU net FX sales: US$300 million (August); US$0.9–1 billion (pre-July highs); US$800 million (late September); US$200 million (mid-November) - Gross reserves: US$24.7 billion (as of November 15); US$30.9 billion (end-2021) - Cash market gap peak: 17 percent; reduced to 10 percent ### Banking system operations and asset quality - As of end-October, 89 percent of bank branches remained operational; online banking services fully available; non-cash payment system functioning in non-combat areas. - Liquidity Coverage Ratio and High-Quality Liquid Assets remain high for most banks, enabling early repayment of refinancing loans. - Official non-performing loans (NPL) ratio as of end-May: 16.5 percent. (NPL ratio rises to 32.2 percent when PrivatBank’s legacy related-party NPLs are included.) - Banks recorded UAH33 billions of loan loss provisions for credit losses between March and May, a four-fold increase over the previous year. - Retail loan portfolios shrank by around 10 percent and mortgage lending halted; corporate lending grew slightly due to government support schemes. - Broad money growth: 19.8 percent y/y as of end-October, supported by deposit growth amid withdrawal restrictions. - Credit growth slowed to 1.8 percent y/y (-19.6 percent in real terms). Key statistics (banking): - Bank branches operational: 89 percent (end-October) - NPL ratio: 16.5 percent (end-May); 32.2 percent including PrivatBank legacy related-party NPLs - Loan loss provisions: UAH33 billions (Mar–May) - Retail loan portfolio change: around -10 percent - Broad money growth: 19.8 percent y/y (end-October) - Credit growth: 1.8 percent y/y (-19.6 percent in real terms) ### Outlook, scenarios, and risks - Staff central scenario: stabilization of activity in 2023 after a difficult winter, assuming no large-scale intensification of the war and continued operation of the BSGI; real GDP growth expected at 1 percent in 2023. - Central scenario drivers: weak harvest in 2023Q1, subdued consumer sentiment, repair of energy infrastructure, base effects from 2022 decline, continued government defense spending, some private activity uptick, possible small net migration inflows by end-2023. - Inflation expected to remain elevated at 25 percent for the year, mainly due to logistical constraints. - Risks are heavily tilted to the downside. Key risks: scale/intensity/duration of the war; damage to energy, water, transportation infrastructure; elevated input prices; erosion of external financing; excessive monetary financing; tighter global financial conditions. - If disruptions resolve quickly and security improves, recovery could be stronger, yielding real GDP growth in 2023 of about 3-4 percent or higher. Selected scenario table (selected indicators for 2023) - Real GDP, growth: - Central: 1.0 - Downside: -12.5 - Upside: 10.0 - Real GDP, as share of pre-war GDP: - Central: 68 - Downside: 55 - Upside: 77 - Inflation (eop, percent): - Central: 22.5 - Downside: 40.0 - Upside: 20.0 - Trade balance (US$ billion): - Central: -30.4 - Downside: -30.7 - Upside: -30.5 - Exports (US$ billion): - Central: 39.7 - Downside: 38.3 - Upside: 42.4 - Imports (US$ billion): - Central: -70.1 - Downside: -69.0 - Upside: -72.9 - CA balance (US$ billion): - Central: -5.7 - Downside: -2.6 - Upside: -4.7 - FX Reserves (US$ billion): - Central: 21.0 - Downside: 18.0 - Upside: 22.9 - FX Reserves (percent of ARA metric): - Central: 62 - Downside: 51 - Upside: 65 - Total revenues, share of GDP: - Central: 47.5 - Downside: 52.0 - Upside: 45.8 - Total expenditures, share of GDP: - Central: 56.5 - Downside: 68.8 - Upside: 53.7 - Overall balance, share of GDP: - Central: -9.1 - Downside: -16.8 - Upside: -7.9 - Debt/GDP: - Central: 89.9 - Downside: 111.4 - Upside: 75.3 - External financing needs (US$ billion): - Central: 39.5 - Downside: 49.0 - Upside: 38.9 - Under the central scenario, external financing needs of US$39.5 billion in 2023 are estimated assuming no monetary financing and domestic government bond financing consistent with an 80 percent rollover rate. - In the downside scenario, external financing needs rise by US$9.5 billion to US$49 billion. - In the upside scenario, external financing needs could amount to US$38.9 billion. - Repair and reconstruction financing requirements could further increase external financing needs. ### Policy objectives and fiscal measures (high-level) - Core objectives of the PMB: support macroeconomic stabilization, secure adequate external financing, and prepare authorities to implement a potential UCT-quality program in 2023. - Key policy objectives: (i) buttress fiscal and external stability by enhancing revenue mobilization and containing monetary financing to revive domestic debt markets; (ii) contribute to long-term financial stability; (iii) promote transparency and preserve governance, anti-corruption, and NBU independence gains. - Authorities to undertake contingency planning. Fiscal measures and financing gap (2022 end and 2023 budget highlights) - October supplementary budget increased spending by UAH 387 billion, mostly current expenditure (including accrued wages of UAH 233 billion). - Measures identified to close financing gap: - Under-execution of expenditure contracts: UAH145 billion (3.1 percent of GDP). - Higher net VAT due to lower VAT refund claims: UAH16 billion (0.3 percent of GDP). - Additional domestic borrowing: UAH 13 billion (0.3 percent of GDP). - Draws from Treasury Single Account and local account liquidity: about UAH 120 billion (2.6 percent of GDP). - Residual general government financing gap after these measures: UAH 67 billion (1.4 percent of GDP). - 2023 budget targets a deficit (excluding grants) of about UAH 1.3 trillion (21.4 percent of GDP). - Tax revenues projected to decline by about 6 percentage points of GDP. - Current expenditures assumed to decline by 22 percentage points of GDP. - Public sector wage bill set at about UAH 943 billion (16.7 percent of GDP), a 27 percent nominal reduction relative to 2022. - Special fund for repair/reconstruction could reach US$17 billion (about 10 percent of GDP) according to authorities; staff judge absorption capacity likely to limit spending to a maximum of US$8 billion in the year. - Spending from the special fund initially limited to 50 percent of NBU’s profit transfer for 2023, preliminarily estimated at UAH 35 billion (0.6 percent of GDP). *Source: 1ukrea2022003 - 9. The NBU has tightened monetary policy to help safeguard price and external stability* ### 24. The risks to expenditure in the 2023 budget are large, with a high likelihood of ### 24. The risks to expenditure in the 2023 budget are large, with a high likelihood of materialization of key spending pressures ### Key expenditure risks and quantified pressures - Arrears - Staff assumes additional spending of about 0.5 percent of GDP for arrears clearance in 2023 (central scenario). - Arrears may emerge in 2022 with carryover effects for 2023 and beyond. - Energy sector - Additional expenditures will likely be needed to support the energy sector (see Box 3). - Social assistance - Partial indexation of social assistance beyond the minimum subsistence level would cost 2.2 percent of GDP (assuming no changes in the current framework). - New vulnerable groups (e.g., IDPs, war veterans) may require additional support under current arrangements. - Contingent liabilities - Risks from PPPs, guarantees, SOEs, and banks are growing as the war continues. - Authorities committed to strengthening link between fiscal risks assessment and impacts on spending categories, including monitoring government guarantees. ### Revenue mobilization measures (authorities' near-term and medium-term actions) - Near-term legislative actions (three draft laws; Structural Benchmark, end-January 2023, MEFP ¶15) - Cancel moratoria on tax audits (effective July 1, 2023). - Remove idiosyncrasies of the simplified tax regime (single tax of 2 percent) and restore pre-war regime for taxpayers who became eligible for the 2 percent simplified tax regime in the context of Martial law (effective 1 July, 2023). - Estimated revenue gains from this measure assessed at about 0.13 percent of GDP for 2023. - Ensure full-scale enforcement of the usage of cash registers in retail outlets (and associated settlement and payment infrastructure), including restoring liability for violations (effective July 1, 2023). - Automatic exchange of information - Implement the Common Reporting Standard (CRS) to strengthen cross-border tax evasion detection; legislation under preparation. - Tax policy and administration roadmap - With IMF Technical Assistance, develop an integrated roadmap of tax policy and administration measures, including restoring short-term tax administration and policies to pre-war setup. - Longer-term plans to modernize revenue administration, including limiting PIT evasion via the simplified tax regime for group 3 taxpayers. ### Fiscal structural reforms and PFM measures to contain spending pressures - Social assistance reform - Prepare a concept note (Structural Benchmark, end-January 2023; MEFP ¶17) on post-war social assistance strategy to reconcile needs of new vulnerable groups with fiscal sustainability. - Aim: targeted, adequate, and efficiently delivered social assistance; Fund’s Fiscal Affairs Department and World Bank to provide TA and advice. - Regaining budget control and payment discipline (PMB actions) - Develop action plan to prevent and clear arrears during the 2023 Budget and beyond (Structural Benchmark, end-January 2023, MEFP ¶12). - Initiate legislative amendments to restore the MoF (Treasury's) authority to collect essential financial reporting information to monitor arrears monthly across state, local levels, and Social Security Funds. - Commit to settle existing obligations in accordance with budget legislation in a structured and transparent manner, mindful of Martial Law. - Improve cash forecasting and liquidity management in line with the PFM Reform Strategy for 2022–25, enhance exchange of information with spending units, and introduce analytical IT tools. - Fiscal risk analysis and credibility of projections - Apply fiscal risk analysis to inform macro fiscal aggregates and management with IMF TA support. - Develop upside and downside scenarios around central tax revenue projections. - Deepen analysis of links between fiscal risks and specific spending categories, including social funds and contingent liabilities (PPPs, guarantees, SOEs); continue work to enhance monitoring of government guarantees. ### Special fund for repair and reconstruction (public finance and investment management) - MOF commitments for the special fund: - Prepare clear and transparent selection criteria and procedures for priority spending to be approved by the Cabinet of Ministers of Ukraine (CMU). - Include underlying amounts in budget documentation and fiscal reports. - Include cash resources in the Treasury Single Account. - Establish safeguards and reporting on use of funds, and conduct and publish audits. ### Box 3 — Spending pressures in the energy sector (quantified elements) - Electricity infrastructure - Strikes since October 10 have damaged around 40 percent of Ukraine’s electricity infrastructure. - NEURC considering increase in TSO tariff of about 50 percent to provide resources to Ukrenergo. - If further resources needed for urgent repairs, authorities committed to ensure adequate financial support (MEFP ¶18). - Gas sector - Disruptions to usual power generation are increasing need for gas in energy mix by about 2 to 3 billion cubic meters (bcm). - Staff’s central scenario assumes gas purchases of 5 bcm will be needed in 2023, evenly spread over 12 months. - Government already providing budget support to Naftogaz through implicit subsidy in form of foregone gas royalty revenues, estimated around UAH145 billion (US$3.5 billion) for 2023. - Staff estimate that up to UAH150 billion (US$3.6 billion) in additional financial support to Naftogaz, the GTSO, and DHCs could be required in 2023. - Retail gas prices fixed at UAH 7.4 per cubic meter, significantly below import parity prices. ### Domestic financing strategy and market conditions - Policy objective - Shift toward domestic financing that eliminates reliance on monetary financing; requires increased domestic issuance given limited near-term external market access. - Banking system liquidity and instruments - Banking system liquidity at an all-time high: UAH 361 billion or US$9.9 billion in NBU CDs as of end-November. - Primary market bond yields now in the 16-19 percent range; NBU overnight CDs offer 23 percent. - Banks’ rollover rates on government bonds: 37 percent between July-August 2022, rising to 63 percent in October 2022. - Primary market yields increased from 14 percent up to 19.25 percent for some issuances. - Factors behind low bank demand for government securities - Real returns on government bonds remain negative (deflated by contemporaneous inflation) and below other rates (notably the NBU’s KPR). - Majority of post-war bank purchases have come from state-owned banks; investor base dominated by domestic commercial banks (about 40 percent of total holdings), with limited institutional investors (about 8 percent) and nonresidents (5 percent). - Authorities’ multi-pronged strategy to improve domestic rollover rates (MEFP ¶25) - Adjust yields on the primary market to match market demand and allow price discovery. - Allow banks to fulfil up to half of their reserve requirements with benchmark government securities, expected to generate a one-time increase in demand of about UAH 40 billion in the primary market. - Conduct bank-by-bank analysis of liquidity conditions, preferences, and compliance requirements to inform auction design. - Strategy outcomes and risks - If well executed, should support gradual increase in domestic bond rollover rates and limit banks’ exposure to sovereign debt below pre-war levels. - Expected increase in interest costs considered manageable since yields would likely remain negative in real terms. - If rollover rates do not materialize, increased reliance on monetary financing may occur; if domestic or external financing exceeds expectations, part could be used to build cash buffers. - Staff encouraged exploration of new instruments (e.g., instruments linked to inflation). ### Monetary and exchange rate policy stance - Objectives - Safeguard price and external stability amid war-time fiscal dominance. - Set interest rates to mobilize domestic savings to finance the fiscal deficit (thereby eliminating monetary financing in 2023), support exchange rate stability, and, with capital flow measures, ensure adequate FX reserves. - Indicative targets on monetary financing - PMB establishes an indicative target on monetary financing. - For December 2022, ceiling consistent with planned NBU purchases of war bonds of an annual amount of UAH400 billion. - Indicative target for end-March 2023 set at zero. - If temporary shortfall in external financing is covered first by higher-than-programmed issuance in the local government bond market, the PMB allows monetary financing of up to UAH 50 billion for 2023Q1. *International Monetary Fund — Ukraine: Selected Excerpts (content unit 1ukrea2022003)* ### 37. The major challenge for the NBU is managing liquidity in a context of elevated risks. ### 37. The major challenge for the NBU is managing liquidity in a context of elevated risks. ### Monetary transmission and liquidity conditions - Significant monetary financing of the fiscal deficit in 2022 has impaired monetary transmission. - Deposit and lending rates have not fully adjusted to the KPR hike, reflecting buoyant liquidity in the banking system, especially in state-owned banks. - Transmission of the KPR to primary market rates has been incomplete. - Weak transmission to lending rates also reflects the heightened role of low-interest rate government-supported lending, despite high credit risk. - As of end-November, the NBU recorded US$18.5 billion in net FX sales since February 24. ### Reserve requirement measure and primary market demand - Authorities plan to tighten reserve requirements and allow banks to fulfill up to half of their reserve requirements with government securities (MEFP ¶30). - Reserve requirements are to be increased by 5 percentage points on hryvnia and FX demand deposits. - Banks will be allowed to meet up to half of reserve requirements with government securities, of which 40 percent can comprise existing benchmark securities and the remainder through newly issued benchmark securities. - The measure is expected to translate into around UAH 40 billion of additional primary market demand, assuming full use of the available space for government bonds, as reserve requirements are otherwise unremunerated. ### Drawbacks and recommended phasing-out of government bond inclusion - Inclusion of government bonds in reserve requirements has several drawbacks and should be phased out in due course: - Withdrawal of liquidity under this measure will be smaller than under a conventional reserve requirement because newly issued government bonds are intended to support additional government spending, which could bring additional injection of liquidity back into the system. - It alters banks’ asset and liquidity management, incentivizing longer-term assets (government bonds) versus more liquid cash, making the scheme difficult to phase out. - The measure may distort the yield curve since not all bonds are eligible to meet reserve requirements. - Inclusion should be adopted only in conjunction with an envisaged increase in government bond yields on the primary market to avoid impairing monetary policy transmission. - It will be important to carefully monitor liquidity absorbed by the portion of reserve requirements met by traditional reserves and to develop a clear, well-communicated plan to phase out the measure to avoid disruptions. ### NBU monetary operations toolkit and liquidity management - On liquidity absorption, the NBU plans to modify the design of its CDs, reverting to the 14-day maturity at the KPR, and to introduce additional longer-term CDs in due course (MEFP ¶30). - On liquidity provision, given segmentation of liquidity across banks, the use of repo facilities (for which the infrastructure is in place) should be encouraged to help banks manage liquidity among themselves. ### FX market imbalances, controls, and contingency needs - The war has constrained export FX generation while increasing FX demand for imports (notably energy and defense) and precautionary savings, necessitating net FX sales by the NBU. - The NBU has consistently sold FX (US$18.5 billion in net sales since February 24 as of end-November) to meet net FX demand; absent sizable external financing inflows this would have drained reserves. - Under the assumption that external financing is disbursed in the amount and timing programmed, absent unanticipated surges in FX demand, and under the current regime of FX controls, drains on FX reserves could be largely contained, supporting the exchange rate peg and an adequate level of FX reserves. - Authorities have adjusted FX controls to balance the FX market and support exchange rate stability: - Tightened withdrawal limits on card payments abroad in July. - Banned P2P payments from hryvnia payment cards to foreign banks in late September. - Allowed individuals to purchase noncash foreign currency for FX or FX-indexed term deposits. The noncash FX rate is set at the official rate ±1 percent. - Measures to facilitate FX transactions that support humanitarian and defense efforts and to better support trading firms, including extending settlement deadlines for export and import transactions. - Authorities will continue to monitor key sources of FX leakages including card withdrawals abroad, import over-invoicing, and noncash payments for physical or crypto assets, and will prepare contingency plans should risks to the FX market materialize. ### NBU independence, governance, and institutional measures - Authorities remain committed to upholding the independence and institutional effectiveness of the NBU. - Eliminating monetary financing, abstaining from activities outside the NBU’s core functions (including quasi-fiscal support), and ensuring transparent distribution of NBU profits to the state budget are crucial to preserve NBU independence (MEFP ¶33 and 34). - In early November, the NBU reorganized its structure along functional lines to better align with its legal framework, as recommended by past IMF Technical Assistance. - Work on an IMF safeguards assessment of the NBU has started, with a mission envisaged for early 2023. ### Financial sector transition, diagnostics, and governance of SOBs - Emergency measures were crucial to maintain banking system stability in the initial stages of the war but are temporary given the distortions they create and difficulties in assessing banking sector health; the banking system has been subject to regulatory forbearance on capital, credit, and reporting standards. - The NBU will update its financial sector strategy (last updated in 2021) to prepare for transition away from emergency measures and restore prudential norms. The updated strategy will address: - Safe unwinding of exceptional measures. - Bank diagnostics, including an asset quality review, solvency stress tests, and assessment of NPL resolution challenges. - Developing a framework to address any capital shortfalls. - Creating an interagency strategy to tackle high NPLs. - Further developing contingency plans for additional shocks, litigation risks over failed banks, and constitutional challenges on the Deposit Guarantee Fund and Bank Resolution Laws. - The NBU will set out the methodology and processes in a technical terms of reference by end-January 2023 in consultation with Fund staff (Structural benchmark). - Authorities are committed to strengthening governance of SOBs. Recruitment to renew independent supervisory board members has been initiated; HR firms have been selected and the selection process is expected to be completed in the first quarter of 2023. It is vital that new board members are independent and that the NBU rigorously applies fit and proper assessments. ### External financing, BOP needs, and debt outlook — key statistics and scenarios - By end-2022, staff expects US$32.7 billion in budget and balance of payments support will have been disbursed to Ukraine, of which US$14 billion in the form of grants. - The two largest contributors were the US (US$11.5 billion) and the EU (US$7.3 billion). - For 2023, staff analysis suggests external fiscal financing needs would be at least US$39.5 billion and could reach up to US$57 billion in a downside scenario. - Under staff’s central scenario, external fiscal financing needs would reach US$39.5 billion. - Should additional external financing become available, authorities have identified around US$17 billion of critical infrastructure needs, of which staff considers about US$8 billion could be absorbed by the country in the current circumstances. - In a downside scenario, external financing needs could increase by an additional US$9.5 billion, bringing aggregate external financing needs up to US$57 billion. - Ukraine’s BOP gaps and reserves: - Net drain on international reserves in 2022 is projected to reach about US$5.8 billion. - Under the central scenario, reserves would drop to US$21.1 billion in 2023. - Maintaining coverage of 80 percent of the ARA metric in 2023 would require additional external financing of about US$6 billion. - A halt of the BSGI in the near term would entail a loss of agricultural export receipts of around US$1 billion in 2023. - Debt sustainability and Fund exposure: - The debt outlook for 2022 has worsened by some 1.5 percent of GDP compared with the most recent DSA. - The stock of total Fund credit is expected to peak at 4 percent of GDP this year and 23 percent of gross reserves in 2024. - Debt service to the Fund would peak at 1.2 percent of GDP and 14 percent of gross reserves in 2023 and 2025, respectively. *Source: Excerpt from IMF staff report on Ukraine.* ### 56. Quantitative targets under the PMB aim at a monitorable short-term strategy focused ### 1ukrea2022003 - 56. Quantitative targets under the PMB aim at a monitorable short-term strategy focused ### Quantitative targets and monitoring framework - PMB duration: 4-month PMB with one test date. - Quantitative conditionality test date: end-December 2022. - Additional guidance: end-March 2023 indicative targets included in staff report. - Data provision: TMU specifies data provision requirements essential for staff monitoring; provision of data diminished after Russia’s invasion (including because of Martial Law requirements). - Role of adjustors: staff included adjustors to allow for limited additional spending or limited monetization under specified conditions (e.g., larger-than-expected partner financing; delays in external financing disbursements). Targets specified (as described in the MEFP Table 1): - Fiscal: - Quantitative target (QT): floor on the primary cash balance of the general government excluding defense-related activity and grants. - Indicative target (IT): floor on the cash balance of the general government excluding grants. - External: - Quantitative target (QT): floor on net international reserves (NIR). - Purpose: support an adequate level in reserves as a buffer against shortfalls in external financing, rising risk premia, and to potentially help meet import demand from unanticipated expenditure risks (such as gas or critical infrastructure repair). - Monetary: - Indicative target (IT): ceiling on general government borrowing from the NBU. - Objective: control monetization in 2022 and eliminate it in 2023 to preserve price and external stability. - Adjustor: allows for limited monetization to offset potential delays in external financing disbursements, provided efforts are undertaken to mobilize financing from the domestic bond market. ### Structural benchmarks (Text Table) - Total number of structural benchmarks: five (sectors and timing shown below). - Structural Benchmarks: 1. Develop an action plan to prevent and clear arrears over the course of the 2023 Budget and beyond. Sector: Fiscal. Timing: End-January 2023. 2. Submit to Parliament three draft laws to support efforts to enhance tax revenues: (i) on cancelling the moratoria on tax audits (effective July 1, 2023); (ii) on removing idiosyncrasies of the application of the simplified tax regime by taxpayers under the single tax of 2 percent, and restoring the pre-war regime for these taxpayers (effective 1 July, 2023); and (iii) on ensuring full-scale enforcement of the usage of cash registers in retail outlets (and associated settlement and payment infrastructure), including restoring liability for violations (effective July 1, 2023). Sector: Fiscal. Timing: End-January 2023. 3. Prepare a concept note on how to approach reforms to the social safety net to achieve targeted, adequate, and efficiently delivered social assistance to the population, including newly emerging categories of vulnerable groups, while safeguarding fiscal sustainability. Sector: Fiscal. Timing: End-January 2023. 4. Prepare a Terms of Reference in consultation with IMF staff describing the methodology and processes of bank diagnostics necessary to assess bank capital adequacy and identify NPL resolution priorities. Sector: Financial sector. Timing: End-January 2023. 5. Appoint and make fully operational the supervisory board of Naftogaz based on transparent and competitive selection procedures. Sector: Governance. Timing: End-January 2023. ### Staff appraisal — macroeconomic context, risks, and financing needs - Humanitarian and economic impact: - Over a third of the population has been displaced. - Access to basic needs such as electricity, water, and heating is at risk while winter is coming. - Balance of payments and financing needs: - Staff assesses that Ukraine would need US$39.5–US$57 billion in external financing in 2023 to meet fiscal and balance of payments needs. - These estimates remain subject to considerable uncertainty and will likely change over time. - Even under the central scenario, staff considers spending pressures are large, especially stemming from the energy sector and need for social support, and likely to entail larger financing needs. - Resources will also be needed to ensure an adequate level of international reserves. - Risk environment: - Prevailing uncertainty due to sustained missile and drone attacks on critical civilian infrastructure. - Range of plausible scenarios is extremely wide; staff’s central scenario assumes economic stabilization in 2023. - Downside scenarios may require further consideration of options, including on domestic financing mobilization to complement donor support. - Monetary and exchange rate policy: - Monetary policy has been adequately tightened to help safeguard price and external stability. - Very large fiscal deficit and associated monetary financing have injected significant liquidity into the economy, putting pressure at times on the exchange rate and impairing monetary transmission. - Upside risks to inflation persist due to critical infrastructure damage, logistics bottlenecks, high input prices, and passthrough of the summer hryvnia devaluation. - The exchange rate peg remains appropriate at present; authorities continue to adjust FX measures and must monitor sources of FX leakages and enforce these measures. - Financial sector and diagnostics: - Staff welcomes the authorities’ plan to update the financial sector strategy adopted in 2021 to transition away from emergency measures and restore prudential norms. - NBU will set out the methodology and processes of future asset quality review and stress tests; robust bank diagnostics are critical to success. ### Policy priorities and recommendations - Ensure large, frontloaded, and predictable external financial support to maximize PMB success. - Develop contingency plans to respond to shocks and possible materialization of large shocks that could preclude full implementation of the program. - Increase transparency and governance: - Continue taking strong measures to increase transparency including timely tracking and reporting of budget arrears. - Advance decisively on governance reforms and independent anti-corruption institutions to maintain donor confidence. - Fiscal measures: - Implement measures in the 2023 budget to increase tax revenues. - Develop an integrated roadmap of tax policy and administration measures restoring in the short-term tax administration and policies to their pre-war setup. - Prepare and implement an action plan to prevent and clear arrears to ensure adequate monitoring of the fiscal position and liquidity of the corporate sector. - Domestic financing and debt market: - Foster higher rollover rates on domestic debt markets; maintain overall domestic bank exposure to the sovereign to protect scarce financial resources. - Facilitate elimination of monetary financing to reduce risks to price and external stability. - If downside risks materialize, identify alternative instruments and strategies to ramp up domestic financing to complement donor support. - Financial sector governance: - Prepare and execute bank diagnostics (methodology and processes) to assess bank capital adequacy and identify NPL resolution priorities. - Appoint and operationalize the supervisory board of Naftogaz through transparent and competitive procedures. *Source: IMF staff report text (MEFP and staff appraisal excerpts).* ### 66. Staff supports the authorities’ request for a 4-month PMB. The authorities’ economic ### 1ukrea2022003 - 66. Staff supports the authorities’ request for a 4-month PMB. The authorities’ economic ### Staff recommendation and program rationale - Staff supports the authorities’ request for a 4-month PMB. - The authorities’ economic program and policy commitments are described as an appropriate way forward under the current challenging circumstances and given the constraints facing the authorities. - Conditionality is focused on key fiscal areas, financial sector strategy, and governance. - Adequate and timely data provision, including on budget arrears, progress in governance and strong implementation in all areas under the PMB would help catalyze additional donor financing and help pave the way toward a possible future upper credit tranche quality arrangement in 2023. ### Real sector developments - The war has driven the sharpest contraction in output on record; damage to physical infrastructure mounts. - A fifth of the population has left Ukraine; a similar number are internally displaced. - Economic activity has started to recover in noncombat zones, though stabilizing at a lower than pre-war level. - Inflation has continued to accelerate; dislocations in the labor market persist. - Table 1 (selected indicators, 2019–2023) highlights: - Nominal GDP (billions of Ukrainian hryvnias): 2019: 3,977; 2020: 4,222; 2021: 5,460; RFI Oct 2022: 4,567; 2022 Proj.: 4,700; 2023 Proj.: 6,100. - Real GDP (percent change): 2019: 3.2; 2020: -3.8; 2021: 3.4; RFI Oct 2022: -35.0; 2022 Proj.: -33.0; 2023 Proj.: 1.0. - Consumer prices (period average): 2019: 7.9; 2020: 2.7; 2021: 9.4; RFI Oct 2022: 20.6; 2022 Proj.: 20.6; 2023 Proj.: 25.0. - Consumer prices (end of period): 2019: 4.1; 2020: 5.0; 2021: 10.0; RFI Oct 2022: 30.0; 2022 Proj.: 30.0; 2023 Proj.: 22.5. - Unemployment rate (ILO definition; period average, percent): 2019: 8.5; 2020: 9.2; 2021: 9.8; RFI Oct 2022: 24.5; 2022 Proj.: 24.5; 2023 Proj.: 20.9. - Output gap (percent of potential GDP): 2019: -0.7; 2020: -3.4; 2021: -1.7; RFI Oct 2022: -8.2; 2022 Proj.: -7.4; 2023 Proj.: -3.5. ### External sector developments - Following a sharp initial decline, exports have recovered more slowly than imports; agricultural exports have been boosted by the grain corridor but remain below prewar levels. - The widening trade balance has been offset by large transfers. - Amid capital controls, external financing has helped support reserves levels. - The devaluation of the official exchange rate helped narrow the differential with the cash rate, though the gap persists; the NBU has had to consistently sell in the FX market to meet FX demand. - Table 3 (Balance of Payments, selected items, percent of GDP and levels): - Current account balance (percent of GDP): 2019: -2.7; 2020: 3.3; 2021: -1.6; RFI Oct 2022: 2.7; 2022 Proj.: 4.4; 2023 Proj.: -4.0. - Gross reserves (end of period, billions of U.S. dollars): 2019: 25.3; 2020: 29.1; 2021: 30.9; RFI Oct 2022: 24.8; 2022 Proj.: 25.1; 2023 Proj.: 21.1. - Months of next year's imports of goods and services: 2019: 4.8; 2020: 4.2; 2021: 4.5; RFI Oct 2022: 3.4; 2022 Proj.: 3.0; 2023 Proj.: 2.5. - IMF composite metric (percent): 2019: 88.9; 2020: 98.1; 2021: 98.8; RFI Oct 2022: 81.8; 2022 Proj.: 80.0; 2023 Proj.: 61.6. - GIR increase needed for IMF composite metric of 80 percent: 6.3 (memorandum). ### Monetary developments - Base money growth has remained contained despite monetary financing; sterilized by FX intervention and NBU CDs, whose stock has continued to increase. - Policy rate hike transmission: transmitted to interbank market, more gradual to retail rates. - Hryvnia deposits have been robust amid withdrawal restrictions; credit growth has slowed. - Table 5 (Monetary accounts, selected items, billions of Ukrainian Hryvnia): - Broad money (end of period): 2019: 1,438; 2020: 1,850; 2021: 2,071; RFI Oct 2022: 2,457; 2022 Proj.: 2,423; 2023 Proj.: 2,787. - Base money (end of period, percent change): 2019: 9.6; 2020: 24.8; 2021: 11.2; RFI Oct 2022: 14.8; 2022 Proj.: 14.8; 2023 Proj.: 9.0. - Credit to nongovernment (end of period, percent change): 2019: -9.8; 2020: -3.1; 2021: 8.4; RFI Oct 2022: 8.4; 2022 Proj.: 3.4; 2023 Proj.: 2.0. - Hryvnia per U.S. dollar (end of period): 2019: 23.7; 2020: 28.3; 2021: 27.3; RFI Oct 2022: ... ; projections: ... . ### Fiscal sector and public finances - Revenues have been lifted by grants; expenditures have been driven by defense expenditures and social payments. - The large fiscal deficit has been financed by significant external support; government deposits have fluctuated amid uncertainty in the timing of external disbursements. - Tax revenues were hit by the decline in economic activity; reversal of some exemptions lifted revenues in recent months. - Expenditures remain elevated to support the war effort, amid a compression in capital expenditure. - Table 2a (General Government Finances, billions of Ukrainian Hryvnia, selected items): - Revenue: 2019: 1,567.8; 2020: 1,675.4; 2021: 1,982.7; RFI Oct 2022: 1,914.9; 2022 Proj.: 2,605.6; 2023 Proj.: 2,894.7. - Grants: 2019: 1.2; 2020: 1.2; 2021: 1.3; RFI Oct 2022: 384.5; 2022 Proj.: 461.9; 2023 Proj.: 763.4. - Expenditure: 2019: 1,650.7; 2020: 1,925.3; 2021: 2,198.3; RFI Oct 2022: 2,820.4; 2022 Proj.: 3,569.4; 2023 Proj.: 3,447.7. - General government overall balance (billions of Ukrainian Hryvnia): 2019: -82.8; 2020: -249.9; 2021: -215.6; RFI Oct 2022: -905.5; 2022 Proj.: -963.8; 2023 Proj.: -553.0. - General government overall balance, excluding grants (billions): 2019: -84.0; 2020: -251.0; 2021: -217.0; RFI Oct 2022: -1,290.0; 2022 Proj.: -1,425.8; 2023 Proj.: -1,316.4. - Public and publicly-guaranteed debt (billions of Ukrainian Hryvnia): 2019: 2,008; 2020: 2,557; 2021: 2,598; RFI Oct 2022: 4,011; 2022 Proj.: 4,134; 2023 Proj.: 4,921. - Table 2b (Percent of GDP format, selected items): - Revenue (percent of GDP): 2019: 39.4; 2020: 39.7; 2021: 36.3; RFI Oct 2022: 41.9; 2022 Proj.: 55.4; 2023 Proj.: 47.5. - Expenditure (percent of GDP): 2019: 41.5; 2020: 45.6; 2021: 40.3; RFI Oct 2022: 61.8; 2022 Proj.: 75.9; 2023 Proj.: 56.5. - General government overall balance (percent of GDP): 2019: -2.1; 2020: -5.9; 2021: -3.9; RFI Oct 2022: -19.8; 2022 Proj.: -20.5; 2023 Proj.: -9.1. - General government overall balance, excluding grants (percent of GDP): 2019: -2.1; 2020: -5.9; 2021: -4.0; RFI Oct 2022: -28.2; 2022 Proj.: -30.3; 2023 Proj.: -21.6. - Primary balance (percent of GDP): 2019: 1.0; 2020: -3.0; 2021: -1.1; RFI Oct 2022: -13.5; 2022 Proj.: -17.1; 2023 Proj.: -3.6. ### External financing and gross external financing requirement - Table 4 (Gross External Financing Requirement, billions of U.S. dollars, selected items): - A. Total financing requirements: 2019: 41.2; 2020: 30.9; 2021: 37.2; RFI Oct 2022: 58.2; 2022 Proj.: 65.1; 2023 Proj.: 67.9. - B. Total financing sources: 2019: 45.2; 2020: 30.6; 2021: 36.3; RFI Oct 2022: 19.9; 2022 Proj.: 28.7; 2023 Proj.: 26.8. - C. Financing needs (A - B): 2019: -4.1; 2020: 0.2; 2021: 0.9; RFI Oct 2022: 38.3; 2022 Proj.: 36.4; 2023 Proj.: 41.1. - E. Official financing (selected): IMF (net): 2019: -1.6; 2020: 1.0; 2021: -0.7; RFI Oct 2022: 0.7; 2022 Proj.: 0.7; 2023 Proj.: -2.5. - F. Increase in reserves (selected): 2019: 4.5; 2020: 2.9; 2021: 2.7; RFI Oct 2022: -6.5; 2022 Proj.: -5.0; 2023 Proj.: -4.1. - Memorandum: Gross international reserves (billions of U.S. dollars): 2019: 25.3; 2020: 29.1; 2021: 30.9; RFI Oct 2022: 24.8; 2022 Proj.: 25.1; 2023 Proj.: 21.1. - Loan rollover rate (percent): Total: 2019: 98.6; 2020: 74.9; 2021: 91.4; RFI Oct 2022: 83.8; 2022 Proj.: 124.5; 2023 Proj.: 100.0. ### Indicators of Fund credit and financing targets - Table 6 (Indicators of Fund Credit, millions of SDR and percent metrics): - Stock of existing Fund credit (end of period, in millions of SDR): 2019: 6,883; 2020: 7,595; 2021: 6,626; 2022: 7,608; 2023 Proj.: 5,704; 2024 Proj.: 3,924; 2025 Proj.: 2,187; 2026 Proj.: 690; 2027 Proj.: 0. - Stock of existing and prospective Fund credit (in percent of quota): 2019: 342; 2020: 378; 2021: 329; 2022: 378; 2023 Proj.: 284; 2024 Proj.: 195; 2025 Proj.: 109; 2026 Proj.: 34; 2027 Proj.: 0.0. - In percent of GDP: 2019: 3.2; 2020: 3.4; 2021: 2.4; 2022: 4.0; 2023 Proj.: 3.0; 2024 Proj.: 1.9; 2025 Proj.: 1.0; 2026 Proj.: 0.3; 2027 Proj.: 0.0. ### Quantitative targets and indicative targets (program parameters) - Table 7 (Quantitative Targets and Indicative Targets, end of period; millions of Ukrainian hryvnias, unless otherwise indicated): - I. Quantitative performance criteria: - Floor on the non-defense cash primary balance of the general government, excluding grants (- implies a deficit): 2022 (December): 86,950; 2023 (March): -8,240. - Floor on net international reserves (in millions of U.S. dollars): 2022 (December): 15,000; 2023 (March): 11,500. - II. Indicative Targets: - Floor on the overall cash balance of the general government, excluding grants (- implies a deficit): 2022 (December): -1,425,762; 2023 (March): -506,476. - Ceiling on general government borrowing from the NBU: 2022 (December): 88,500; 2023 (March): -7,600. - III. Memorandum Items (selected): - External project financing (2022): 51,733; (2023): 13,713. - Budget support grants (2022): 61,940; (2023): 182,843. - Budget support loans (2022): 77,814; (2023): 164,559. - NBU profit transfers to the government (2022): 19,700; (2023): 71,000. - Net financing of general government deficit by commercial banks (2022): -101,223; (2023): -5,434. - Called guaranteed debt principal (2022): 15,000; (2023): 10,500. - Notes: - Targets and projections for 2022 are cumulative flows from January 1, 2022. Targets and projections for 2023 are cumulative flows from January 1, 2023. - Floor on net international reserves is calculated using program accounting exchange rates as specified in the TMU. ### Key policy implications and near-term priorities - Focus conditionality on fiscal consolidation in key areas, financial sector strategy, and governance to maintain stability and prepare for the post-war era. - Emphasize adequate and timely data provision (including on budget arrears) and strong implementation of PMB measures to catalyze additional donor financing and support prospects for an upper credit tranche quality arrangement in 2023. *International Monetary Fund — extracted content from the provided unit* ### Annex I. Risk Assessment Matrix 1/ ### Annex I. Risk Assessment Matrix 1/ ### External Risks - Intensification of Russia’s war in Ukraine. - Likelihood: High - Overall level of concern: High - Impact summary: - Increased loss of life; further destruction of capital stock; outward migration and internal displacement. - Recovery is stalled, and growth falls sharply. - Restrictions on seaport access and logistical challenges curtail recovery of exports, while import needs rise (for defense, energy and infrastructure repair), widening fiscal and external financing needs. - Financing constraints raise the risk of resort to monetary financing, increasing inflation and raising pressures on the exchange rate. - High inflation further erodes purchasing power and increases poverty. - Weak activity weighs on bank and SOE balance sheets. - Policy recommendations: - Maintain appropriate macroeconomic policies to safeguard macroeconomic and financial stability. - Mobilize domestic financing to help meet fiscal financing needs and seek additional external financing on concessional terms. - Prepare contingency plans for the financial sector. - Commodity price shocks. - Likelihood: High - Overall level of concern: High - Impact summary: - Continuing supply disruptions (e.g., due to conflicts and export restrictions) and negative demand shocks cause recurrent commodity price volatility and social and economic instability. - High energy prices can further strain consumption and business activity and widen fiscal and external financing needs. - Low and/or volatile prices for agriculture products amid logistical costs can alter sowing decisions for future agriculture seasons. - Policy recommendations: - Continue rationing access to energy to priority areas. - Secure alternative sources and storage for gas through the heating season. - Targeted transfers to most vulnerable groups within the existing budget envelope. - Abrupt global slowdown or recession. - Likelihood: Medium - Overall level of concern: High - Impact summary: - Global and idiosyncratic risk factors combine to cause a synchronized sharp growth slowdown, with outright recessions in some countries. - Recessions in key donor countries reduce or delay disbursement of committed external financing and shift the financing mix toward less optimal sources (monetary financing, other borrowing on non-concessional terms). - Policy recommendations: - Prioritize spending and seek additional revenue measures. - Mobilize domestic financing. - Diversify external financing sources and obtain financing on highly concessional terms to the extent possible. - De-anchoring of inflation expectations and stagflation. - Likelihood: Medium - Overall level of concern: Medium - Impact summary: - Supply shocks to food and energy prices sharply increase headline inflation and pass through to core inflation, de-anchoring inflation expectations and triggering a wage-price spiral in tight labor markets. - Central banks tighten monetary policy more than envisaged leading to weaker global demand, currency depreciations in EMDEs, and sovereign defaults. Together, this could lead to the onset of stagflation. - A tightening of monetary policy in advanced economies increases borrowing costs and raises depreciation pressures and further weakens risk sentiment. - Policy recommendations: - Maintain appropriate macroeconomic policies to anchor inflation expectations. - Diversify external financing sources. Note: "The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly." ### Domestic Risks - Social unrest. - Likelihood: Medium - Overall level of concern: High - Impact summary: - Rising inflation, declining real incomes, and worsening inequality amplify social unrest and political instability, resulting in counterproductive populist policies that widen fiscal and external imbalances, delay adjustment, and stall reform momentum. - Policy recommendations: - Maintain appropriate macroeconomic policies to safeguard stability. - Targeted transfers to most vulnerable groups within the existing budget envelope. - Loss of reform momentum. - Likelihood: Medium - Overall level of concern: High - Impact summary: - Poor governance, corruption, retrenchment of oligarchic interests, and lack of oversight on the use of external funding decreases incentives for reform. - Lack of progress on reforms reduces future external financing. - Policy recommendations: - Adhere to governance reforms while maintaining recent progress made in strengthening anti-corruption and judicial institutions. - Mobilize domestic financing. - Local Covid-19 outbreaks. - Likelihood: Medium - Overall level of concern: Medium - Impact summary: - Outbreaks in slow-to-vaccinate countries or emergence of more contagious vaccine-resistant variants force new lockdowns or inhibit commerce, resulting in extended supply chain disruptions, slower growth, capital outflows, and debt distress in some EMDEs. - In combat zones in particular, new vaccinations are difficult to procure or roll out, health care provision is impaired, and containment measures are difficult to enforce. Logistical issues are further complicated by disruptions to the workforce. Increase in internal/outward migration. - Policy recommendations: - Rationalize nonessential spending and mobilize additional financing to meet additional health expenditures, while providing targeted assistance to most affected groups, as permitted by the budget envelope. ### Structural Risks - Deepening geo-economic fragmentation and geopolitical tensions. - Likelihood: High - Overall level of concern: High - Impact summary: - Broadening of conflicts and reduced international cooperation accelerate deglobalization, resulting in a reconfiguration of trade, supply disruptions, technological and payments systems fragmentation, rising input costs, financial instability, a fracturing of international monetary and financial system, and lower potential growth. - Ukraine remains at the fault line of ongoing geopolitical tensions and is a trade dependent economy exposed to supply chain issues. - Policy recommendations: - Maintain appropriate macroeconomic policies to safeguard stability. - Diversify trade products, supply chains and partners. - Continue with reforms to support competitiveness and increase productivity. - Cyberthreats. - Likelihood: High - Overall level of concern: High - Impact summary: - Cyberattacks on critical physical or digital infrastructure (including digital currency platforms) trigger financial instability and disrupt economic activities. - Ukraine remains exposed to attacks on critical infrastructure (electricity, heat, and water), while attacks on digital infrastructure can disrupt the banking system and economic activity, particularly given the reliance on non-cash payments during the war. - Policy recommendations: - Strengthen digital infrastructure and cybersecurity. - Diversify electricity, energy, and water sources. ### Annex II. Debt Sustainability Analysis — Key Points - Overall assessment: - Ukraine faces risks and uncertainties related to external developments, the hazardous security situation, and the implementation of the authorities’ policy commitments. - The balance of probabilities suggests that there are higher risks of debt being unsustainable. - Very high uncertainty makes it difficult, at present, to assess with sufficient precision what would be required to restore sustainability. - Debt vulnerabilities would be contained if Ukraine were to receive sufficiently large external financing to address the severe impacts of the war, and if this support comes in the form of grants, highly concessional loans and other exceptional financing. - DSA context and updates: - This DSA updates the DSA that accompanied Ukraine’s October 2022 request for IMF emergency financing. - The previous DSA found a substantial step increase in the debt-to-GDP ratio in 2022 and elevated gross financing needs, with very high near-term vulnerabilities amid uncertainty around timing of external financing disbursements. Risks appeared more contained given the scale of financing commitments, the agreed debt service suspension, and the authorities’ wartime economic measures. - Macroeconomic assumptions and outlook: - 2022 Outlook: - The economic contraction for the year is now projected to be 33 percent (35 percent previously). - Inflation is high and rising at 26.6 percent y/y through October but still broadly in line with earlier expectations. - Disbursed and prospective external official financing has been slightly higher than anticipated in October (around US$33 billion rather than US$ 31.5 billion). - The external financing mix has shifted more to grants, which are expected to account for about 43 percent of all financing, 10-percentage point higher than assumed in the last DSA. - A residual general government financing gap at end-2022 of UAH 67.7 billion (or US$1.8 billion) is incorporated into the public debt stock as prospective arrears. - Selected comparative assumptions table extract (as presented): - Growth (percentage change): -35.0 (RFI 2022) -33.0 (PMB 2022) 3.5 (RFI 2023) 1.0 (PMB 2023) - Inflation (GDP deflator; percent): 28.6 (RFI 2022) 28.5 (PMB 2022) 27.3 (RFI 2023) 28.5 (PMB 2023) - Primary deficit (percent of GDP): 16.3 (RFI 2022) 17.1 (PMB 2022) 5.8 (RFI 2023) 3.6 (PMB 2023) - External financing (USD billions): 33.5 (RFI 2022) 32.7 (PMB 2022) 20.1 (RFI 2023) 39.5 (PMB 2023) - 2023 Outlook: - Central scenario assumes stabilization of activity in 2023 as the economy adjusts to a protracted war. - Ukraine’s economy is forecast to grow by 1 percent in 2023 (3.5 percent previously). - Forecast accounts for expected impact in 2023Q1 of a weak harvest, subdued consumer sentiment, and assumptions that authorities can continue to repair damage to energy infrastructure. - External financing assumptions revised upward relative to the last DSA: from around US$20 to US$39.5 billion, of which US$18 billion are assumed to come in the form of grants and the balance in the form of concessional loans. - These external financing assumptions are tentative as donors’ financing commitments are still in the process of being approved. - Financing at this level would be consistent with effective implementation of Ukraine’s 2023 budget, an increase in domestic borrowing to cover most redemptions, and execution of project financing at a similar rate to that in 2022. - Downside scenarios would entail significantly higher financing needs. - Medium-term uncertainty and scenarios: - The medium-term forecast is subject to unusually large and unique uncertainties. - Several plausible but widely differing scenarios could yield varying debt and gross financing needs (GFN) trajectories. - Uncertainties include duration and severity of the war, current and future damages, Ukraine’s capacity to export goods, rate at which migrants may return, and pace at which fiscal policy can be normalized. - It is premature to incorporate firm assumptions on a very large recovery and reconstruction plan; design and financing of such a plan have yet to be agreed, and timing rests on war developments. - A reconstruction scenario would entail substantially larger financing and major impacts on growth prospects and debt carrying capacity. - This DSA retains tentative and modest medium-term financing assumptions applied under the previous analysis for 2024 and beyond and makes no assumptions on recovery and reconstruction. - Staff’s assessment: - The impact of the war to date and the above considerations inform staff’s assessment that the balance of probabilities would suggest Ukraine has an unsustainable level of debt. - Very high uncertainty makes it difficult, at present, to estimate with sufficient precision the impact of the war on the debt outlook and what would be required to restore sustainability. *Source: Annex I. Risk Assessment Matrix 1/ and Annex II. Debt Sustainability Analysis (excerpts) from the provided IMF content unit.* ### 5. The DSA presents the standardized analytical tools in the accompanying Sovereign ### 5. The DSA presents the standardized analytical tools in the accompanying Sovereign Risk and Debt Sustainability Framework for Market Access Countries (SRDSF) ### DSA / SRDSF methodology and caveats - The DSA uses the standardized analytical tools in the SRDSF to assess sovereign stress risks and debt sustainability. - Analytical measures are derived from debt and gross financing needs simulations based on a single central scenario of macroeconomic projections over a medium-term horizon. - Simulations draw conclusions informed by Ukraine’s recent economic performance but are: - Limited by reliance on historical observations, thus potentially less informative given the major structural break posed by the war shock. - Based on a single central scenario, whereas other plausible scenarios for Ukraine could lead to a range of signals. - Missing long-term modules due to projection uncertainties (e.g., reconstruction), which could omit important information. - Despite caveats, the DSA highlights the need for large-scale financial support in the form of highly concessional loans, grants, and/or debt relief to contain vulnerabilities to debt sustainability. - The scale of risks is exemplified by the unusually large width of the debt fan chart under this DSA. ### Overall risk assessment and key findings - Overall risk of sovereign stress: High. - Near term: n.a. (near-term assessment not applicable where there is a disbursing IMF arrangement). - Medium term: High. - Long term: High (long-term modules not activated given high uncertainty and data gaps). - DSA summary assessment: - "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." - 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. - Note on concepts: - "The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and new financing." ### Debt structure and disclosures (end-June 2022 data and commentary) - Externally held debt accounted for slightly over half: 56 percent of total public and publicly guaranteed debt. - Breakdown highlighted in commentary: - Multilateral creditors: 23 percent of total debt. - Sovereign Eurobonds: 21 percent of total debt. - Domestic debt: - Mostly held by residents and denominated in hryvnia. - Projection note: "This DSA does not anticipate major forward-looking changes in the composition of debt by currency." ### Baseline scenario: public debt and financing indicators (percent of GDP unless indicated) - Public debt: - Actual 2021: 47.6 - 2022: 89.4 - 2023: 89.9 - 2024: 89.8 - 2025: 89.9 - 2026: 91.1 - 2027: 93.5 - Change in public debt: - 2021: -13.0 - 2022: 41.8 - 2023: 0.5 - 2024: -0.1 - 2025: 0.1 - 2026: 1.2 - 2027: 2.4 - Contribution of identified flows: - 2021: -9.4 - 2022: 37.4 - 2023: -0.4 - 2024: 1.7 - 2025: 0.8 - 2026: -0.2 - 2027: 1.1 - Primary deficit (percent of GDP): - 2021: 1.1 - 2022: 7.1 - 2023: 3.6 - 2024: 0.1 - 2025: 1.3 - 2026: -0.2 - 2027: 0.6 - Noninterest revenues (percent of GDP): - 2021: 36.3 - 2022: 55.4 - 2023: 47.5 - 2024: 44.3 - 2025: 41.5 - 2026: 42.5 - 2027: 44.9 - Noninterest expenditures (percent of GDP): - 2021: 37.4 - 2022: 72.6 - 2023: 51.0 - 2024: 44.4 - 2025: 42.8 - 2026: 42.3 - 2027: 45.5 - Automatic debt dynamics: - 2021: -10.4 - 2022: 18.8 - 2023: -3.9 - 2024: 0.0 - 2025: -0.5 - 2026: 0.0 - 2027: 0.6 - Real interest rate and relative inflation: - 2021: -2.7 - 2022: -4.6 - 2023: -3.0 - 2024: 3.5 - 2025: 2.5 - 2026: 3.2 - 2027: 3.2 - Real interest rate: - 2021: -9.0 - 2022: -12.7 - 2023: -14.2 - 2024: -3.9 - 2025: -2.3 - 2026: 0.8 - 2027: 1.5 - Relative inflation: - 2021: 6.3 - 2022: 8.1 - 2023: 11.2 - 2024: 7.4 - 2025: 4.8 - 2026: 2.4 - 2027: 1.7 - Real growth rate: - 2021: -2.0 - 2022: 23.4 - 2023: -0.9 - 2024: -3.5 - 2025: -3.0 - 2026: -3.2 - 2027: -2.7 - Gross financing needs: - 2021: 5.9 - 2022: 30.5 - 2023: 18.9 - 2024: 22.5 - 2025: 19.2 - 2026: 18.5 - 2027: 20.3 - Of which: debt service: - 2021: 4.8 - 2022: 13.4 - 2023: 15.4 - 2024: 20.7 - 2025: 17.9 - 2026: 18.7 - 2027: 19.7 - Local currency gross financing needs: - 2022: 8.6 - 2023: 11.8 - 2024: 12.4 - 2025: 11.3 - 2026: 12.5 - 2027: 12.8 - Foreign currency gross financing needs: - 2022: 4.8 - 2023: 3.6 - 2024: 8.3 - 2025: 6.6 - 2026: 6.2 - 2027: 6.9 - Memo items: - Real GDP growth (percent): - 2021: 3.4 - 2022: -33.0 - 2023: 1.0 - 2024: 4.0 - 2025: 3.4 - 2026: 3.6 - 2027: 3.0 - Inflation (GDP deflator; percent): - 2021: 25.1 - 2022: 28.5 - 2023: 28.5 - 2024: 15.1 - 2025: 10.6 - 2026: 6.3 - 2027: 5.0 - Nominal GDP growth (percent): - 2021: 29.3 - 2022: -13.9 - 2023: 29.8 - 2024: 19.7 - 2025: 14.4 - 2026: 10.2 - 2027: 8.2 - Effective interest rate (percent): - 2021: 5.9 - 2022: 5.5 - 2023: 7.9 - 2024: 9.9 - 2025: 7.7 - 2026: 7.3 - 2027: 6.8 - Commentary on baseline: - The war leads to a step rise in Ukraine’s debt-to-GDP ratio. - DSA assumes war impacts decline 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 (data pending). - Standstill results in a low effective interest rate in 2022-23, which then jumps once postponed payments resume. - Baseline sees a subdued recovery with inflation slowing over time; interest rate-growth differential offsets slow fiscal adjustment, leading to a flat medium-term debt trajectory. ### Realism of baseline assumptions and forecast track record - Forecast track record based on Ukraine's history points to persistent optimism for debt-to-GDP and stock-flow adjustment indicators in the medium-term horizon. - Key debt drivers: primary deficit (high defense spending in near term) and likely sluggish recovery. - Monetization drives marginal interest rates higher in 2022. - Three-year fiscal adjustment based on 2021-24 seems feasible but depends critically on war duration and speed of reversing the very large 2022 deficit. - Ukraine previously achieved a fiscal adjustment of 5.5 percent of GDP, but will face headwinds from a slow recovery. - Assumptions on multipliers and output gap closure are conservative. ### Medium-term risk analysis: fan chart, GFN, and financeability - Fanchart indicators: - Fanchart width: 148.0 - Probability of debt not stabilizing (pct): 71.2 - Terminal debt level x institutions index: 63.7 - Debt fanchart index: 4.1 - GFN and banking indicators: - Average GFN in baseline: 21.7 - Bank claims on government (pct bank assets): 27.3 - Change in claims on government in stress (pct bank assets): 80.2 - GFN financeability index: 43.0 - MTI (Medium-term index): - MTI signals: High risk - Mechanical signal substantially exceeds the high risk threshold. - Stress test signals: - "Both medium-term modules signal high sovereign stress risks. The high risk signal for fanchart width points to a structural break and very high uncertainty around the forecast. The fanchart also suggests high probability that debt-carrying capacity is stretched. 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. As a result, the mechanical signal substantially exceeds the high risk threshold." - Probabilities reported: - 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. ### Appendix I — Letter of Intent: key facts, impacts, and policy commitments - War impacts and social indicators: - Migration and internal displacement: over 14 million people. - Poverty rate: climbed to over 20 percent. - Economic and financial support received: - IMF Rapid Financing Instrument disbursements in 2022: about US$2.7 billion (two disbursements). - Additional funds channeled to Ukraine through the IMF Administered Account to date: US$2.2 billion. - Current challenges and risks: - Financing needs remain very large and subject to significant risks tied to scale, intensity, and duration of the war. - Further escalation could magnify fiscal and balance of payments gaps, weigh on sentiment, and accelerate outward migration. - Program request and objectives: - Ukraine requested a 4-month Program Monitoring with Board Involvement (PMB) to anchor near-term macroeconomic stabilization and build a strong track-record of policy implementation. - Principal objective: ensure adequate resources for core functions of the state while safeguarding near-term macroeconomic and financial stability. - Key policy areas and commitments (summarized from MEFP references): - Fiscal: - Increase tax revenues to create room for better protecting social spending and critical capital expenditures. - With IMF Technical Assistance, develop: - A roadmap of tax policy and administration measures (MEFP ¶15). - A concept note on initial thinking for future social safety net reforms while safeguarding fiscal sustainability (MEFP ¶17). - Steps to prevent and clear arrears (MEFP ¶12). - Domestic financing mix: - Shift toward a domestic financing mix that better supports macrofinancial stability and aim to eliminate reliance on monetary financing in 2023. - Implement measures to better mobilize financing through the domestic bond market (MEFP ¶25). - Monetary and exchange rate policy: - Continue to focus on safeguarding price and external stability. - The NBU will implement measures to help manage liquidity and improve monetary transmission. - Financial sector: - Update financial sector strategy to safely unwind emergency measures and restore accounting and prudential norms. - Prepare, in consultation with IMF staff, a Terms of Reference for bank diagnostics (MEFP ¶36). - Transparency and governance: - Renew efforts toward good corporate governance practices in state-owned enterprises and banks. - Protect the independence of supervisory boards and preserve independent, competent, and trustworthy anti-corruption institutions. *Source: Fund staff.* ### 6. We will continue to collaborate closely with the IMF when designing and implementing ### 1ukrea2022003 - 6. We will continue to collaborate closely with the IMF when designing and implementing ### Commitments to IMF collaboration and data provision - Continue to collaborate closely with the IMF when designing and implementing policy measures. - Consult with IMF staff on draft legislative proposals with material implications for economic and financial policies before presentation to the Parliament, and on any potential revisions to the policies contained in the MEFP. - Determined to preserve gains from past Fund-supported programs and will refrain from policies inconsistent with the program’s objectives. - Intend to continue protecting the tax base from any further erosion and remain strongly committed to safeguarding NBU independence. - Provide IMF staff with data and information for program monitoring, including adhering to the data provision requirements in the attached Memorandum of Technical Understanding (TMU). - Resume provision of data critical to macroeconomic and financial surveillance as agreed with IMF staff. - Do not intend to introduce or intensify exchange and trade restrictions that would compound balance of payments difficulties; will gradually remove restrictions as circumstances normalize, in consultation with IMF staff. - Program monitoring: one review based on an end-December 2022 test date and structural benchmarks; Table 1 of the attached MEFP presents quantitative targets and Table 2 describes structural benchmarks; March 2023 indicative targets will guide program implementation. - Consent to IMF publication of this letter, the MEFP, the TMU, and accompanying Executive Board documents. ### Human, social, and economic impact of the war - Russia’s invasion caused large loss of life and, according to the UNHCR, the migration and internal displacement of over 14 million people. - Destruction of physical capital: homes, roads and bridges, schools, hospitals, and factories; loss of access to seaports. - Disruption to pivotal agricultural sector and destruction of capacity in metals sector. - Unemployment has risen; real incomes have declined; World Bank estimates over 20 percent of the population plunged into poverty. - Attacks on critical energy infrastructure have impacted more than 40 percent of the power grid, affecting access to electricity, heating, water and sewage ahead of winter. - Each additional day of the war brings fresh damage; reconstruction costs will be enormous. ### Macroeconomic policy stance, emergency measures, and financing - Maintained core government institutions and macroeconomic and financial stability under very difficult circumstances. - Emergency measures enacted: fixing the exchange rate, imposing FX restrictions, regulatory forbearance in the financial sector, tax relief measures. - Sought and agreed debt service suspension on Eurobonds (through August 2024) and bilateral debt (until end-2023). - Despite sizable external official financing inflows and lack of market access, financed a sizable part of the deficit with monetary financing, presenting macroeconomic and external stability risks. - Imbalances in the FX market due to curtailed export proceeds and steady FX demand (including fuel, equipment, and deposit withdrawals by migrants) straining FX reserves and causing periodic exchange rate pressure. ### Program Monitoring with Board Involvement (PMB): objectives and expectations - Requested a 4-month PMB. - Principal objective: safeguard near-term macroeconomic stability, increase revenues, mobilize domestic financing of the fiscal deficit to minimize monetary financing, and undertake contingency planning. - PMB to provide a macroeconomic framework to strengthen internal coordination and identify/communicate financing needs to external partners; aid transition to a potential IMF Upper-Credit Tranche arrangement in 2023 if strong performance and appropriate data provision build a track record. ### Economic outlook and scenarios - Baseline assumptions: outlook depends critically on duration and intensity of the war. - Baseline projections: - Following a drop by nearly a third in 2022, real GDP could rise modestly by about 1 percent in 2023, assuming gradual strengthening of activity in areas not under active combat, continued access to the grain corridor, and no further escalation of the war. - Inflation expected to moderate from 30 percent y/y in end 2022 to about 22.5 percent y/y at end-2023. - Current account expected to move to a deficit of around US$5.7 billion in 2023, following a projected surplus of US$ 6.4 billion in 2022. - FX reserves levels supported by external financing: around US$21 billion by end-2023, equivalent to 2.5 months of imports. - Upside scenario: faster improvement in security and infrastructure could strengthen growth in 2023 to 3-4 percent; further boosts possible from quicker return of migrants or a large-scale reconstruction effort. - Downside risks: slower recovery if attacks on infrastructure persist, security deteriorates, the grain corridor shuts down, or outward migration accelerates; external financing needs could be markedly higher under such scenarios. ### Fiscal developments in 2022 and monitoring measures - Prioritized spending on public wages, defense, social protection and other critical needs after Martial Law on February 24, 2022; tax relief measures enacted (rate reductions, payment deferrals, simplified taxation for certain brackets). - Remained current on external and domestic debt obligations until debt standstills agreed with private and bilateral creditors in August and September 2022. - Nine-month cumulative general government fiscal deficit measured below the line for 2022: UAH 406.6 billion or 8.7 percent of 2022 GDP; supported by external grants UAH 342.5 billion or 7.3 percent of 2022 GDP. - Cumulative deficit excluding grants: UAH 749.1 billion (15.9 percent of GDP). - Deficit financed primarily by external official financing and NBU monetary financing; net financing from domestic banks and non-banks turned negative. - Introduce: floor on the non-defense cash primary balance of the general government (excluding grants) (Quantitative Target, end-December 2022; Indicative Target, end-March 2023) and a floor on the overall cash primary balance of the general government (excluding grants) (Indicative Target, end-December 2022 and end-March 2023). ### Financing gap, arrears, and operational measures - Identified financing gap for remainder of 2022 despite international support and supplementary budgets. - Last supplementary budget (Rada, October 18) increased spending envelope by UAH 386.9 billion for security and defense: - Current expenditures: UAH 385.2 billion (including wages with accruals of UAH 232.7 billion). - Capital expenditures: about UAH 1.7 billion. - To ensure financing for priority expenditures for 2022: draw on Treasury Single Account resources and additional domestic borrowing; identify spending categories that can be underexecuted. - Will establish level of arrears for state budget and social funds for end-2022 consistent with national definition of overdue financial obligations, covering any carryover to 2023 Budget. - Ensure monitoring of payment arrears across general government consistent with national legal definition. - Structural Benchmark (end-January 2023): develop an action plan to prevent and clear arrears over the course of the 2023 Budget and beyond. ### Fiscal policy for 2023: budget, revenues, and expenditures - 2023 Budget aims: achieve wartime spending goals, sustain macroeconomic stability, and prepare for post-war era; spending envelope focused on defense and security while safeguarding resources for social safety net and rebuilding infrastructure by prioritizing capital expenditures. - Deficit excluding external grants in 2023 Budget: projected at UAH 1,316.4 billion, or about 21.6 percent of GDP. - This is 8.7 percentage points of GDP lower than the estimated 30.3 percent of GDP deficit excluding external grants for 2022. - Revenue assumptions and measures: - Budget incorporates about 0.6 percent of GDP in revenue measures and adopted timeline to restore excise and VAT on fuel toward pre-war policies from July 2023. - Exemptions on import VAT and duties for equipment needed to address energy infrastructure destruction: - Generators exempt until March 1, 2023. - Transformers and heavy equipment exempt until the end of the Martial Law. - Estimated impact on revenues from the approved budget: UAH 0.3 billion. - Committed to identifying additional revenue sources and developing an integrated roadmap of tax policy and administration measures (with IMF Technical Assistance) to restore pre-war setup. - Three draft laws to be submitted to Parliament (Structural Benchmark, end-January 2023): - Cancel moratoria on tax audits (effective July 1, 2023). - Remove idiosyncrasies of simplified tax regime for single tax of 2 percent and restore pre-war regime for these taxpayers (effective 1 July, 2023). - Ensure full-scale enforcement of usage of cash registers in retail outlets and associated settlement/payment infrastructure, including restoring liability for violations (effective July 1, 2023). - Estimated revenue gains in 2023 from reversal of the simplified tax regime: about 0.13 percent of GDP for 2023. - Working to implement automatic exchange of information for taxation purposes (Common Reporting Standard (CRS)) and intend to propose necessary legislation. - Expenditure-side measures and social protection: - Political decision to cut the total compensation envelope of employees in the budget sector by 27 percent in nominal terms relative to 2022, through wage cuts for individual categories and headcount limitations. - Capped social benefits, allowing only rule-based pension indexation. - Intend to protect current level of social assistance for the most vulnerable (including IDPs and war veterans). - Structural Benchmark (end-January 2023): prepare a concept note on reforms of the social safety net to achieve targeted, adequate, and efficiently delivered social assistance, with safeguarding fiscal sustainability as a key pillar. - Plan to work on a medium-term strategy to transition the current wartime wage bill framework to a peace-time wage bill framework. *Attachment I. Memorandum of Economic and Financial Policies, December 8, 2022* ### 18. We commit to provide adequate support to state-owned enterprises (SOEs) in the ### 18. We commit to provide adequate support to state-owned enterprises (SOEs) in the ### Energy sector crisis management and SOE support - Focus on crisis management given war-compounded structural weaknesses; structural reform agenda to be implemented once the war is over. - Near-term priorities: - Assess damage to critical energy infrastructure, repair, and ensure a basic level of service delivery where feasible. - NEURC is considering a Transmission System Operator (TSO) tariff increase that could provide additional resources to Ukrenergo. - If further resources are needed for urgent repairs, the authorities will ensure adequate financial support to Ukrenergo. - Gas supply and Naftogaz: - Need to import at least 2 bcm of gas in the coming months to support the heating season and cover increased use of gas in electricity generation is putting pressure on Naftogaz finances. - Implicit financial support is already provided to Naftogaz via reduced gas royalties; the authorities will compensate the group for its public service obligations (PSO). - In a downside scenario requiring larger import volumes, the authorities will ensure adequate sources of financing can be mobilized. - Gas transmission system operator (GTSO): - Restoring financial health will primarily require right sizing the system and identifying new gas supply sources. - In the interim, liquidity support may be required. ### Fund for Liquidation of Consequences of the Russian Aggression (special reconstruction fund) - A special fund within the state budget has been established to channel resources for critical expenditure and reconstruction, including repairing damaged infrastructure. - Funding sources stated in the budget law: - External financial sources, which have yet to be identified. - Earmarking of 50 percent of profits from the NBU, preliminarily estimated at UAH 35 billion (authorities plan to remove this provision at the first opportunity). - Governance and transparency safeguards to be ensured: - (i) Prepare clear and transparent selection criteria and procedures for priority spending to be approved by the Cabinet of Ministers of Ukraine (CMU). - (ii) Include underlying amounts in budget documentation and fiscal reports. - (iii) Include cash resources in the Treasury Single Account. - (iv) Establish safeguards on the use of funds and reporting on them. - (v) Conduct and publish audits. ### Fiscal structural reforms and public financial management (PFM) - Commitment to continue improving public financial management despite war disruptions. - With IMF Technical Assistance, efforts will aim at: - Using fiscal risk analysis to inform formulation of macro fiscal aggregates and wider fiscal management. - Developing upside and downside scenarios around central projection of tax revenues. - Improving the link between fiscal risk assessment and impacts on spending categories, including risks from social funds, contingent liabilities especially PPPs, guarantees and SOEs. - Enhancing institutional capacity, monitoring and assessment of risks from government guarantees. - Payment discipline, arrears, and transparency: - Near-term legislative amendments to restore the Treasury’s authority to collect information essential for financial reporting. - Establish oversight over budget arrears at state and local levels and Social Security Funds with monthly stock visibility and a monitoring mechanism to prevent new arrears. - Settle existing stock of obligations in a structured and transparent manner, considering Martial Law constraints. - Commit to achieving maximum transparency in data provision possible under Martial Law around all expenditures and overdue financial obligations. - Cash forecasting and liquidity management: - Continue improving cash forecasting and liquidity management in line with the PFM Reform Strategy for 2022-2025, including improved information exchange with key budget spending units and introduction of analytical IT tools. - Broader fiscal objectives: - (i) Avoid measures that would reduce tax revenues, erode the tax base or undermine credibility of public finances. - (ii) Ensure realistic and transparent reflection of SOE dividends. - (iii) Exercise control over overdue tax obligations (including from SOEs and VAT refunds). ### Budget financing strategy and domestic financing measures - Overarching strategy: secure a financing mix that supports macroeconomic stability, ensuring adequate external financing and mobilizing domestic bank financing to avoid reliance on monetary financing in 2023. - External financing: - External financing remains the central pillar. - US$23.1 billion in external budget support loans and grants received through October 2022. - Authorities will communicate fiscal financing needs regularly, timely and transparently to donors and the IMF; collaborate closely with partners and undertake key reforms under their arrangements. - Domestic bank financing and government securities: - Regular treasury auctions and “war bonds” continued after the outbreak of war. - Cumulative net financing by domestic banks has been negative since the war started; rollover rates fell from over 100 percent in March-May to 22 percent in August-September and picked up to 60 percent in October. - Share of government securities in total bank assets declined in 2022 relative to end-2021, but likely to stabilize and increase in 2023 given weak loan demand and banks’ demand for safe assets. - Measures to increase rollover rates and mobilize domestic financing: - Maximize issuance of domestic government securities in the primary market with an objective of covering redemptions expected in 2023. - Implement a mix of actions: - Adjust yields on government securities offered in the primary market to match market demand and support price discovery. - Launch a mechanism to allow banks to fulfill up to fifty percent of reserve requirements by benchmark bonds (see ¶30). - Undertake a bank-by-bank analysis to better understand banks’ current liquidity and credit risk preferences. - Continue strengthening liquidity forecasting and cash management within the Ministry of Finance to inform auction design and avoid monetary financing of the budget deficit. ### Limits on monetary financing and indicative targets - Authorities aim to strictly limit direct NBU financing of the state budget in 2022 and eliminate it altogether in 2023, conditional on: - Adequate external financing disbursements in a timely manner. - Sufficient primary market issuance of domestic government securities. - Adequate revenue mobilization to reduce fiscal financing needs. - No further shocks materialize. - NBU and Ministry of Finance agreement in 2022: - Keep purchases of domestic government securities at about UAH 30 billion per month, or below UAH 400 billion in 2022, with monitoring by a ceiling on general government borrowing from the NBU (Indicative Target, end-December 2022). - In 2023, elimination of reliance on monetary financing targeted (Indicative Target, end-March 2023), subject to the conditions above. - If unexpected critical financing needs or delays in external disbursements occur, the authorities will first apply market-based tools and request monetary financing from the NBU only as a last resort. ### Monetary policy stance and inflation management - Emergency measures after the war: - Inflation targeting suspended; fixed exchange rate regime introduced. - FX transactions restricted; monetary financing of the state budget permitted under Martial Law. - NBU objective: maintain price stability and help preserve the value of hryvnia incomes and savings. - Policy rate actions: - In June 2022, key policy rate (KPR) raised by 1,500 bps from 10 percent to 25 percent. - In October MPC, KPR maintained at 25 percent. - Projection to keep KPR at current level at least until 2024Q2, subject to balance of risks to the 2023-24 outlook. - Authorities stand ready to raise the KPR further and deploy additional measures if considerable upside risks to inflation materialize. ### Liquidity management and monetary transmission measures (¶30) - Record hryvnia liquidity in banking system: nearly UAH 300 billion as of end-October. - Emergency unsecured refinancing facility: - Introduced in February; eligibility tightened in April. - Outstanding refinancing declined from UAH 161 billion in March to UAH 54.2 billion by end-October. - Refinancing under the unsecured facility amounted to UAH 26.1 million by end-October. - Facility suspended on November 5 given excess liquidity. - Reserve requirements and reserve-bond mechanism: - Plan to tighten reserve requirements by 5 percentage points on demand deposits in hryvnia and foreign currency. - Introduce mechanism allowing banks to fulfill up to half of total reserve requirement with benchmark government securities. - Of the part that can be fulfilled with government securities, up to 40 percent can consist of existing benchmark securities maturing after 1 January 2024; the remainder with new benchmark securities offered by the Ministry of Finance in the primary market. - Liquidity absorbed through the increase in reserve requirement (particularly the part fulfilled through reserves) will tighten liquidity and support monetary policy stance. - Mechanism expected to incentivize revival of primary auctions and is not envisaged as a permanent feature; a plan will be developed to phase it out after expiration of Martial Law. - Other liquidity management tools under study: - Restore NBU Certificates of Deposits (CDs) main operation from overnight to 14 days at the KPR and consider issuing CDs with longer maturity. - Interbank repo/reverse repo market infrastructure is in place to help banks manage liquidity. - Objective: reduce liquidity via higher domestic financing volumes to enhance effectiveness of the KPR and other monetary tools. ### FX market measures and exchange rate management (¶31) - NBU net FX sales: cumulative net sales since February 24 of US$18.5 billion as of end-November. - FX reserves decline: from US$30.9 billion end-2021 to US$25.2 billion as of end-October. - Initial FX restrictions helped limit pressure on reserves but broke the link between interbank and cash FX segments, generating a spread between cash and official rates. - Measures taken: - July one-step devaluation of the exchange rate peg by 25 percent from USD/UAH 29.2549 to USD/UAH 36.5686. - Eased pressures on cash FX market by shifting demand to noncash FX segment: - Allowed cashless foreign currency purchases by individuals for 3-month or longer deposits within a monthly limit. - Introduced a new FX-indexed term deposit facility to help households protect hryvnia savings. - Tightened limits on card withdrawals abroad and instituted a ban on P2P payments from hryvnia payment cards to foreign banks. - Facilitated humanitarian and defense efforts: - Allowed charitable funds greater flexibility on use of FX balances. - Allowed use of FX, including domestically, for crowdfunding purposes. - Individual volunteers allowed to conduct Swift transfers abroad (within a limit) and use FX payment cards (no limit) and hryvnia payment cards abroad (beyond monthly limit) for a predefined set of goods supporting the defense effort, where verified and approved by banks. - Finetuned currency supervision requirements on banks for import of humanitarian goods following simplification of customs procedures. - Supported trading firms amid logistical difficulties: - Increased settlement deadlines for export and import transactions from 90 days to 180 days (after initial narrowing from 365 days to 90 days) to cope with supply chain disruptions. - Allowed businesses, under limits and conditions, to transfer available FX cash abroad to support operations of foreign units and branches. - Outcomes: - Measures helped reduce the pace of net FX sales by the NBU. - Spread between the official peg and the cash rate narrowed from nearly 25 percent in mid-July to around 10 percent as of end-November. *IMF Staff Report excerpt* ### 32. We will maintain an adequate level of FX reserves to support exchange rate stability ### 32. We will maintain an adequate level of FX reserves to support exchange rate stability ### Exchange rate stability and FX reserves - Policy objective: maintain an adequate level of FX reserves to support exchange rate stability and provide a buffer against adverse shocks, given prevailing uncertainty. - 2023 outlook: despite a current account deficit, sizable external financing is expected to help ensure an adequate level of reserves and keep exchange rate expectations well-anchored. - Current stance on FX market imbalances: intend to maintain generally the existing restrictions on FX transactions while carefully monitoring their effectiveness and fine-tuning them to limit circumvention. - Measures under consideration: explore measures to further strengthen the attractiveness of hryvnia assets. - Monitoring safeguard: progress will be monitored by a floor on NIR (Quantitative Target, end-December 2022; Indicative Target, end-March 2023) to ensure an appropriate level of reserves in view of large uncertainty and to support exchange rate stability. ### Monetary financing, base money, and NBU independence - 2022 monetary financing: monetary financing of the state budget amounted to 8 percent of GDP. - Sterilization and base money outcome: sterilized associated liquidity injection with FX sales and NBU CDs, keeping nominal base money growth contained at about 12.3 percent y/y as of end-October. - 2023 expectation: envisioned elimination of monetary financing is expected to lead to a decline in base money growth, helping to support inflation deceleration. - Limits and prohibitions: - Strive to limit indirect forms of monetary financing outside core NBU functions (e.g., directed provision of liquidity to banks or SOEs for purchase of government securities on the primary market). - Will not earmark any NBU profits for specific uses. - Direct financing of off-budget programs by the NBU will be avoided altogether. - Institutional commitments: - Reducing and then eliminating monetary financing is central to strengthening NBU independence. - Ensure distribution of NBU profits to the state budget in line with established procedures, transparently. - Organizational changes to the NBU undertaken in November 2022 to align with legal framework and a function-based model. - Commitment to undertake a new safeguards assessment of the NBU in early 2023; initial preparations underway. ### Financial sector emergency measures and stability actions - System resilience at war outset: - Banks entered the war well-capitalized and liquid due to prior cleanup since 2014. - Almost 90 percent of bank branches remained operational. - Online banking services fully available to clients with internet connectivity. - Non-cash payment system functioning normally; liquidity recovered for most banks. - License revocations: licenses of four small banks (around 2.8 percent of system assets as of 1 January 2022) revoked under martial law for reasons mostly unrelated to the economic impact of the war. - Emergency measures implemented to preserve financial stability: - Administrative controls to preserve FX liquidity and channel it towards priority imports. - An unsecured funding facility introduced with maturity up to one year for an amount up to 30 percent of banks’ late-January retail deposits; discontinued on November 5 due to a decline in usage. - Suspension of enforcement actions for war-inflicted breaches of prudential requirements (capital, liquidity, credit risk, net open FX positions) and delays in prudential reporting; audits postponed; regular bank stress testing in 2022 cancelled. - Loans restructured during the martial law period are exempt from reclassification for credit risk. - Prohibitions on related party lending (with limited consumer loan exception), capital distributions (dividend payments and share buy-backs), and bonus payments. - Temporary payment holidays on retail and corporate loans for 3-6 months depending on product; temporary cancellation of fees and commissions on cashless payments and cash withdrawals. ### Financial sector strategy and planned unwinding of emergency measures - Update to 2021 financial sector development strategy in consultation with IMF staff; it will be a living document with periodic review, modification, and implementation milestones. - Strategy will include: - Coordinated steps to safely unwind exceptional measures. - Diagnostics to identify bank re-capitalization needs and NPL resolution priorities. - A framework to address any capital shortfalls. - A prioritized action plan to monitor and tackle high NPL levels. - Well-developed contingency plans for potential further shocks. - Coordination arrangements among key stakeholders. - Structural benchmark: NBU to prepare a Terms of Reference in consultation with IMF staff describing the methodology and processes of bank diagnostics necessary to assess bank capital adequacy and identify NPL resolution priorities (Structural Benchmark, end-January 2023). - Current prohibition on bank capital distributions will remain until diagnostics are completed. - Financial Stability Council (FSC) commitment: endorse by end-January 2023 a contingency plan for potential adverse rulings from constitutional challenges against the DGF Law and the Bank Resolution Law (Law #590), and update the existing contingency plan prepared at the onset of the last Stand-By Arrangement in connection with litigation risks over failed banks. ### Governance of state-owned banks and supervisory boards - Commitment to strengthen governance of state-owned banks (SOBs) and recover value from former shareholders of failed banks. - Reforms under previous Fund-supported programs include: - Adoption in 2018 of a dedicated SOB framework within the banking law. - For each SOB: appointment of a majority-independent supervisory board and a Memorandum of Understanding with the Cabinet of Ministers defining shareholder relationship and safeguarding commercial operation and protection from political interference. - Independence of SOB supervisory boards: - Commitment to ensure supervisory boards operate free from political pressure and selected members are genuinely independent. - New recruitment process initiated; recruitment firms appointed for each SOB. - Aim to select members by end-February 2023. - Adherence to established filling processes and offer market-based remuneration to attract qualified Ukrainian and international professionals. - Preference given to existing independent board members under equal conditions to preserve operational continuity and institutional memory. - NBU will rigorously apply its fit and proper assessment framework. ### Governance, anti-corruption, transparency, and reconstruction - Corporate governance in SOEs: - Ensure SOEs operate at arm’s length from government and maintain majority-independent supervisory boards. - Continue efforts to strengthen corporate governance in SOEs. - Commit to appoint and make fully operational the supervisory board of Naftogaz by end-January 2023, based on transparent and competitive selection procedures (Structural Benchmark). - Refrain from decisions that would undermine corporate governance frameworks or governance in key SOEs, including in the energy sector. - Anti-corruption institutions and staffing: - National Anti-Corruption Bureau of Ukraine (NABU), Specialized Anti-Corruption Prosecutor’s Office (SAPO), and the High Anti-Corruption Court continued operations despite the war. - July 2022: new SAPO head appointed. - Commitment to reinforce SAPO with onboarding of eight new and budgeted SAPO prosecutors by end-December 2022. - Selection commission for new NABU head advancing; Cabinet expected to appoint the new head by end-March 2023 following an open, transparent, and competitive selection process (consistent with November 2021 legal amendments). - Ethics Council continuing vetting candidates to fill vacancies in the High Council of Justice. - Reconstruction transparency and accountability: - Reconstruction strategy to meet highest standards of transparency and accountability. - Use digital technologies and coordinate with international partners and civil society to design a platform for timely information to transparently track and analyze reconstruction-related procurement processes and expenditures. - Establish mechanisms to prevent and identify corruption risks and escalate cases for investigation. - Comprehensive audits of reconstruction funds, performance audits of selected projects (including costs, deliverables, outputs), and timely publication of audit reports will be key features. ### Program implementation, monitoring, and targets - PMB review: one review based on end-December 2022 test dates. - Monitoring framework: five structural benchmarks (see structural benchmarks timing), two quantitative targets (QTs), and two indicative targets (ITs). Indicative targets for end-March 2023 to guide early 2023 implementation. - Data provision: adhere to data provision requirements in the Technical Memorandum of Understanding (TMU), including fiscal information on critical expenditure categories and overdue financial obligations, and resume provision of data critical to macroeconomic and financial surveillance. Key structural benchmarks (sector — timing) - Develop an action plan to prevent and clear arrears over the course of the 2023 Budget and beyond. — Fiscal — End-January 2023 - Submit to Parliament three draft laws to support tax revenue enhancement (cancellation of moratoria on tax audits; removing idiosyncrasies of simplified tax regime; enforcement of cash registers). — Fiscal — End-January 2023 - Prepare a concept note on reforms to the social safety net to achieve targeted, adequate, and efficiently delivered social assistance while safeguarding fiscal sustainability. — Fiscal — End-January 2023 - Prepare a Terms of Reference in consultation with IMF staff describing the methodology and processes of bank diagnostics to assess capital adequacy and identify NPL resolution priorities. — Financial sector — End-January 2023 - Appoint and make fully operational the supervisory board of Naftogaz based on transparent and competitive selection procedures. — Governance — End-January 2023 Key quantitative and indicative targets (values shown for end-December 2022 and end-March 2023) - Quantitative targets: - Floor on the non-defense cash primary balance of the general government, excluding grants (- implies a deficit): 86,950 (December 2022); -8,240 (March 2023). - Floor on net international reserves (in millions of U.S. dollars): 15,000 (December 2022, QT); 11,500 (March 2023, IT). - Indicative targets: - Floor on the overall cash balance of the general government, excluding grants (- implies a deficit): -1,425,762 (December 2022); -506,476 (March 2023). - Ceiling on general government borrowing from the NBU: 388,500 (December 2022); -7,600 (March 2023). - Memorandum items (December 2022; March 2023): - External project financing: 51,733; 13,713. - Budget support grants: 461,940; 182,843. - Budget support loans: 577,814; 164,559. - NBU profit transfers to the government: 19,700; 71,000. - Net financing of general government deficit by commercial banks: -101,223; -5,434. - Government bonds for bank recapitalization and DGF financing: 0; 0. - Called guaranteed debt service: 15,000; 10,500. ### Technical Memorandum of Understanding — selected operational definitions and exchange rate accounting - Official exchange rate for program purposes: 36.5686 (Ukrainian hryvnia per U.S. dollar), set by NBU as of November 21, 2022. - Reference exchange rates (per U.S. dollar) fixed for program accounting as of November 21, 2022: - Swiss Franc: 0.9883 Swiss Franc per U.S. dollar. - Euro: 1.020773 euro per U.S. dollar. - Pound Sterling: 0.818121 pound per U.S. dollar. - Australian Dollar: 1.5435 dollars per U.S. dollars. - Canadian Dollar: 1.275149 dollars per U.S. dollar. - Chinese Renminbi: 7.23115 yuan per U.S. dollar. - Japanese Yen: 132.9378 yen per U.S. dollar. - SDR accounting exchange rate: 0.755898 SDR per U.S. dollar. - Official gold holdings valuation: 1,675.63 dollars per fine ounce. - These accounting exchange rates are kept fixed over the program period; program exchange rate may differ from the actual exchange rate set by NBU during Martial Law. Setting a program exchange rate for computing monetary aggregates does not imply any target exchange rate for policy purposes. *Source: Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding (December 8, 2022).* ### 6. For program purposes, gross domestic product is compiled as per the System of National ### 1ukrea2022003 - 6. For program purposes, gross domestic product is compiled as per the System of National ### Definitions and scope - GDP compilation - Gross domestic product is compiled as per the System of National Accounts 2008 and excludes Crimea and Sevastopol. - External financing (for program purposes) (see Table B) - Loans (budget and project support) disbursed to the general government and counting towards general government financing. These include financing from official multilateral creditors (World Bank, European Commission, European Investment Bank, and European Bank for Reconstruction and Development) and official bilateral creditors. - Grants (budget and project support) disbursed to the general government of Ukraine. Consistent with government finance statistics, grants are recorded above the line in revenues. - Defense expenditures (for program purposes) - Include expenditures of the defense and security sector pursuant to the Law of Ukraine “On National Security of Ukraine”. Such expenditures shall include all current (including wage bill) and capital expenditures. - Overdue accounts payable / arrears - Arrears defined per Order of the Ministry of Finance N 372 dated April 2, 2014: amount of payments due on the 30th day after the deadline for mandatory payment, in line with the legal contract in effect. If no payment deadline specified, counts as the 30th day after confirmation of goods received, works done and services rendered. - Budgetary arrears on social payments and wages: all arrears of the consolidated budget on wages, pensions, and social benefits of the central or local governments. Timeframe for wage arrears follows the general 30-day definition. Information on arrears in the security and defense sector can be presented in aggregated form given martial law specifics. - Wages: comprise all forms of remuneration for work performed for standard and overtime work in all subcategories, including defense and security service. - Arrears of social funds (Pension Fund, Unemployment Fund, Social Insurance Fund of Ukraine): comprise all benefits of these funds. The arrears on the Social Insurance Fund is at 10th day after the deadline of payment. This definition excludes unpaid pensions to individuals who resided or continue to reside in territories temporarily outside government control. ### Quantitative and indicative targets — Net International Reserves (NIR) - NIR definition - Net international reserves (NIR) of the NBU are defined as the dollar value of the difference between usable gross international reserve assets and reserve-related liabilities to nonresidents, evaluated at program exchange rates. - Usable gross international reserves include readily available claims on nonresidents in convertible currencies, consistent with Balance of Payments Manual (Sixth Edition) and SDDS. - Exclusions from usable reserves (inter alia) - Any assets denominated in foreign currencies held at, or claims on, domestic institutions; foreign currency claims of the NBU on domestic banks; NBU deposits held at the Interbank Foreign Currency Exchange Market and domestic banks for trading purposes. - Any precious metals or metal deposits, other than monetary gold and gold deposits, held by the NBU. - Any assets corresponding to claims of commercial banks in foreign currency on the NBU and any reserve assets that are (i) encumbered; or (ii) pledged as collateral (in so far as not already included in foreign liabilities, or excluded from reserve assets); or (iii) frozen. - Any reserve assets not readily available for intervention in the foreign exchange market, inter alia, because they are not fully under the control of the NBU or because of lack of quality or lack of liquidity that limits marketability at the book price. - Reserve-related liabilities (for program purposes) - All short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign currencies with remaining maturity of one year or less. - The stock of IMF credit outstanding. - The nominal value of all derivative positions (including swaps, options, forwards, and futures) of the NBU and general government, implying the sale of foreign currency or other reserve assets. (This refers to the notional value of the commitments, not the market value.) - All foreign exchange liabilities of the NBU to resident entities which are not already excluded from reserve assets, but excluding foreign exchange liabilities to the general government, or related to deposit guarantees. - NIR adjustors (selected) - Downward adjustments by the full amount of the cumulative shortfall in external financing disbursements via NBU relative to the baseline projection (Table B). - Downward adjustments by the full amount of the cumulative shortfall in net issuance (gross issuance minus debt service) of central government’s domestic foreign exchange securities under baseline amounts. - Symmetric adjustor for central bank swap conversions: upward adjustment when non-reserve currency is converted into a reserve currency through an outright sale (amount converted at time of conversion); downward adjustment when the NBU repays the non-reserve currency under the swap (principal and interest due). - Upward adjustment when NBU requests use (draws) any reserve currency provided under a central bank swap agreement with maturity over 1 year; downward when repaid. - Adjustments for transfers or uses of unencumbered confiscated foreign exchange assets to international reserves or other accounts, upward or downward by full amount of cumulative excess or shortfall relative to baseline. ### Key figures — Disbursements from IFIs and Official Sources (Table 2) - Note: Cumulative flows from January 1, 2022, in USD billions (projections starting from November 1, 2022, at program exchange rates). Excludes IMF emergency financing support (RFI) totaling SDR 2.012 billion (or US$ 2.693 billion). Financing assumptions for 2023 are indicative for program monitoring. - End-Dec 2022 (USD billions) - Multilateral: 12.67 - Bilateral: 17.24 - Total: 30.16 - Budget Support: Multilateral 11.47, Bilateral 17.04, Total 28.75 - Grants: Multilateral 0.63, Bilateral 13.37, Total 14.09 - Loans: Multilateral 10.84, Bilateral 3.66, Total 14.66 - Project Support: Multilateral 1.21, Bilateral 0.21, Total 1.41 - End-Mar 2023 (USD billions) (projections indicative) - Multilateral: 5.19 - Bilateral: 4.69 - Total: 9.87 - Budget Support: Multilateral 5.00, Bilateral 4.50, Total 9.50 - Grants: Multilateral 0.50, Bilateral 4.50, Total 5.00 - Loans: Multilateral 4.50, Bilateral 0.00, Total 4.50 - Project Support: Multilateral 0.19, Bilateral 0.19, Total 0.38 ### Ceilings, floors, and fiscal definitions - Ceiling on general government direct borrowing from the NBU (Indicative Target) - Defined as the cumulative change in the stock of outstanding claims on the general government held by the NBU, including general government securities (measured at face value), direct loans and credits, other accounts receivable, and overdraft transfers from the NBU in accounts of the general government. - Change measured relative to stock as of end December 2021 for end-December 2022 targets, and end December 2022 for March 2023 targets, and adjusted for exchange rate valuation effects. - Securities acquired as collateral under loans provided by the NBU during measurement period are excluded; loans exclude those to the Deposit Guarantee Fund. - Adjustor for end-March 2023 Indicative Target - If government bond primary issuances in Q1-2023 > UAH 83.215 billion, then ceiling on general government borrowing from the NBU, net of redemptions and repayments, will be adjusted upward by the smaller of: - a shortfall in external financing (as defined in ¶7), if any; - UAH 42.4 billion. - Floor on overall cash balance of the general government excluding budget support grants (Indicative Target) - Overall cash balance excluding grants: measured balance adjusted by amount of budget support grants recorded above the line in non-tax revenues; measured cumulatively from January 1 of the calendar year. Positive = surplus; negative = deficit. - Cash balance measured as net financing flows excluding valuation changes, comprising: - Total net treasury bill sales (in hryvnias and foreign currency) per NBU registry, excluding bonds issued to recapitalize Naftogaz and other SOEs; - Other net domestic banking system credit to general government as per NBU monetary statistics and any other financing by entities not reflected in monetary statistics; - Total receipts from privatization (including change in refundable participation deposits and sale of nonfinancial assets) and proceeds from uncompensated seizures; - Difference between disbursements and amortizations on any bond issued by general government or the NBU to nonresidents for financing the general government; - Difference between disbursements of foreign loans attracted by the State and amortization of foreign credits by the general government; - Net sales of SDR allocation in the SDR department; - Net change in general government deposits in nonresident banks or other nonresident institutions; - Net proceeds from any promissory note or other financial instruments issued by the general government. - All flows to/from the budget in foreign currency accounted for based on paragraph 3 of TMU. Exchange rate valuation of foreign currency deposits excluded from balance computation. - Government deposits in the banking system exclude VAT accounts used for electronic administration and escrow accounts of taxpayers used for customs clearance. - Floor on Non-Defense Cash Primary Balance of the General Government excluding budget support grants - Defined as Overall Balance excluding budget grants less interest payments (total interest paid on domestic and external debt) less defense spending (as defined in paragraph 6). Measured cumulatively from January 1 of calendar year. - Adjustors for balances in parts C and D - Downward adjustment by full amount of guarantees called on and paid from government resources. - Automatic adjustor corresponding to full amount of government bonds issued for banks recapitalization and DGF financing. - Upward adjustment by full amount of any increase above the projected stock of budgetary arrears (as defined in TMU). - Data coverage limitation - For period of the Martial law, data from temporarily occupied territories where government has no control is not covered by this TMU. ### Official exchange rate - The official exchange rate of the hryvnia against U.S. dollar is UAH/USD 36.5686 as set by the NBU, effective 9 a.m. 21 July 2022, but remains subject to change. - Cross rates determined by the NBU on the basis of this official exchange rate; NBU will aim to publish cross rates no later than 4 pm of the day preceding the one for which it is set. ### Reporting requirements (selected) - National Bank of Ukraine (NBU) reporting obligations to the IMF - Monthly sectoral balance sheets for the NBU and other depository corporations (banks) according to standardized reporting forms (SRFs), no later than the 25th day of the following month (except SRFs for end of reporting year: no later than the 41st day after the reporting year). - Weekly: provide to the IMF daily operational data on the stock of net and gross international reserves, at both actual and program exchange rates, and full breakdown of NBU accounts included in net international reserves plus any additional information needed for monitoring. - Monthly: no later than the 20th of the following month, provide balance data on stock of net and gross international reserves and flows affecting NIR; no later than the 25th of the following month, provide data on currency composition of reserve assets and liabilities. - Daily: provide information on total foreign exchange sales (including total from nonresidents and sales by clients in the interbank market, as well as any obligatory sales, if any) and approved foreign exchange demand in the interbank market, including Naftogaz foreign exchange purchases; provide daily information on official foreign exchange interventions and intervention quotations, and results of any foreign exchange auctions. - Quarterly: provide information on indicators of FX interventions approved by the NBU Board (in case of any changes). - Immediate notification to IMF of any updates to FX interventions methodology documentation and any decisions that define these parameters. - Daily: provide information on balances held in analytical account 2900 “Accounts payable per transactions for the foreign exchange, banking and precious metals purchase and sale on behalf of banks’ clients.” - Continue to publish on NBU website daily holdings of domestic government securities plus information on primary auctions and secondary market sales. - Provide to IMF daily holdings of government securities broken down by type of holders at primary market prices at rate fixed on day of auction; information on domestic government securities sales from the beginning of the year at the official rate as of date of placement; domestic government securities in circulation by principal debt outstanding at the official exchange rate as of date of placement; reports on each government securities auction; data on purchase and redemption of domestic government bonds from the Ministry of Finance in the NBU’s portfolio; monthly report on government securities holdings in format agreed with IMF staff—broken down by currencies and by holders (non-resident investors, resident non-bank, and resident banks, latter further broken down by bank group: State Participation, Foreign Banking, and Private Capital). *Source: 1ukrea2022003 - 6. For program purposes, gross domestic product is compiled as per the System of National (IMF technical memorandum excerpt).* ### 27. T ### 27. T ### NBU reporting obligations — market operations, financial statements, and liquidity management - The NBU will provide information on daily transactions (volumes and yields) on the secondary market treasury bills (including over-the-counter transactions and with a breakout for any NBU transactions). - The NBU will provide to the IMF its financial statements (income and expenses, balances on the general reserves and the calculations of the profit distribution to the budget) for the current and, if available, projections for the following two years, as approved by the NBU’s Board. The IMF is to be notified immediately of any update. - The NBU will continue to provide to the IMF daily and monthly data on the NBU financing operations (including swaps or refinancing) of the banks of Ukraine, and on the operations of mopping up (absorption) of the liquidity from the banking system (including through the CDs issuance) in the formats and timeliness agreed with the IMF staff. - On a monthly basis, the NBU will provide information on the collateral that has been pledged to the NBU for loans (by bank and loan type as well as by collateral type, haircut, and currency). - On a monthly basis, the NBU will also provide bank-by-bank information on NBU refinancing, broken down by operations (with indications of their settlement and maturity dates), and collateral pools, broken down by asset types and securities (with their values before and after haircuts). - The weekly and monthly reporting of NBU loans and collateral will separately identify which banks are under temporary administration or liquidation. ### Banking sector statistics, timing, and frequency - Core FSIs for individual banks in State Participation Group Foreign Banking Group and Private Capital Group: provided monthly but not later than 30 days after the expiration of the reporting month (except for data as of the end of the reporting year, which are to be provided no later than on the 41st day after the reporting year ends). - Depository corporations surveys: provided on a daily basis and on a monthly basis, not later than on the 25th day after the termination of the report month (except report data as of the end of the report year, which should be submitted not later than the 41st day after the report year). Includes net domestic assets, NBU loans and liabilities with banks, detailed information on loans of the banking sector provided to the general government, breakdowns by indebtedness of the central (state) government and local budgets and the DGF, in national and foreign currency, by loan and by security, and balances of government funds at the NBU (including Single Treasury Account account 3240 A and Treasury foreign currency account 3513 A and DGF). - Projections for external payments due in the next 12 months: provided monthly. Actual settlement of external obligations (principal and interest) for public and private sectors: provided quarterly, within 80 days following the end of the quarter. - Stock of short- and long-term external debt for both public and private sectors: provided quarterly. Stock of external arrears: reported continuously. - Daily data on foreign exchange export proceeds and foreign exchange sales; import transactions for goods and services; amounts of foreign exchange transferred from abroad to the benefit of physical persons to be paid in cash without opening an account; foreign exchange wires from Ukraine abroad for current foreign exchange nontrade transactions on the basis of the orders of physical persons; sales and purchases of foreign exchange cash by individuals (incl. through banks, exchange offices, and UkrPoshta). - Weekly data on volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons; monthly data on certain transfers of non-cash FX from Ukraine to the benefit of non-residents. - Monthly aggregated data on the number and amounts of e-limits granted to legal entities and physical individuals and on the transfer and purpose of foreign exchange outside Ukraine within the e-limits. ### Foreign assets, liabilities, deposits, loans, and bank-level reporting - Daily data on foreign assets and liabilities of the overall banking system (excl. the NBU); banks’ open foreign exchange positions by main groups of banks; deposits aggregated for the overall banking system (excl. the NBU) broken down by households and legal entities, maturity, and by national and foreign currency; loans aggregated for the overall banking system (excl. the NBU) broken down by households and legal entities and by national and foreign currency. - Daily data on deposits and credits aggregated for the overall banking system (excl. the NBU) without deposits and credits of banks in liquidation starting from the beginning of 2014 and broken down by households and legal entities, as well as by national and foreign currency. - Weekly data on foreign assets and foreign liabilities (broken down by domestic and foreign currency) for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group. - Monthly breakdown of foreign assets by type (cash and deposits, government securities, nongovernment securities, loans, other) and foreign liabilities by type, holder (banks, other financial institutions, nonfinancial corporate, and individuals) and remaining maturity (less than one month, one to three months, three to 12 months and over 12 months). Rollover rates for foreign credit lines from banks and for securities. ### Bank-by-bank liquidity, capital, risk, and income reporting - Daily bank-by-bank data for the largest 35 banks on the liquidity ratio and amounts of cash and cash equivalents, available funds in NBU accounts (excl. reserve requirements), correspondent accounts with well-known international banks (excl. encumbered accounts), and deposits from customers. - Daily bank-by-bank data for State Participation Group, Foreign Banking Group, and Private Capital Group banks: total assets and liabilities; loans and claims (by households, legal entities, and banks); foreign exchange net open position. Reported by domestic and foreign currency. Deposits reported by households and legal entities and by maturity (current accounts, saving accounts, and time deposits). - Monthly bank-by-bank data on liquidity coverage ratio in all currencies and in foreign currency. - Daily aggregated data on main currency flows, including government foreign receipts and payments by currencies as well as interbank market operations by currencies. Daily information on exchange market transactions including the exchange rate. - Information on reserve requirements at the individual bank level, including the breakdown between the reserve requirements fulfilled by reserves and that by government securities. - Monthly bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: average interest rate on deposits to customers (by domestic and foreign currency, non-financial corporations and households, and by maturity—demand and time accounts). Weekly average interest rate on interbank borrowings (by domestic and foreign currency, and by maturity—overnight, 1–7 days, and over one week) after Martial Law is cancelled. - Monthly, in an agreed format, data for the entire banking sector and aggregated and bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: risk weighted assets and other risk exposures (for ratio H2 and H3 calculation), including for the excess of long-term asset to funding and foreign exchange open position; total regulatory (Tier 1 and Tier 2) and core (Tier 1) capital; capital adequacy ratio for total regulatory (H2) capital and core capital (H3). - Monthly data on loans and claims by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; deposits by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; foreign exchange net open position split between total foreign exchange assets (long position) and foreign exchange liabilities (short position), and between on- and off-balance sheet. ### Loan-level, related-party, and sectoral reporting - Monthly, in an agreed format, data for the entire banking sector and bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: loans and claims (by households in domestic and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign currency, maturity, and by borrower classification categories); collateral for loans and claims (by type of collateral, legal entities in domestic and foreign currency, households in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories); provisions on loans and claims (parallel breakdown). - Large exposures (loans equal to or greater than 10 percent of equity), refinanced loans, and restructured loans (by households, legal entities, and banks) reported after Martial Law is cancelled. - Average interest rate on new loans to customers (by non-financial corporations and households; accrued interest on loans by domestic and foreign currency); securities and debt financial instruments, with government securities reported separately (by domestic and foreign currency). - Monthly bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: deposits of related parties (by domestic and foreign currencies, and households and legal entities); deposits of related parties pledged as (cash cover) collateral; other liabilities to related parties; related-party loans (by households, legal entities, and banks); counterparty names and amounts of the largest 20 loans to related parties; collateral and provisions on loans and claims on related parties with parallel breakdowns by currency and borrower classification categories. - Monthly aggregate and bank-by-bank and by region data on loans and provisions (by households and legal entities, domestic and foreign currencies, and by debtor classification categories); deposits (by households and legal entities, and domestic and foreign currencies); due from banks (by domestic and foreign currencies). ### Nonperforming loans, income statements, and capital measures - Monthly data for each bank in the State Participation Group showing NPLs, including migration from NPLs to PLs; migration from PLs to NPLs; form of NPL repayments (cash, loan sales, collateral sales, etc.); write-offs; and other factors (e.g., exchange differences and revaluations). Comparison with banks’ respective timebound plans for reducing NPLs once these are approved. - Monthly data for the entire banking sector and bank-by-bank by bank groups (State Participation Group, Foreign Banking Group and Private Capital Group banks) on cumulative income statements: total revenues; interest revenues (from loans to households, loans to legal entities, interbank loans, placements with the NBU, securities); revenues from fees and commissions; total expenses; interest expenses (on deposits to legal entities, deposits to households, interbank borrowing, borrowing from NBU, securities issued); fees and commissions paid; salaries and other staff compensation; other operational expenses; net earnings before loan loss provisions; loan loss provisions; net earnings after loan loss provisions; taxes paid; and net earnings. - Upon request, the NBU will provide to the IMF banks’ net expected outflow of cash for a 30-day period. - Monthly bank-by-bank reporting of the amount by which regulatory capital has been increased for State Participation Group, Foreign Banking Group and identified Private Capital Group banks, disclosing the instrument or transactions (e.g., capital injection, conversion of subordinated debt to equity, etc.). - Once a month, the NBU will inform the IMF of any regulatory and supervisory measures against banks violating NBU regulations on capital adequacy, liquidity ratio norm, large exposures, and related or connected lending, as well as decisions on declaring a bank problem or insolvent. ### Balance of payments, treasury defaults, and accounting changes - Detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter. - The NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, deposit money banks, or nonbank entities and individuals; the NBU will provide information on outstanding interest and principal payments in such cases. - The NBU will inform IMF staff of any changes to reserve requirements for other depository corporations. - The NBU will communicate (electronically) to the IMF staff any changes in the accounting and valuation principles applicable to the balance sheet data and will notify the staff before introducing any changes to the Charts of Accounts and reporting forms of both the NBU and the commercial banks. - The NBU Internal Audit Department will provide an assurance report to the Fund, no later than six weeks after each test date, confirming that (i) the monetary data are in accordance with program definitions and have been verified and reconciled to accounting records; and (ii) that there have been no changes to the chart of accounts or valuation methods that would impact the data reporting. - The NBU will provide the IMF with a copy of the annual management letter from the external auditor within six weeks of completion of each audit. This remains in effect for the duration of the arrangement and for as long as credit remains outstanding. - Monthly, the NBU will provide to the IMF and the Ministry of Finance data on the monthly coupons and principal to be paid for the period till the end of 2023 (in hryvnia and foreign currency, separately) on the outstanding stock of government securities held by NBU and the public (broken down by resident banks, resident non-bank; and non-resident investors). Data on resident banks further broken down by bank group (State Participation, Foreign Banking, and Private Capital) and include ISIN-level. Annually, information on hryvnia-denominated securities that are indexed (i.e., to inflation; USD), broken down by the type of the owner. ### Deposit Guarantee Fund (DGF) reporting - Monthly data on the total number and volume of household deposits broken down in groups by deposit size, reported bank-by-bank for the largest 35 banks and on aggregate for the remaining banks. - Monthly bank-by-bank reporting for all banks in the banking system: amount of insured deposits and total household deposits, by domestic and foreign currency in an agreed format. - Monthly bank-by-bank reporting of total insured deposits and remaining insured deposits to be paid by the DGF for banks under liquidation and under provisional administration, by domestic and foreign currency in an agreed format. - Monthly reporting of the financial position of the DGF, including information about the cash balance, bond holdings, credit lines, and loans, in an agreed format. - Monthly reporting of the financing arrangements of the DGF, including contracted financing from MoF, in an agreed format. - Monthly one-year forecast of the amount and type of financial resources that the DGF expects to receive from MoF, NBU and other entities; amount DGF expects to pay out to insured depositors in banks in liquidation; and amount of asset recoveries expected by DGF, in an agreed format. ### Ministry of Finance and Treasury reporting - The Ministry of Finance will provide the IMF with the monthly consolidated balances (end-month) of other non-general government entities, including SOEs, holding accounts at the Treasury no later than 25 days after the end of the month. - The Treasury will continue to provide to the IMF reports on daily operational budget execution indicators, daily inflow of borrowed funds (by currency of issuance) to the state budget and expenditures related to debt service (interest payments and principals) including data on government foreign exchange deposits, in a format agreed with IMF staff. - The Treasury will provide 10-day and monthly basis data on the execution of the state, local, and consolidated budgets on the revenue side and data on revenues from the social security contributions, including by oblast breakdown. - Monthly data on funds deposited with the Single Treasury Account, on the registration accounts of the entities which are not included in the state sector, information on balance of funds as of the 1st day of the month on the account #3712 “accounts of other clients of the Treasury of Ukraine,” and on inflow to the State budget from placing Treasury or any other liabilities to households in foreign and domestic currency and their redemption. *Source: 1ukrea2022003 - 27. T* ### 64. The Ministry of Finance will continue to provide to the IMF in electronic form monthly and ### 64. The Ministry of Finance will continue to provide to the IMF in electronic form monthly and quarterly treasury reports, including on accounts payable by budget institutions no later than 25 and 35 days after the end of the period respectively. ### Reporting requirements: Treasury, fiscal accounts, and program-level data - Monthly and quarterly treasury reports to the IMF in electronic form, including on accounts payable by budget institutions: - monthly reports: no later than 25 days after the end of the period. - quarterly reports: no later than 35 days after the end of the period. - Final fiscal accounts at the end of each fiscal year to be provided in electronic form no later than March of the following year. - Reports to include: - expenditure data by programs and key spending units. - expenditure data based on standard functional and economic classifications. - quarterly reports to contain standard information on budget expenses to cover called government guarantees. ### Public wage bill, medical guarantee, and social funds - Ministry of Finance to report public wage bill (excluding SOEs) in line with IMF-agreed template, including all payment categories and defense wages. - Quarterly Treasury reports on expenditure under the medical guarantee program by economic classification. ### Borrowing, debt service, and bond reporting - Monthly reports on borrowing (disbursements, interests, and amortization) of UrkAvtoDor in format agreed with IMF staff. - Monthly information on municipal borrowing and amortization of debt in format agreed with IMF staff. - Ministry of Finance together with NBU to provide: - monthly information about redemptions of domestic bonds and bills in favor of residents and non-residents. - weekly information on face value of government bonds redeemed and face value of government bonds placed during the week. - Monthly cash-balance reporting of the general government, no later than 15 days after the end of the month, with details on: - budget execution data for privatization receipts of the state and local governments; - disbursements of external credits (including budget support and project loans including on lending) to the consolidated budget and amortization of external debt by the consolidated budget; - net domestic borrowing of the general government, including net T-bill issuance, issuance of other government debt instruments, and change in government deposits. - Quarterly, no later than 25 days after the end of the quarter, provide: - data on outstanding stock of domestic and external debt of the state and local budgets (including general and special funds); - monthly forecasts of planned and actual external debt disbursement, amortization, and interest payments (including general and special funds), broken down by creditor categories and currency as agreed with Fund staff; - report accumulation of any budgetary arrears on external and domestic debt service. - Semi-annual, no later than 25 days after the end of Q2 and Q4: disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements. - Monthly data on amounts and terms of all external debt contracted or guaranteed by the central government, no later than 25 days after the end of each month; include external and domestic credit to key budgetary spending units and nongovernment units guaranteed by the government (amount of sovereign guarantees extended by executive resolutions and actually effectuated; total amount of outstanding guarantees and list of their recipients). - Monthly reporting on external and domestic credit to key budgetary spending units and nongovernment units guaranteed by the government, no later than 25 days after the end of the month (amounts, effectuated guarantees, outstanding guarantees, list of recipients). ### Project financing, arrears, and special funds - Quarterly, no later than 25 days after the end of the quarter, provide an updated list of project financing credits to be disbursed to the special fund of the State Budget of Ukraine: - distinguish grant and loan financing on a project-by-project basis. - provide aggregated cash expenditures for such projects through the most recent month. - Monthly data on the stock of all budgetary arrears, no later than on the 1st day of the second subsequent month, including separate line items for: - wages; - pensions; - social benefits accrued by social funds; - energy; - communal services; - all other arrears on goods and services and capital expenditures. - Treasury to report monthly data on accounts payable for state and local budgets (economic classification of expenditures). - Pension Fund to provide monthly reports on net unpaid pensions to individuals who resided or continue to reside in territories temporarily outside government control; provided information will include defense and law-enforcement. - Arrears reporting dates explicitly shown: - Arrears general government November 1st, 2022 December 31, 2022 March 31, 2023 ### Pension Fund and extra-budgetary funds reporting - Ministry of Finance to provide data on approved budgets and quarterly operational data (daily for the Pension Fund only) on the revenue, expenditures, arrears, and balance sheets of: - Pension Fund (detailed breakdowns expected; monthly reporting for Pension Fund), - Fund for Social Insurance (quarterly reporting; detailed breakdowns expected), - Employment Fund (quarterly reporting; detailed breakdowns expected), - any other extra-budgetary funds managed at the state level. - Reports due no later than 50 days after the end of each quarter (each month in case of the Pension Fund). - Any within-year amendments to the budgets of these funds to be reported within a week after their approval. - Annual financial statements including final fiscal accounts of those funds at the end of each fiscal year, no later than April of the following year. ### Recapitalization costs, fiscal risks, and performance reporting - Monthly, no later than 15 days after the end of each month: monthly data on budgetary costs associated with the recapitalization of banks and SOEs, including: - upfront impact on the cash balance of the general government of the recapitalization of banks and SOEs; - costs associated with the payment of interests; - respective changes as a result of supplementary budgets. - Quarterly performance reports for the Fund for Entrepreneurship Development. - Registry of fiscal risks to be made available to IMF staff on a semi-annual or, if available sooner, basis. ### State Tax Service (STS) and State Customs Service (SCS) reporting - STS to provide monthly data, no later than 25 days after the end of the month, on tax arrears inclusive of deferred payments, interest and penalties outstanding, in two formats (formats described in source). - STS and SCS to provide quarterly, no later than two months after the end of the quarter, a listing of all tax exemptions granted, specifying: - the beneficiary the exemption provided; - the duration; - the estimated subsequent revenue loss for the current fiscal year. - Revenues foregone to include losses from the simplified tax regime by groups of beneficiaries. - STS to provide monthly information, no later than 25 days after the end of the month, on VAT refunds in the following format: - (i) beginning stock of refund requests; - (ii) refund requests paid in cash; - (iii) refunds netted out against obligations of the taxpayer; - (iv) denied requests; - (v) new refund requests; - (vi) end-of-period stock of requests; - (vii) stock of VAT refund arrears (unsettled VAT refund claims submitted to the STS more than 74 days before the end of period). - STS to continue to provide monthly reports 1.P0 on actual tax revenue and 1.P6 on tax arrears, no later than 25 days after the end of each month. - STS to provide quarterly, no later than 25 days after the end of each quarter, information on: - number of tax appeals and associated disputed amounts received by the STS in each reporting period; - number of internally resolved appeals indicating appeals resolved in favor of the controlling body, in favor of taxpayer, and partial satisfaction. ### Naftogaz, GTSO, Ministry of Economy, SOEs, and statistics - Naftogaz Group and the GTSO to provide IMF staff each month, no later than the 25th of the following month, with electronic information (in an agreed format) on their cash flows. - Naftogaz Group report to include information on volumes and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households, heating utilities, budget institutions, and industries), and main revenue, expenditure, and financing items. - Naftogaz to provide updated monthly information on the company’s financial liabilities, with a schedule of loan-by-loan interest and principal payments. - Ministry of Economy to provide quarterly, no later than 80 days after the end of each quarter, consolidated information from the financial statements of the 10 largest SOEs, including: - (a) gross profit/losses; - (b) net financial results; - (c) subsidies received from the budget; - (d) guarantees granted from the budget; - (e) stock of debt, broken down by domestic and foreign; - (f) taxes and dividends paid; - (g) wage arrears; - (h) other payment arrears. - State Statistics Service to provide to the IMF revised quarterly data on gross domestic product (nominal, real, deflator) and their components (economic activities, expenditure, income) no later than 10 days after any revisions have been made. _Italic: Source: 1ukrea2022003 - excerpt of reporting obligations and data provision requirements to the IMF._ ### 85. The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on ### 1ukrea2022003 - 85. The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on ### Data collection requirement - The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on social assistance programs, including those existing before the war and newly emerging categories. - The data, presented in an agreed excel format, will show for each program, including IDPs: - (a) the number of households receiving help under HUS and other support categories; and privileges in the reporting month; - (b) total value of transfers; - (c) total value of outstanding HUS debt; - (d) income per capita of participants, both for HUS and privileges. ### Statement by Vladyslav Rashkovan — context and objectives - Date: December 19, 2022. - Authorities’ agreed objectives for the PMB program: - (1) support in the continuation of adapting macroeconomic, fiscal, budgetary, and monetary policies to the fast-changing macro and security circumstances; - (2) pave the way towards a near-term upper credit tranche quality arrangement; - (3) ensure adequate resources for core functions of the state — thanks to the IMF’s strong role in donor coordination. - Authorities’ commitments: - implement sound economic policies and preserve gains from past Fund-supported programs; - build the 2023 budget execution framework to achieve wartime spending goals while sustaining macroeconomic stability and preparing for the post-war era; - continue improving the public financial management framework and secure commitments for a financing mix that supports macroeconomic stability; - develop an integrated roadmap for tax policy and administration measures (with IMF Technical Assistance) to restore short-term tax administration and policies to their pre-war setup, while protecting current social assistance for the most vulnerable. - Monetary policy stance and NBU commitments: - uphold independence and institutional effectiveness of the National Bank of Ukraine (NBU); - safeguard price and exchange rate stability, protect international reserves, maintain an appropriate monetary policy stance to help alleviate price pressures, and increase attractiveness of hryvnia assets; - reduce and then eliminate monetary financing to help safeguard price and external stability and safeguard the NBU’s independence. ### War economy — social and macroeconomic impacts - Human and social impact: - Russia’s invasion started on February 24, 2022. - World Bank projection based on US$6.85 a day (2017 PPP): poverty in Ukraine will increase from 5.5 percent in 2021 to 25 percent in 2022. - Real GDP and activity: - Q2’2022 real GDP dropped by 37.2% YoY (deepest decline). - Flash estimate for Q3’2022: real GDP grew 9% QoQ; annual terms decrease slowed to 30.8%. - Inflation and prices: - Inflation accelerated to 26.5% YoY in November. - Inflation flattened compared to October and came below NBU expectations due to higher raw food supply, better FX market performance, and stabilization of inflation expectations. - Infrastructure and energy shocks: - Intensified missile strikes since mid-October led to significant electricity outages and cutoffs in water and heating across Ukraine. - Power outages weakened economic activity, reduced production, increased business costs, and worsened labor market performance. - Banking sector impacts and resilience: - Banks operate without interruption, maintain liquidity, and continue to lend (corporate lending growth concentrated at state-owned banks; retail lending declined). - Digitalization and contingency measures (cloud data warehouses) helped maintain operations amid cyberattacks. - In liberated regions the banking network reopened; term deposits in hryvnia and foreign currencies started to increase in Q3’2022. - Sector returned to profit in Q3’2022 following a loss in H1’2022. - Current estimates: banks stand to lose at least 20% of their loan portfolio due to the war and the economic crisis; this will have a significant impact on capital adequacy. - NBU will hold an asset quality review next year for a full assessment. ### Recent macroeconomic and fiscal policies - Fiscal outcomes and financing: - Cumulative general government deficit, excluding grants, ballooned to 15.9 percent of GDP in September. - Overall fiscal deficit was about 8.7 percent of GDP, supported by substantial external grants. - Over January-November 2022, the state budget deficit widened to a record high of UAH 1,152 bn (excluding grants). - Issuance of local bonds, including wartime bonds, already accumulated north of $7 billion. - More than $27 billion of foreign funding disbursed to Ukraine up to this date. - Government financing measures: - On March 1 (five days after the invasion), the Ministry of Finance started issuing government “war bonds” through auctions open to local and international investors. - The Ministry of Finance and the NBU developed a capital control lifting solution to boost reinvestments into hryvnia bonds from international investors. - The authorities will strive to maximize issuance of domestic government securities in the primary market to cover redemptions expected in 2023; the latest treasury auction led to an almost 100% rollover rate for government bonds. - Budget law foresees a moderate fiscal consolidation as the deficit ratio to GDP narrows (to about 20.6%). - Monetary policy adjustments: - Since the war began, the NBU temporarily moved away from classic inflation-targeting: fixed the official exchange rate, imposed administrative restrictions on FX transactions and capital movement, and temporarily postponed key policy rate decisions. - In June, the NBU returned to active monetary policy, hiking its key policy rate by 15 pp, to 25%, and kept it at this level thereafter. - The NBU adjusted the hryvnia official exchange rate to the US dollar by 25% and fixed it at a new level as a nominal anchor. - Fixed exchange rate, NBU FX interventions, and capital restrictions helped ease FX market pressures and kept foreign reserves broadly adequate. - Contingency planning: - Authorities prepared contingency plans for major risks and stand ready to seek additional donor support and take measures to boost domestic financing and revenues if needed. ### Coordination of donors and external financing - IMF and donor roles: - IMF’s role in donor coordination was sizable and visible, but IMF emergency financing was not sufficient alone; IMF Administered Account effectiveness was limited compared to the World Bank Multi-Donor Funds (MTDF). - Authorities view external financing, including from the IMF, as central to the financing mix. - International financing and reserves: - International financing disbursed to date: more than $27 billion. - NBU international reserves: $28 billion as of the end of November (almost unchanged compared to pre-war level). - Donor coordination initiatives: - G7 countries issued a statement confirming plans to establish a multi-agency Donor Coordination Platform for Ukraine. - First meeting of the Platform is expected in January 2023, within the term of the current PMB. - Authorities see a 4-months PMB as an interim step toward a near-term UCT-quality IMF arrangement and support a central IMF role in coordinating donors. ### Concluding remarks and commitments - Authorities requested a 4-month PMB, tailored to Ukraine’s exceptional circumstances, to prepare for necessary macroeconomic adjustment and to catalyze donor financing. - Authorities remain strongly committed to full and timely implementation of PMB policies to achieve goals and build a track record towards a UCT-program. - Authorities expressed gratitude for cooperation and support from the Fund, other IFIs, and the international community. *Statement by Vladyslav Rashkovan, Alternative Executive Director for Ukraine — December 19, 2022* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1ukrea2022003.pdf_