## 1ukrea2023001

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### Executive summary — humanitarian and macroeconomic impact
- Active combat concentrated in eastern and southern Ukraine; attacks on critical energy infrastructure had a severe social toll over the winter.
- Civilian casualties rising; over a third of the population has been displaced.
- Attacks since mid-October estimated to have damaged 40 percent of the power grid.
- Economic contraction: activity contracted by 30 percent in 2022 (also noted as -30.3 percent y/y and -33 percent y/y in related estimates).
- Large-scale capital stock destruction and rising poverty.
- Main policy challenge: maintain stability while ensuring resources for core state functions amid large defense and security spending financed by external support and monetization.
- 2022 policy regime adjustments: inflation targeting replaced by a peg to the U.S. dollar, supported by FX controls and a sizeable increase in policy interest rates.

### Program request, scope, and financing
- Authorities requested a 48-month extended arrangement under the Extended Fund Facility (EFF).
- IMF access proposals:
  - SDR 11.608 billion (577.01 percent of quota, about US$15.6 billion).
  - Also referenced as SDR11,608.25 million (577.01 percent of quota), equivalent to about US$15.6 billion.
- Proposed external support: IMF financing part of a US$115 billion package of external support over 2023–27.
- Program objective: resolve Ukraine’s balance of payments problem and restore medium-term external viability under baseline and downside scenarios.
- Two-phased program structure:
  - Phase 1: secure macroeconomic stabilization and undertake critical structural reforms while the war continues.
  - Phase 2: once active combat subsides, entrench macroeconomic policies and pursue expansive structural reforms to restore medium-term external viability, support sustained growth, and facilitate EU accession.
- Frontloaded access due to very large BoP needs.
- Safeguards: firm financing assurances for the first 12 months and credible assurances thereafter; group of donors provided an assurance about Ukraine’s capacity to repay the Fund.

### Recent track record and preparatory engagement
- Program Monitoring with Board Involvement (PMB): 4-month PMB approved in December 2022.
- PMB outcomes: authorities met all quantitative and indicative targets and structural benchmarks under the PMB.
- Prior IMF support: two RFI purchases in March and October 2022, providing cumulative financing of 100 percent of quota (US$2.7 billion).

### Macroeconomic outlook — scenarios and selected projections
- Baseline near-term: output expected to begin sequential recovery in 2023; growth for 2023 could be in the [-3, +1] range; 2024 growth projected at 3.2 percent y/y; inflation expected to decline to 20 percent by year-end.
- Baseline selected indicators:
  - Real GDP growth (%) [ -3, +1 ] 3.2 6.5
  - Inflation, period average (%) 21.1 15.5 10.0
  - Current account (% GDP) -4.4 -6 .2 -6.7
  - Current account (US$ billion) -6.5 -9.4 -11.3
  - Trade balance (US$ billion) -24.5 -24.4 -30.1
  - FX reserves (US$ billion) 29.5 32.4 35.6
  - Overall fiscal balance (% GDP) -20.4 -17.9 -9.8
  - Overall fiscal balance, excl. grants (% GDP) -28.2 -21.7 -12.1
  - Public debt (% GDP) 98.3 105.0 104.1
- Downside scenario core assumptions:
  - More protracted/intense war; sharper real GDP contraction of -10.0 percent in 2023 and -2.0 percent in 2024; acceleration in inflation.
- Downside selected indicators:
  - Real GDP growth (%) -10.0 -2.0 0.0
  - Inflation, period average (%) 27.6 25.3 17.2
  - Current account (% GDP) -4.9 -6.1 -5.4
  - Current account (US$ billion) -6.3 -7.9 -7.1
  - Trade balance (US$ billion) -26.7 -26.2 -26.1
  - FX reserves (US$ billion) 29.5 32.4 35.1
  - Overall fiscal balance (% GDP) -23.1 -22.3 -20.2
  - Overall fiscal balance, excl. grants (% GDP) -35.4 -32.2 -27.2
  - Public debt (% GDP) 112.5 124.8 138.6
- Medium-term/upside assumptions:
  - Upside: potential growth could rise by at least 1 percentage point (from 3¾ to 4¾ percent) under stronger reconstruction and reforms.
  - Investment-to-GDP, end of projection period (2033): 25 percent (Baseline) / 17 percent (Downside, -US$120 billion relative to baseline) / 32 percent (Upside, +US$300 billion relative to baseline).
  - Net migration relative to end-2021: -2 million persons (Baseline) / -3.5 million persons (Downside) / -1 million persons (Upside).

### Key program policy priorities
- Fiscal:
  - Near term: ensure adequate resources for priority spending, maintain a strong tax revenue base, preserve fiscal and debt sustainability, and avoid measures that erode tax revenue.
  - Medium term: adopt a National Revenue Strategy (NRS), restore medium-term budget framework, improve fiscal transparency, risk management, and public investment management.
- Financing strategy and debt sustainability:
  - Restore debt sustainability via treatments of official and external commercial debt and continued concessional external financing.
  - Group of Creditors for Ukraine (GCU) committed to a 2-step process: a 3-year extension of the current debt standstill set to expire end-December 2023, followed by a final debt treatment before expiry of the EFF arrangement.
  - Debt treatments, increased domestic financing, and elimination of monetary financing to meet financing needs.
- Monetary and exchange rate:
  - Priorities: support steady disinflation and exchange rate stability, maintain adequate FX reserves, prudently manage wartime liquidity surplus.
  - When conditions permit: transition toward a more flexible exchange rate, ease emergency FX measures, and return to inflation targeting.
- Financial sector:
  - Preserve financial stability, prepare for post-war recovery via contingency planning, bank diagnostics (AQR and viability analysis), tackle troubled banks and NPLs.
- Governance and growth:
  - Improve governance and anti-corruption institutions; ambitious energy sector reforms; continue EU integration and implement accession requirements.

### Fiscal developments, 2022 outturn, and 2023 budget
- 2022 fiscal outturns:
  - Overall fiscal deficit capped at 16.7 percent of GDP (20.5 percent of GDP at the PMB).
  - Overall fiscal deficit excluding grants was 26.5 percent of GDP (30.3 percent of GDP at the PMB).
  - Nominal expenditures rose by about 55 percent in 2022 relative to 2021; expenditures about 50 percent higher than original 2022 budget.
  - Tax revenues broadly stable; taxes on goods and services depressed; tax revenues lower by about 0.3 percent of GDP relative to original 2022 budget.
- Monetary financing and domestic issuance in 2022:
  - Gross purchases of government securities by the NBU amounted to UAH 400 billion (US$12.5 billion).
  - Base money growth at end-2022 increased to 19.6 percent y/y; broad money growth reached 20.8 percent y/y.
  - Domestic bond financing in net terms was minus UAH 88 billion (minus US$2.4 billion) in 2022, aggregate rollover rate of 68 percent.
  - Primary market yields increased by a cumulative 50 bps to 19.75 percent on the 18-month instrument.
- 2023 fiscal adjustments:
  - Spending envelope increased by about 11 percent of GDP relative to the original budget; overall expenditures estimated at 67.7 percent of GDP in 2023.
  - Authorities announced a 19.7 percent indexation of pensions, effective March 1, 2023, increasing overall social spending by 2.3 percent of GDP.
  - Projected tax revenues at 36.3 percent of GDP.
  - Deficit excluding external grants estimated to reach UAH 1.71 trillion (28.2 percent of GDP) in 2023.
  - Domestic bond market: small net positive contribution expected: UAH 31 billion, or 0.5 percent of GDP.

### External sector, trade, and external financing needs
- Exports remain some 40 percent below pre-war levels despite Black Sea Grain Initiative.
- Shipping values depressed; grain prices almost 30 percent below early-war levels.
- Trade deficit more than doubled to US$12.1 billion during January–November 2022.
- Current account surplus of US$8.5 billion (5.7 percent of GDP) in January–November 2022 due to sizable grants and humanitarian support.
- Program external financing gap estimates:
  - Total financing gap range between US$115–140 billion over the next 48 months (depending on war evolution).
  - External fiscal financing gap in 2023 estimated at US$41.9 billion.
  - Over 2023–27, external financing gap amounts to US$114.4 billion; downside scenario gap stands at US$139.6 billion.

### Monetary policy, FX market, and reserves
- NBU policy:
  - Key policy rate (KPR) at 25 percent (March); tightened reserve requirements by 5 pp in December and further 5 pp in January.
  - Stock of liquidity rose to UAH 534 billion (US$14.6 billion) at end-December 2022; large hryvnia liquidity surplus estimated at UAH 220 billion (US$6.3 billion) as of March 1.
  - Cumulative increase in reserve requirements estimated to have absorbed UAH 70-100 billion of liquidity; total obligatory reserves from two increases estimated at UAH 140 billion, effective cash-based portion about UAH 70–100 billion.
- FX market:
  - NBU FX sales of US$3.2 billion in December 2022; official financing inflows US$5.7 billion in December stabilized FX market.
  - FX spreads around 8-10 percent, declining to 5 percent by early March.
  - As of December 2022, FX reserves US$28.5 billion, down from US$30.9 billion at end-2021.
  - NBU’s net FX sales for the year were US$25.1 billion.
  - Reserves assessed as broadly adequate: 3.9 months of imports, or 91.6 percent of the Fund’s ARA metric.

### Banking system resilience, vulnerabilities, and diagnostics
- Operational status:
  - Majority of branch networks operational; “Power Banking” contingency network of circa 2,000 branches.
  - Operating banks fell to 66 after licenses of 6 small banks revoked.
  - PINbank majority ownership transferred to the state in February 2023 (assets around US$33 million and 100 employees).
- Balance sheet and provisioning:
  - Banking system assets and liabilities increased by 17.9 and 18.8 percent respectively in 2022.
  - Deposits 88 percent of liabilities as of end-December.
  - Official NPL ratio increased by 8 pp in 2022 to 38 percent after repayment holidays ended.
  - Loan loss provisioning coverage ratio 99 percent as of end-December.
  - State-owned banks hold about 80 percent of sector’s NPLs (PrivatBank ~60 percent).
  - Banking sector recorded profits of US$700 million in 2022 despite fresh provisions of US$3.2 billion (5 percent of total loans); 21 institutions (including 2 SOBs) ended year with aggregate loss of US$565 million.
- Regulatory forbearance: capital, credit, and reporting forbearance complicates precise assessment of asset quality.

### Governance, anti-corruption, and rule of law
- Progress:
  - 8 new anti-corruption prosecutors appointed in December.
  - 15 members of judicial self-governance body appointed in January.
  - Selection of new NABU head completed (appointed March 6; Prior Action).
  - Law dissolving Kyiv District Administrative Court approved in December.
  - New supervisory board for Naftogaz appointed January 24; chairperson elected February 10.
- Commitments:
  - Restore asset declaration requirement for high-risk and senior public officials (Structural Benchmark, end-July 2023).
  - Enhance asset declaration system linkages (Structural Benchmark, end-October 2023).
  - Amend AML/CFT framework to restore enhanced due diligence for PEPs (Structural Benchmark, end-September 2023).
  - Adopt SOE corporate governance law aligning with OECD Guidelines by October 2023.
  - Governance diagnostic with IMF technical assistance after the war.

### Financial sector strategy, diagnostics, and contingency planning
- Update 2021 financial sector strategy by end-June 2023 to prepare for orderly unwinding of emergency measures.
- NBU adopted TOR for an AQR on January 26; AQR to inform bank viability assessments and an NPL resolution plan by end-June 2024 (or updated later if AQR delayed).
- Current prohibition on bank capital distributions to remain until AQR findings reflected.
- NBU oversight to undertake asset valuation and solvency assessment of banks comprising 90 percent of system assets by end-December 2023.
- Financial Stability Council to adopt contingency plans by end-June 2023; bank rehabilitation framework (Structural Benchmark, end-March 2024).

### Program modalities, monitoring, and safeguards
- Higher-frequency reviews planned in initial phase: three reviews in 2023 and four in 2024; quarterly reviews in 2024; semi-annual from mid-2025.
- Quantitative Performance Criteria (QPCs), Indicative Targets (ITs), and Structural Benchmarks (SBs) specified (selected figures preserved in program tables).
- Selected PMB quantitative target figures (program accounting where specified):
  - Floor on the non-defense cash primary balance of the general government, excluding grants: 86,950 402,002 -8,240
  - Floor on net international reserves (in millions of U.S. dollars): 15,000 17,879 11,500
  - Floor on the overall cash balance of the general government, excluding grants: -1,425,762 -1,298,698 -506,476
  - Ceiling on general government borrowing from the NBU: 388,500 388,400 -7,600
  - External project financing: 51,733 48,700 13,713
  - Budget support grants: 461,940 456,270 182,843
  - Budget support loans: 577,814 562,446 164,559
  - NBU profit transfers to the government: 19,700 18,786 71,000
  - Net financing of general government deficit by commercial banks: -101,223 -77,323 -5,434
  - Called guaranteed debt principal: 15,000 2,645 10,500

### Risks, downside planning, and UCT eligibility
- Exceptionally high uncertainty; key risk channels:
  - Escalation of active combat could further contract economy and worsen fiscal position.
  - Limited policy maneuvering room to mitigate shocks.
  - Program highly dependent on adequate size, composition, and timing of external financing; shortfalls/delays risk suboptimal policies and program slippage.
  - Financial risks to the Fund include risk of arrears and high early exposure from frontloaded access; partially mitigated by donor assurances.
  - Operational and reputational risks acknowledged; program design tailored with higher-frequency reviews.
- Downside scenario explicitly incorporated; staff assesses program can achieve objectives in downside via additional authority measures, donor commitments, and debt relief.
- Staff assesses Ukraine meets five principal criteria for Fund UCT-quality financing under the policy on lending under exceptionally high uncertainty.

### Creditor assurances, Fund exposure, and safeguards
- A group of countries (Canada, France, Germany, Italy, Japan, Spain, United Kingdom, United States; later supplemented in supplement to include Belgium, Lithuania, the Netherlands) prepared to extend assurances regarding Ukraine’s capacity to repay the Fund.
- Staff assesses, with these assurances and financing assurances, Ukraine’s capacity to repay the IMF is adequate under baseline and downside, provided full program implementation.
- Fund exposure projections under baseline:
  - Stock of total Fund credit expected to peak at 5.5 percent of GDP in 2024 and 25.9 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 1.2 percent of GDP in 2024 and 5.8 percent of gross reserves in 2024.
- Safeguards assessment of NBU substantially completed; recommendations to be adopted during program.

### Recommendation and conditionality
- Staff recommends approval of the 48-month EFF arrangement with access of SDR 11,608.25 million (SDR11,608.25 million).
- Prior Actions required before approval:
  1. Appointment of the NABU Head following an open, credible, and transparent process (Prior Action).
  2. CMU approval of a second supplementary budget and submission to Parliament (Fiscal) (Prior Action).
  3. CMU adoption of decision tasking MoF to start preparation of the NRS (2024–2030) (Fiscal) (Prior Action).
- Selected Structural Benchmarks and timing preserved as specified (examples include enact second supplementary Budget 2023 — End-April 2023; adopt NRS by end-December 2023; prepare conditions-based strategy to move to flexible exchange rate — End-June 2023; transfer GTSO shareholding and adopt new charter — End-July 2023; enact law to restore asset declarations — End-July 2023).

### Letter of Intent highlights and program commitments (Appendix I)
- Requested amount: SDR11,608.25 million (577.01 percent of quota, about US$15.6 billion); initial purchase SDR2,011.83 million (100 percent of quota; about US$2.7 billion).
- Public announcement of intention to undertake debt treatment of external public debt; plan to start bondholder negotiations in early 2024 with completion no later than mid-2024.
- Authorities committed to program design: Phase 1 wartime stabilization and structural reforms; Phase 2 post-war reconstruction and reforms, reverting to pre-war frameworks as conditions permit.

### Annex I — post-war recoveries (selected findings)
- Using a sample of 400 wars, GDP per capita on average lower by 7 percentage points after the end of war (Koczan and Chupilkin 2022).
- Real GDP per capita returns to pre-war levels within five years for about half the sample; sizable variation exists.
- Factors determining recovery strength: intensity/duration of war, resolution, extent of reconstruction support, and institutional strength.
- Ongoing 2022 war differs from 2014/15: destruction in 2022 estimated at US$135 billion (over 60 percent of pre-war GDP) versus 10 percent in 2014–15.

*Source: IMF staff report and program documents, content unit 1ukrea2023001 — March 24, 2023 (excerpts).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Humanitarian and macroeconomic impact of the war
- Active combat concentrated in eastern and southern Ukraine; continued attacks on critical energy infrastructure had a severe social toll over the winter.
- Civilian casualties continue to rise, and over a third of the population has been displaced.
- Critical infrastructure damage: attacks since mid-October are estimated to have damaged 40 percent of the power grid.
- Economic contraction: activity contracted by 30 percent in 2022.
- Capital stock and poverty: a large swathe of the country’s capital stock has been destroyed, and poverty is on the rise.
- Main economic policy challenge: maintain stability while ensuring adequate resources for core functions of the state amid large defense and security spending, financed by external support and monetization.
- Policy regime adjustments in 2022: inflation targeting replaced by a peg to the U.S. dollar, supported by FX controls for national security reasons and a sizeable increase in policy interest rates.

### Program request, scope, and financing
- Authorities requested a 48-month extended arrangement under the Extended Fund Facility (EFF).
- IMF access proposed at SDR 11.608 billion (577.01 percent of quota, about US$15.6 billion).
- Proposed external support: the IMF financing would form part of a US$115 billion package of external support over 2023–27 involving sizable official financing in the form of grants and concessional loans, as well as debt relief.
- Program objective: resolve Ukraine’s balance of payments (BoP) problem and restore medium-term external viability under both a baseline and downside scenario.
- Program structure: two-phased approach
  - Phase 1: secure macroeconomic stabilization and undertake critical structural reforms while the war is ongoing.
  - Phase 2: once active combat has subsided sufficiently, entrench macroeconomic policies and pursue a more expansive set of structural reforms to restore medium-term external viability, support sustained growth, and facilitate Ukraine’s path to EU accession.
- Frontloading: access is frontloaded in view of very large BoP needs, especially in the initial phase of the program.
- Safeguards and assurances: adequate safeguards built in, including securing firm financing assurances for the first 12-months of the program, and specific and credible assurances about financing thereafter to restore debt sustainability; in view of exceptionally high uncertainty, a group of donors provided an assurance about Ukraine’s capacity to repay the Fund.

### Recent track record and preparatory engagement
- Program Monitoring with Board Involvement (PMB): a 4-month PMB was approved in December 2022 to support authorities’ policy navigation.
- PMB outcomes: the authorities met all quantitative and indicative targets and structural benchmarks, as well as most of their commitments under the program’s Memorandum of Economic and Financial Policies (MEFP).
- Prior IMF support: two purchases under the Rapid Financing Instrument (RFI) in March and October 2022 (the latter under the Food Shock Window), providing cumulative financing of 100 percent of quota (US$2.7 billion).

### Key policy priorities under the program
- Fiscal policy
  - Near term: ensure adequate resources for priority spending, maintain a strong tax revenue base, and preserve fiscal and debt sustainability.
  - Avoid measures that erode tax revenue.
  - Medium term: anchor revenue mobilization through a national revenue strategy and restore the medium-term budget framework to enhance budget credibility.
  - Improve fiscal transparency and risk management and strengthen public investment management.
- Financing strategy and debt sustainability
  - Restore debt sustainability on a forward-looking basis through treatments of both official and external commercial debt and continued external financing on concessional terms.
  - Group of Creditors for Ukraine (GCU) committed to a 2-step process: a 3-year extension of the current debt standstill set to expire at end-December 2023, followed by a final debt treatment before the expiry of the proposed EFF arrangement.
  - These debt treatments, together with an increase in domestic financing and the elimination of monetary financing, will help meet Ukraine’s very large financing needs over the program period.
- Monetary and exchange rate policies
  - Priorities: support steady disinflation and exchange rate stability, maintain an adequate level of FX reserves, and prudently manage the wartime liquidity surplus.
  - When conditions permit: transition toward a more flexible exchange rate, ease emergency FX measures, and return to an inflation targeting framework.
- Financial sector
  - Preserve financial stability and prepare for the post-war recovery through contingency planning, bank diagnostics, and tackling troubled banks and non-performing assets.
- Governance and growth
  - Further improving governance is critical for EU membership and sustained growth.
  - Independent and effective anti-corruption institutions to mitigate corruption risks during Martial Law and promote public trust and donor confidence in reconstruction.
  - Ambitious energy sector reforms to enhance competition, improve market mechanisms, and reduce large quasi-fiscal risks.
  - Continue integration with the EU single market and implement EU accession requirements to realize key institutional and structural reforms.

### Program modalities, monitoring, and safeguards
- Program design tailored to wartime uncertainty; planned higher frequency reviews in the first stage to ensure close monitoring and adaptability.
- Adequate safeguards include firm financing assurances for the first 12 months and credible assurances thereafter to restore debt sustainability.
- In view of exceptionally high uncertainty producing tail risks, donors provided an assurance about Ukraine’s capacity to repay the Fund.

### Risks and downside planning
- Exceptionally high uncertainty relating to the scale, intensity and duration of the war implies enormous and unprecedented program risks.
- Key risk channels:
  - Escalation of active combat could further contract the economy and deteriorate the fiscal position.
  - Limited room for policy maneuver may constrain authorities’ ability to take large-scale mitigating actions.
  - Program highly dependent on the adequate size, composition and timing of external financing; shortfalls or delays could cause suboptimal policy measures, unresolvable financing gaps, and the program going off track.
  - Financial risks to the Fund include risk of arrears and high early exposure from frontloaded access; partially mitigated by assurances from a group of significant Fund shareholders.
  - Operational risks in designing and implementing a UCT-standard program under conflict conditions; mitigated by tailoring program design and higher frequency reviews.
  - Reputational risks exist both for acting and for not acting; proceeding with a Fund-supported program could catalyze resources and enhance Ukraine’s capacity to repay.
- Downside scenario: explicitly incorporated as a core element of program design; staff assesses the program would continue to achieve objectives in a downside scenario through additional authority measures, donor commitments, and debt relief.

### Eligibility for UCT-quality financing
- Staff assesses Ukraine meets the five principal criteria for Fund UCT-quality financing under the policy on lending under exceptionally high uncertainty:
  - presence of an exogenous shock outside of the authorities’ control;
  - impact of the shock depends on events fundamentally out of the control of the authorities’ economic policies;
  - large and persistent BoP needs that are difficult to assess;
  - difficulty of establishing a single central scenario;
  - lack of a central scenario inhibits the ability to conduct standard, upfront debt write-downs.
- Application of the policy to program design helps meet program objectives while strengthening safeguards for Fund lending.

*Source: Executive Summary, 1ukrea2023001 - EXECUTIVE SUMMARY (PDF) — March 24, 2023.*

### Box 1. Ukraine: Assessment of Eligibility–Fund UCT Lending under Exceptionally High

### Box 1. Ukraine: Assessment of Eligibility–Fund UCT Lending under Exceptionally High Uncertainty

### Eligibility assessment against the five EHU criteria
- Staff assess that the Fund supported program together with the capacity to repay assurances and the financing assurances to restore debt sustainability is strong enough in the baseline and downside scenarios to solve Ukraine’s balance of payments problem and restore it to medium term external viability meets the five EHU criteria as follow:
- Exogenous shock outside of authorities’ control:
  - Russia’s invasion of Ukraine, ongoing since February 2022, is identified as a very large exogenous shock outside Ukrainian authorities’ control.
  - Economic consequences described: a 30 percent output contraction in 2022; sharp widening in the trade deficit as key exports (metals and grains) dropped precipitously; ballooning fiscal deficit and public debt.
- Impact from the shock:
  - The war has continued with shifting nature and intensity; fighting subsided somewhat during the winter but resumed in the east in recent weeks.
  - Authorities are making every effort to manage the shock, but outcomes depend on the evolution of the war, which is fundamentally outside economic policy control.
- Large and persistent BoP needs are difficult to assess:
  - Ongoing war causes a severe BoP shock whose precise magnitude and likely evolution are hard to assess with high confidence.
  - Large BoP needs mainly driven by significant fiscal deficit and loss of international capital market access; compounded by sharp deterioration of export capacity and FX inflows/transactions of Ukrainian migrants.
  - Estimates of the total financing gap range between US$115–140 billion over the next 48 months, depending on how the war evolves.
- Difficult to establish a single “central” scenario:
  - Staff developed a baseline scenario assuming the war tapers off next year, but it is hard to settle on this baseline as a unique high-probability scenario.
  - A range of downside scenarios are possible, including one where the war lasts longer and has more severe fiscal, external, and debt outcomes.
- Standard upfront debt write-downs impaired by lack of a sufficiently “central” scenario:
  - Ukraine’s debt is assessed to be unsustainable at this time.
  - Given the exceptionally high uncertainty, it is difficult for official bilateral creditors to ensure debt sustainability through a standard upfront debt write down in the absence of a sufficiently central baseline scenario.
  - Additional and broader sources of financing beyond debt relief are needed to resolve the BoP problem, fully finance the program, and achieve debt sustainability and medium-term viability, as needed for a UCT-quality program.

### Recent developments: economic and humanitarian impact
- Direct physical damage and reconstruction needs:
  - World Bank Rapid Damage and Needs Assessment (as of February 24, 2023) estimates direct physical damage at US$135 billion, over 60 percent of pre-war GDP.
  - Cost of reconstruction and recovery could amount to US$411 billion.
  - Damage predominantly to residential buildings, transportation infrastructure, energy, and enterprises; facilities accounting for half of metals production have been destroyed.
- Humanitarian and labor market impacts:
  - A third of the population has either migrated or been internally displaced, generating labor market mismatches including a decline in real wages and substantial unemployment.
  - World Food Program: 1 out of 3 families in Ukraine are food insecure.
  - Official labor market statistics unavailable since February 2022; Pension Fund of Ukraine data show nominal wages grew 3 percent y/y as of end-2022, implying a real wage decline of 18.6 percent for that segment.
- Economic activity and inflation:
  - 2022 growth is estimated at -30.3 percent y/y (vs. -33 percent y/y expected at the PMB).
  - Activity: stronger than expected in 2022Q3 (partly due to the UN-brokered grain corridor), but attacks on critical energy infrastructure led to weaker than expected 2022Q4.
  - Headline inflation as of end-2022 reached 26.6 percent y/y (vs. 30 percent y/y expected in the PMB); core inflation was 22.6 percent y/y at end-2022.
  - As of end-February 2023, headline inflation had declined to 24.9 percent y/y; core inflation softened from 23.3 percent y/y in January to 22.7 percent y/y.
  - One-year ahead inflation expectations stabilizing around 18–23 percent.

### Humanitarian assistance (Box 2 summary)
- Coverage and reach in 2022:
  - 15.8 million people in Ukraine received different types of humanitarian assistance.
  - More than 12 million people received food and livelihood support.
  - More than 9 million people got access to medicines and basic health care.
  - More than 7 million people received some access to basic utilities such as water and sanitation.
  - More than 7 million people were afforded protection services.
  - Nearly 6 million people received cash transfers worth US$1.1 billion.
  - Humanitarian partners reached almost 2 million conflict-affected children through education services and learning support (UN OCHA, February 2023).
- Funding:
  - By end-2022, approximately $3.4 billion of the US$4.3 billion requested in the UN’s Humanitarian Flash Appeal had been received.
  - Largest contributors: G7 countries, with the US leading (about US$1.3 billion), followed by the European Commission.
  - Numerous private sector donors contributed over US$1.6 billion equivalent to the humanitarian response in 2022 (OCHA/UNDP Connecting Business initiative).
  - UN agencies have played the leading role in distributing donor funds.

### Fiscal developments and budget financing
- Fiscal outturns in 2022:
  - Overall fiscal deficit capped at 16.7 percent of GDP (20.5 percent of GDP at the PMB).
  - Overall fiscal deficit excluding grants was 26.5 percent of GDP (30.3 percent of GDP at the PMB).
  - General government spending arrears were below 0.1 percent of GDP.
  - Nominal expenditures rose by about 55 percent in 2022 relative to 2021 and were about 50 percent higher than in the original 2022 budget.
  - Tax revenues were broadly stable; taxes on goods and services were depressed, and tax revenues were lower by about 0.3 percent of GDP relative to the original 2022 budget.
- Budget financing and domestic issuance:
  - Monetary financing: Gross purchases of government securities by the NBU amounted to UAH 400 billion (US$12.5 billion) as expected.
  - Base money growth at end-2022 increased to 19.6 percent y/y; broad money growth reached 20.8 percent y/y.
  - Domestic bond financing in net terms was minus UAH 88 billion (minus US$2.4 billion) in 2022, with an aggregate rollover rate of 68 percent.
  - Primary market yields increased by a cumulative 50 bps to 19.75 percent on the 18-month instrument.
  - As of end-February 2023, domestic auctions yielded bond financing of UAH 84 billion (US$2.3 billion), or UAH 41.8 billion in net terms (US$1.1 billion).
  - Nearly 70 percent of these issuances involved benchmark bonds designated to meet reserve requirements.

### Monetary policy and FX market
- NBU policy and reserve requirements:
  - NBU held the key policy rate (KPR) at 25 percent in March.
  - NBU tightened reserve requirements by 5 pp in December and a further 5 pp in January to improve monetary transmission.
  - Stock of liquidity in the banking system rose to a record UAH 534 billion (US$14.6 billion) at end-December 2022.
  - Cumulative increase in reserve requirements estimated to have absorbed UAH 70-100 billion of liquidity; total obligatory reserves from the two increases estimated at UAH 140 billion, with an effective cash-based portion of about UAH 70–100 billion.
- FX market developments and reserves:
  - FX demand increased in late 2022 for import of generators and related equipment; NBU FX sales of US$3.2 billion in December.
  - Official financing inflows were robust (US$5.7 billion in December), stabilizing the FX market and maintaining the spread between official and cash exchange rates around 10 percent; spread later in 8-10 percent range and declined to 5 percent by early March.
  - As of December 2022, FX reserves amounted to US$28.5 billion, down from US$30.9 billion at end-2021.
  - NBU’s net FX sales for the year were US$25.1 billion.
  - Reserves assessed as broadly adequate, amounting to 3.9 months of imports, or 91.6 percent of the Fund’s ARA metric.

### Trade, current account, and external flows
- Trade impacts:
  - Overall exports remain some 40 percent below pre-war levels despite the Black Sea Grain Initiative.
  - Shipping values depressed by falling grain prices, now almost 30 percent below levels early in the war.
  - Export volumes fallen sharply across all sectors due to logistical bottlenecks, destruction throughout value chains (especially metals), and electricity disruptions.
  - Imports stabilized at around 10 percent below pre-war levels after rebounding post-initial shock.
  - Trade deficit more than doubled to US$12.1 billion during January–November 2022.
- Current account:
  - Income balances supported by sizable grants and humanitarian support, resulting in a current account surplus of US$8.5 billion (5.7 percent of GDP) in January–November 2022.

### Banking system resilience and vulnerabilities
- Operational status and liquidity:
  - Majority of commercial banks’ branch networks are operational; “Power Banking” contingency network of circa 2,000 branches provides services during prolonged blackouts.
  - Number of operating banks fell to 66 after licenses of 6 small banks (around 3 percent of system net assets) were revoked.
  - Majority ownership of PINbank transferred to the state in February 2023, creating a fifth state-owned bank (PINbank assets around US$33 million and 100 employees).
- Balance sheet and provisioning:
  - Banking system assets and liabilities increased by 17.9 and 18.8 percent respectively in 2022.
  - Deposits remain banks’ main funding source (88 percent of liabilities as of end-December).
  - Official NPL ratio increased by 8 pp in 2022 to 38 percent as more loans recognized as 90+ days past due after loan repayment holidays ended in late June.
  - Loan loss provisioning coverage ratio was 99 percent as of end-December.
  - State-owned banks hold about 80 percent of the sector’s NPLs (60 percent accounted by PrivatBank).
  - Despite booking fresh provisions of US$3.2 billion (equivalent to 5 percent of total loans), the banking sector recorded profits of US$700 million in 2022 (21 institutions, including 2 SOBs, ended the year with an aggregate loss of US$565 million).
  - Retail lending continues to shrink, while corporate lending has grown slightly due to government support schemes (notably the 5–7–9 affordable loans scheme).
- Regulatory forbearance:
  - The banking system has been subject to regulatory forbearance on capital, credit, and reporting standards, making it difficult to assess the true impact of the war on asset quality with precision.

*International Monetary Fund — Box 1, "Ukraine: Assessment of Eligibility–Fund UCT Lending under Exceptionally High Uncertainty" (excerpts).*

### 16. The authorities have made progress in governance, anti-corruption, and rule of law

### 16. The authorities have made progress in governance, anti-corruption, and rule of law

### Progress in governance, anti-corruption, and rule of law
- Competitive selection processes for staff of key governance institutions are advancing:
  - 8 new anti-corruption prosecutors appointed in December.
  - 15 members of the judicial self-governance body appointed in January.
  - Selection of the new head of the National Anti-Corruption Bureau of Ukraine (NABU) completed.
- Legislative and supervisory developments:
  - Legislature approved a law in December that dissolved the Kyiv District Administrative Court.
  - A new supervisory board for Naftogaz was appointed on January 24; new members met and elected their chairperson on February 10.
- Ongoing challenges and risks:
  - Significant risks remain from weak governance, rent-seeking opportunities, and vested and oligarchic interests.
  - Recent bribery allegations against senior public officials for reportedly inflated prices for defense non-weapons procurement (e.g., generators and food supplies) underscore concerns about the scale of corruption risks and rent-seeking behavior.

### Outlook and risks: framing and scenarios
- Outlook hinges on key assumptions around developments in the war, reconstruction composition and pace, resumption of port access, pace of return of migrants, and availability of adequate external financing on sufficiently concessional terms.
- Two principal scenarios are developed:
  - Baseline scenario: assumes the war winds down in the first half of 2024, followed by a measured investment and reconstruction effort.
  - Downside scenario: assumes a longer and more intense war with persistent exogenous factors driving exceptionally high uncertainty.
- Program design is calibrated around the baseline but is intended to be robust to a range of outcomes; scenarios will be updated as conditions evolve.

### Baseline scenario — near-term expectations and key projections
- Near-term dynamics:
  - Output is expected to begin a sequential recovery through 2023, but weaker than anticipated at the time of the PMB request given assumptions around a longer war.
  - Government spending would be an important contributor to activity amid soft consumption, delayed private investment, and weak net exports.
  - Growth for 2023 could thus be in the -3 to +1 percent range, subject to exceptionally high uncertainty.
  - In 2024, growth projected to reach 3.2 percent y/y.
  - Inflation is expected to decline to 20 percent by year-end.
  - Current account expected to move to a deficit of 4.4 percent of GDP.
  - Exports remain some 40 percent below year-earlier levels.
  - Forecast assumes the grain corridor remains in place through the year.
  - Reserves are expected to increase to US$29.5 billion, amounting to 4 months of imports or 82.2 percent of the ARA metric.
- Selected economic indicators (Baseline)
  - Real GDP growth (%) [ -3, +1 ] 3.2 6.5
  - Inflation, period average (%) 21.1 15.5 10.0
  - Current account (% GDP) -4.4 -6 .2 -6.7
  - Current account (US$ billion) -6.5 -9.4 -11.3
  - Trade balance (US$ billion) -24.5 -24.4 -30.1
  - FX reserves (US$ billion) 29.5 32.4 35.6
  - Overall fiscal balance (% GDP) -20.4 -17.9 -9.8
  - Overall fiscal balance, excl. grants (% GDP) -28.2 -21.7 -12.1
  - Public debt (% GDP) 98.3 105.0 104.1

### Downside scenario — assumptions and selected indicators
- Core assumptions and effects:
  - More protracted and intense war, weighing on consumption and investment sentiment, discouraging return of migrants, and causing further infrastructure damage.
  - Sharper real GDP contraction of -10 percent in 2023 and a further contraction of 2 percent in 2024.
  - Acceleration in inflation.
  - Fiscal deficit remains elevated in 2023–24 and narrows more gradually thereafter.
  - Imbalances in the FX market persist longer, with higher nominal depreciation and contained real depreciation via relatively higher inflation.
  - Assumes additional donor financing relative to the baseline for the duration of the war.
- Selected economic indicators (Downside)
  - Real GDP growth (%) -10.0 -2.0 0.0
  - Inflation, period average (%) 27.6 25.3 17.2
  - Current account (% GDP) -4.9 -6.1 -5.4
  - Current account (US$ billion) -6.3 -7.9 -7.1
  - Trade balance (US$ billion) -26.7 -26.2 -26.1
  - FX reserves (US$ billion) 29.5 32.4 35.1
  - Overall fiscal balance (% GDP) -23.1 -22.3 -20.2
  - Overall fiscal balance, excl. grants (% GDP) -35.4 -32.2 -27.2
  - Public debt (% GDP) 112.5 124.8 138.6

### Medium term, upside scenario, and growth drivers
- Medium-term baseline:
  - Steady recovery after cessation of hostilities, with measured investment and reconstruction and reforms on path to EU accession.
  - Following an end to active combat, GDP growth expected to rebound strongly in 2025–26, supported by investment and consumption.
  - Net exports contribution remains moderate near term due to large import component of investment and slow recovery of export capacity and logistics.
  - Inflation expected to decline, returning to pre-war target of 5±1 percent only at end of the program period.
  - External position assessed to be moderately weaker than fundamentals but expected to be stable near term with continued strong donor support; medium-term external viability would be restored with envisaged policies, reforms, and financing.
- Upside scenario drivers and illustrative assumptions (Box 3):
  - Potential growth could rise by at least 1 percentage point (from 3¾ to 4¾ percent) relative to the baseline under stronger reconstruction and reform outcomes.
  - Investment: upside assumes a tripling in public capex execution capacity (vs. baseline doubling), lifting investment-to-GDP ratio over 10 years by 7 pp (an additional US$300 billion) relative to baseline.
  - Return of migrants: upside assumes a quicker return so net migration relative to end-2021 is -1 million persons (baseline: -2 million persons; downside: -3.5 million persons).
  - Pace of reform implementation tied to EU accession could materially boost potential growth through anticipation and accession effects.
  - Export recovery could be faster than baseline but still subject to rebuilding capacity and logistics.
- Selected assumptions (Baseline / Downside / Upside)
  - Investment to GDP, end of projection period (2033): 25 percent / 17 percent (-US$120 billion relative to baseline) / 32 percent (+US$300 billion relative to baseline)
  - Net migration relative to end-2021: -2 million persons / -3.5 million persons / -1 million persons

### Risks to the outlook (net downside tilt)
- War developments:
  - Security could worsen or extend, necessitating wider fiscal deficits and intensifying FX and inflationary pressures.
  - Continued attacks on critical energy and other infrastructure, potential disruption to banking or other networks, and migrant outflows.
  - Financial sector risks could intensify, potentially requiring recapitalization or resolution with fiscal implications.
- External financing:
  - Unexpected shortfalls or delays in external financing could widen financing gaps, necessitating monetary financing or sharp spending compression.
  - Weak governance and corruption could impede timely donor support.
- Reform momentum:
  - Slippages in program implementation or reform reversals may derail macroeconomic adjustment, worsen fiscal and BoP gaps, weaken confidence, and reduce public support.
  - Risk of increasingly populist measures under Martial Law, opening room for corruption and governance risks.
  - Social tensions could emerge from sustained elevated inflation and unemployment.
- Upside risk:
  - Swifter cessation of hostilities could trigger a more pronounced rebound in activity through renewed confidence, return of migrants, and larger, accelerated reconstruction.
  - Availability of substantial and sustained external financing and forceful implementation of structural reforms on the path to EU accession would further support recovery.
  - Outcomes depend on Ukraine’s absorption capacity of capital investment.

### Performance under the PMB and structural reforms
- Overall PMB performance:
  - The 4-month PMB involved a parsimonious set of policies and reforms monitored through structural benchmarks in fiscal, banking, and governance areas as well as quantitative and indicative targets.
  - Staff assesses that all five end-January structural benchmarks were met.
- Quantitative and indicative targets (end-December and early-2023 outcomes):
  - All end-December quantitative and indicative targets were met.
  - Net international reserves reached US$18.6 billion by mid-March, comfortably above the end-March indicative target.
  - There has so far been no general government borrowing from the NBU in 2023.
- Key policy actions and benchmarks met:
  - Tax revenue enhancement measures: authorities prepared and submitted for adoption by Parliament a package of tax policy and administration measures including amendments to the tax code and the law on social security contributions; adoption remains challenging and is proposed as a structural benchmark under the EFF.
  - Action plan on arrears: repealed Martial Law clause limiting the Ministry of Finance’s powers to collect financial reports; CMU resolution tasked line ministries and executive bodies to report on budget arrears at end-2022, analyze reasons, and develop an action plan to clear all arrears outstanding at end-January 2023. Reported stock of general government arrears as of end-December 2022 was estimated at UAH 1.6 billion (below 0.1 percent of GDP).
  - Concept note on social safety net: Prepared with World Bank Technical Assistance to identify reform priorities for a more targeted, adequate, and efficient social assistance system.
  - TOR for diagnostics of the banking system: NBU Board approved TOR on January 26 for an asset quality review (AQR), viability analysis, and diagnostics for an NPL resolution strategy, to be undertaken as security conditions permit.
  - New supervisory board for Naftogaz: Cabinet appointed four new independent members and two out of three state representatives on January 24; board functional by end-January; chairperson elected February 10.
- Selected PMB quantitative target figures (cumulative flows and program accounting where specified):
  - Floor on the non-defense cash primary balance of the general government, excluding grants: 86,950 402,002 -8,240
  - Floor on net international reserves (in millions of U.S. dollars): 15,000 17,879 11,500
  - Floor on the overall cash balance of the general government, excluding grants: -1,425,762 -1,298,698 -506,476
  - Ceiling on general government borrowing from the NBU: 388,500 388,400 -7,600
  - External project financing: 51,733 48,700 13,713
  - Budget support grants: 461,940 456,270 182,843
  - Budget support loans: 577,814 562,446 164,559
  - NBU profit transfers to the government: 19,700 18,786 71,000
  - Net financing of general government deficit by commercial banks: -101,223 -77,323 -5,434
  - Called guaranteed debt principal: 15,000 2,645 10,500

*Source: IMF staff estimates and projections, as presented in the chapter.*

### 26. The authorities have requested a 4-year extended arrangement under the EFF with

### 26. The authorities have requested a 4-year extended arrangement under the EFF with

### Program objectives and design
- Overarching goals: sustaining macroeconomic and financial stability, restoring debt sustainability, and supporting Ukraine recovery on the path toward EU accession in the post-war period.
- Two-phased approach in view of exceptionally high uncertainty:
  - Phase 1 (building on the PMB): buttress fiscal and external stability by (i) revenue mobilization; (ii) eliminating monetary financing, and aiming for net positive financing from domestic debt markets; (iii) contributing to long-term financial stability, including by fostering a better diagnosis of the banking sector health and continuously promoting NBU independence and good governance. Prepare Ukraine for eventual post-war era across fiscal structural areas, financial sector, monetary and exchange rate policies, governance, and anti-corruption.
  - Phase 2: shift to more expansive reforms to entrench macroeconomic stability, support recovery and early reconstruction, and promote economic growth, including in the context of EU accession goals. Ukraine would be expected to revert to pre-war policy frameworks, including a more flexible exchange rate underpinning the inflation targeting regime, and to finalize restructuring of the banking sector within the program period. Authorities would advance reform initiatives to enhance productivity and competitiveness, including the green transition. Specific conditionality would be developed as the program progresses and uncertainty dissipates.

### Scenarios, program conditionality, and contingency planning
- As required under the policy for Fund lending under exceptionally high uncertainty, the program is designed to achieve objectives under both a baseline and a downside scenario.
- The policies outlined primarily refer to the baseline scenario; the authorities commit to take measures if necessary under the downside scenario.
- Potential additional policy measures (authorities’ mix) if needed:
  - seeking further external financing and a larger mobilization of domestic financing;
  - increasing tax revenues;
  - making some spending contingent on available financing;
  - potentially adjusting FX policies and temporary capital flow measures (Annex V).
- Staff considers the authorities have the capacity to undertake additional contingency measures should shocks be more severe than in the downside scenario.

### Macro-Fiscal Policies: wartime fiscal goals
- Short-term focus:
  - Provide adequate resources for priority spending (including defense and security, social spending).
  - Maintain a strong tax revenue base.
  - Enhance fiscal transparency and risk management.
  - Maintain fiscal sustainability and predictability during wartime to support postwar sustainable public finances.
- Medium-term focus:
  - Adopt a National Revenue Strategy (NRS).
  - Restore and enhance the medium-term budget framework.
  - Strengthen public finance and investment management to support post-war reconstruction, EU accession, and broader development needs.

### Fiscal policy in 2023: execution challenges and commitments
- Execution constraints: difficult and uncertain economic environment, structural shifts in the economy, impact of administrative measures under Martial Law; availability and mix of financing are key binding constraints.
- Authorities committed to refrain from any tax policy and administrative measures that would erode the tax revenue base in 2023 and beyond, while taking measures that support post-war reconstruction and EU accession.
- Supplementary budget (March): prepared with a more realistic expenditure envelope than the 2023 budget; approved by CMU and submitted to Parliament (Prior Action).
  - The increase in the expenditure envelope reflects realization of risks identified at PMB and is partly cushioned by an estimated accumulation of government deposits of 3.3 percent of GDP.
  - The supplementary budget was approved by Rada on March 21 and is awaiting the President’s signature (Structural Benchmark, end-April).

### Selected 2023 fiscal adjustments and indicators
- Expenditures:
  - The spending envelope has increased by about 11 percent of GDP relative to the original budget, with annual overall expenditures estimated at 67.7 percent of GDP.
  - The increase targets priority sectors, including defense, security, and social spending, mitigated by cost efficiency measures and spending cuts where feasible.
  - Authorities announced a 19.7 percent indexation of pensions, effective March 1, 2023.
    - The indexation is higher than assumed in the original 2023 budget and incorporates updated outturns for the parameters of the indexation formula (including actual inflation for 2022 and average wage growth over the last three years).
    - The measure will increase overall social spending by 2.3 percent of GDP, with no additional impact expected on budget transfers to social funds.
  - Program allows an adjustor on fiscal balance targets to manage risks from gas imports and PSO compensation, subject to assessment of spending needs and available financing (MEFP ¶60).
- Revenues:
  - Despite economic contraction, tax revenues remain at par with pre-war levels; tax revenues are projected at 36.3 percent of GDP, slightly lower than in 2022 and significantly higher than projected under the PMB.
  - Revenues from profit taxes expected to deteriorate with lower corporate profits.
  - Decline in PIT revenue due to structural labor market shifts and lower public sector wage bill will be partly offset by increase in the wage bill (estimated to increase PIT by about 2 percentage points of GDP).
  - Projected increase in tax revenues on goods and services as consumption recovers and measures under Martial Law are lifted results from restoring excise and VAT on fuel from July 2023 and revenue gains from restoring simplified taxation to pre-war brackets (with an estimated cumulative impact of 0.8 percent of GDP).

### 2023 deficit and financing
- Deficit excluding external grants:
  - Estimated to reach UAH 1.71 trillion (28.2 percent of GDP).
  - This is about UAH 424 billion higher than the initial 2023 budget, and about 1.7 percentage points of GDP higher than the estimated deficit excluding external grants for 2022.
- Financing:
  - Expected to be financed primarily through external concessional financing.
  - Small net positive contribution from the domestic bond market: UAH 31 billion, or 0.5 percent of GDP.

### Risks to tax revenues and fiscal outcomes
- Tax revenues face risks from the war and from policy choices that could erode the tax base.
- Specific risk examples:
  - Parliament failing to vote on PMB-prepared package of laws or extending/issuing new tax deferrals could result in at least a 1 percentage point of GDP loss in tax revenues, opening additional financing gaps.
- These risks should be ringfenced by the authorities’ strong commitment to measures identified in the MEFP (MEFP ¶19 and 22).

### Medium-term fiscal policy and trajectory
- Authorities will resume anchoring annual budgets on a medium-term fiscal path and focus reforms on revenue mobilization and enhancing public expenditure efficiency.
- Baseline scenario medium-term fiscal path:
  - Gradual improvement in the medium-term fiscal primary balance, with the estimated deficit declining from 16 percent of GDP in 2023 to a surplus of 0.8 percent of GDP by 2028; such an improvement would be slower under the downside scenario.
- Downside scenario note:
  - Under the downside scenario, the medium-term fiscal primary deficit is projected to decline from 18.2 percent of GDP in 2023 to 0.4 percent of GDP by 2028.
- Baseline scenario assumptions to anchor the medium-term fiscal path:
  - Revenues: Implementing tax policy and administration measures could generate 2 percent of GDP in revenues during the program period (MEFP ¶22). Near-term focus on restoring pre-war tax policies while preparing for a national revenue strategy.
  - Expenditures: Two-stage program approach: first phase (2023–24) addressing wartime priorities and laying groundwork for reconstruction; as war tapers off, gradual reduction in defense expenditures would be reallocated to capital and social spending, including reconstruction and support for newly emerging vulnerable groups.
- Composition of government spending under baseline scenario, 2023–27 (selected projections, in percent of GDP):
  - Expenditure: 2023 67.7; 2024 61.3; 2025 51.9; 2026 47.3; 2027 46.2
  - Current: 2023 63.1; 2024 55.9; 2025 44.8; 2026 42.2; 2027 40.7
  - Compensation of employees: 2023 23.5; 2024 18.4; 2025 10.8; 2026 10.1; 2027 9.9
  - Goods and services: 2023 15.3; 2024 11.7; 2025 10.1; 2026 8.9; 2027 8.0
  - Social benefits: 2023 17.3; 2024 17.5; 2025 18.4; 2026 18.0; 2027 18.0
  - Capital: 2023 2.9; 2024 3.9; 2025 4.4; 2026 4.4; 2027 4.9

### Key medium-term fiscal risks
- Realization of contingent liabilities: PPPs, guarantees, SOEs (notably energy sector), and banks — risks likely to grow as the war continues. Authorities committed to strengthening fiscal risk assessment linkages to spending categories.
- Backtracking on medium-term revenue strategy: pursuing tax policies serving narrow special interests could compromise fiscal sustainability.
- Unfinished reform agenda in public finance and investment management: absent ambitious reforms, post-war public investment may suffer from poor project selection, lower yields, and higher costs.

### Fiscal structural policies — Domestic Revenue Mobilization
- Revenue mobilization is essential to anchor medium-term fiscal path and generate resources for reconstruction and development.
- Program bases revenue mobilization on a phased approach under a National Revenue Strategy (NRS), restoring pre-war tax policies, and enhancing tax system efficiency and evasion reduction while upholding fairness and simplicity.
- Short-term measures and commitments:
  - Restoring pre-war tax policies and enhancing tax and customs administration (MEFP ¶19, ¶22). A taxpayer perception survey of the State Tax Service (STS) conducted in November 2022 identified weaknesses conducive to evasion and corruption; survey will be expanded to cover the State Customs Service (SCS).
  - With IMF and World Bank support, authorities will prepare an action plan addressing weaknesses identified in the survey as input to NRS roadmap (Structural Benchmark, end-May 2023). Authorities committed to institutionalize the survey as an annual exercise covering both institutions and transform findings into an annual action plan as part of NRS implementation.
  - Tax arrears: stock of tax arrears of economically active taxpayers is estimated at 1.5 percent of GDP as of end-2022. Authorities committed to identifying causes and preparing a plan to reduce arrears (excluding those related to Russian aggression and occupation).
  - Preparing adoption of the NRS (Structural Benchmark, end-December 2023): CMU to adopt a decision tasking the MoF to start preparation of the NRS (2024-2030) (Prior Action). With IMF technical support, authorities will analyze existing reform strategy relative to MTRS toolkit to inform the NRS roadmap (2024–2030).
- NRS scope (indicative elements):
  - (i) measures to strengthen tax and customs services, drawing on perception survey analysis;
  - (ii) a revised simplified tax regime to address erosion of labor taxes by moving the legal basis for labor relations to civil law;
  - (iii) alignment of VAT and excise duties with the EU acquis;
  - (iv) strengthened anti-corruption measures and governance procedures to address integrity risks;
  - (v) tax reforms for post-war reconstruction and investment.
- Strengthening institutional framework: NRS to provide foundation to insulate public finances from vested interests.

### Medium-Term Budgeting Framework (MTBF)
- Full-scale MTBF infeasible immediately; staged road to medium-term budget planning:
  - First step: prepare a draft law repealing suspension of medium-term budget preparation, effective January 2024 (MEFP ¶23).
  - Present projections of key revenue and expenditure categories and deficit financing sources for 2025–26 as part of the 2024 budget.
  - 2024 budget to present a fiscal risks statement including details on energy and critical infrastructure SOEs (Structural benchmark, end-September 2023).
  - Preparation of the 2025 budget to include a comprehensive MTBF for 2026–28.
  - With IMF TA, improve strategic budgeting and costing of new public services and define mechanisms to strengthen link between the budget and fiscal risk assessments.
- Restore and strengthen Budget Code provisions to limit ad hoc amendments and strengthen MoF role in managing the annual budget:
  - Draft law to restore and strengthen Article 52 of the Budget Code to be submitted to Parliament (Structural Benchmark, end-May 2023).

*Source: IMF staff and Ukrainian authorities, as presented in the IMF program documents excerpt.*

### 40. Building on their achievements under the PMB, the authorities remain committed

### 1ukrea2023001 - 40. Building on their achievements under the PMB, the authorities remain committed

### Fiscal transparency and fiscal risk management
- Mitigating the risk of domestic arrears accumulation:
  - Authorities will centralize the role of MoF in commitment controls, building on PMB progress.
  - Establish an indicative target on State Budget and social fund arrears and continue monitoring arrears at all levels of government (Indicative Target).
- Strengthening control over contingent liability risks:
  - Submit to Parliament a draft law restoring and reinstating articles of the Budget Code that establish fiscal rules for the issuance of public guarantees (Structural Benchmark, end-May 2023).
  - Establish clear criteria for the provision of guarantees, including to priority sectors.
  - Develop regulations to tighten risk assessment of guarantees, allowing stricter eligibility criteria and development of risk-based fees for guarantees (supported by IMF technical assistance; MEFP ¶12 and 24).
- Restoring regular reporting by SOEs:
  - MoF plans to gradually restore all reporting requirements in all SOEs that are not located in temporarily occupied territories or combat zones; this reporting will feed into fiscal risk assessment and the medium-term budget framework.
- Enhancing management and transparency of special accounts:
  - Special accounts at the NBU (established after the outbreak of the war) resemble endowment or extrabudgetary funds; balances have grown quickly.
  - Authorities will establish appropriation limits for key spending units and transparent commitment controls by MoF.
  - Prepare legal amendments to treat spending from these accounts as budget programs under a special fund of the State Budget and consolidate them within general government as own revenues of budgetary institutions executed via a special fund (Structural Benchmark, end-May 2023; MEFP ¶25).
- Strengthening transparency and accountability of the “Fund for the Liquidation of Consequences of the Armed Aggression”:
  - Existing rules prepared, but transfer of administrative role to a newly established ministry raises concerns about MoF’s ability to maintain strong commitment control.
  - Fund finances a budgetary program through a special fund and is subject to Budget Code articles; MoF needs full control over commitments and appropriations.
  - Authorities will complement existing reporting with a regular consolidated report summarizing sources of financing and nature of spending.
  - Authorities will refrain from earmarking NBU profit for this Fund in 2024 and will direct this revenue category to the General Fund of the State Budget.

### Oversight of economic and financial crimes; ESBU reform
- Authorities plan to reorganize the Economic Security Bureau of Ukraine (ESBU):
  - Prepare amendments to legal framework and reorganization to clearly define ESBU functions consistent with best practices.
  - Strengthen the analytical component of ESBU’s work and subordinate it to the MoF to support investigation of economic and financial crimes and provide analytical support for identifying tax evasion on an arm’s length basis.

### Public Investment Management (PIM)
- Priority: strengthen PIM ahead of post-war reconstruction; build on EU4PFM project and World Bank’s Public Investment Management Diagnostic Assessment Report 2022.
- With World Bank TA, authorities will review current PIM procedures and develop a roadmap (Structural Benchmark, end-December 2023) ensuring:
  - (i) all public investment projects follow unified PIM approaches, including PPPs;
  - (ii) investment projects are selected on a competitive basis, with transparent selection criteria, and consistent with the medium-term budget framework;
  - (iii) stronger powers for MoF, including a clear gatekeeping role during stages of the investment project cycle.
- Plan to adapt national e-procurement system (ProZorro) to be compliant with the international competitive bidding standards used by Multilateral Development Banks to avoid multiple procurement platforms.

### Financing strategy and debt management
- Overall strategy:
  - Mobilize an appropriate mix of external and domestic financing to preserve macroeconomic and financial stability and debt sustainability.
  - Tap large amounts of external financing, largely on concessional terms, and increase domestic financing contribution. If catalyzed as envisaged, monetary financing of the fiscal deficit could be eliminated.
- External financing and domestic financing targets:
  - Commitments to Ukraine by external partners expected to amount to US$36.9 billion in 2023 (of which US$11.9 billion are grants).
  - Increase domestic financing, particularly from banks; bank exposure to government bonds decreased to 21 percent of their total assets as of end-2022 (pre-war levels were 25.8 percent of total assets).
  - Program envisages achieving positive net financing from the domestic bond market over the program period, with bank exposure to sovereign debt under the baseline projected to be broadly in line with pre-war levels by 2027.
- Constraints and measures to increase domestic demand for government bonds:
  - Impediments: below market yields on government bonds; availability of higher-yielding NBU CDs; credit risk perceptions (particularly from nonresident investors); banks’ individual risk considerations; small retail investor base.
  - Evidence of demand: increase in issuance yields in November-December 2022 helped raise rollovers; secondary market rates remain in the 20–25 percent range.
  - Authorities’ multipronged strategy:
    - Study bank-by-bank liquidity to develop targeted strategies; set up a Working Group (MoF and NBU) under NBU’s Financial Stability Council (FSC) to meet regularly and develop/assess measures to achieve issuances in line with program objectives.
    - Adjust operational design of monetary policy to more closely align yields between government bonds and NBU CDs; adopt more market-based issuance policy and pricing.
    - Extend restriction on repatriation of nonresident redemptions of government bonds while allowing repatriation of coupons to support nonresident rollovers if issuances are at market rates (¶39 reference).
- Eliminate monetary financing in 2023 as a program objective:
  - Monetary financing is considered a last resort; authorities commit to first explore other options including drawing down government deposits and achieving higher rollover rates in the domestic bond market.
  - Authorities will develop a framework formalizing conditions under which limited monetary financing can be accessed and the form it can take (MEFP ¶40), including financing terms, maturities, and limits to use of short-term advances vs government bonds.
- Debt strategy update:
  - Authorities commit to updating their Medium-Term Debt Management Strategy to align with program objectives (Structural Benchmark, end-September 2023).
  - Update to reflect changes since start of the war, debt structure and payment profile, financing requirements, and strategies consistent with program; set longer-term goals for domestic debt market development and restoring market access.

### Monetary policy stance, liquidity, and operational framework
- Policy priorities:
  - Ensure a monetary policy stance that preserves price and external stability and maintains adequate FX reserves through both phases of the program.
  - Near-term anchor: exchange rate peg; intend to move to a more flexible exchange rate and transition back to inflation targeting as conditions permit.
  - Near-term priorities: manage liquidity conditions and strengthen transmission of the KPR to reduce exchange rate pressures.
- Current stance and recent actions:
  - NBU kept the key policy rate at 25 percent in its March MPC meeting and shifted to more symmetric forward guidance.
  - With inflation softening over the last three months, both ex ante and ex post real rates are now in positive territory.
  - January MPC signaled gradual easing on FX controls to support recovery and ease FX market pressures.
- Liquidity challenges:
  - Large hryvnia liquidity surplus in the banking system estimated at UAH 220 billion, or US$6.3 billion as of March 1.
  - Structural factors: concentration of liquidity in large state-owned banks and low government bond issuance yields weakening monetary transmission.
- Reserve requirements:
  - NBU tightened reserve requirements since December 2022: reserve requirements on current accounts increased by a cumulative 10 pp since December 2022, and by an additional 10 pp on household hryvnia demand deposits and current accounts.
  - Estimated liquidity absorption from these measures: UAH 70–100 billion out of a possible UAH 140 billion, diluted by inclusion of government bonds as eligible assets to meet reserve requirements.
  - Further tightening could be possible but requires careful calibration to sources/timing of liquidity growth and variation across banks.
- Operational design adjustments:
  - After the war outbreak, NBU replaced a 2-week CD at KPR with an overnight CD at KPR less 2 percentage points (23 percent).
  - In March, NBU reduced rate on overnight CDs to 20 percent and introduced a 3-month CD at the KPR, access conditional on stock and increase in term deposits.
  - Design aims: induce banks to compete for deposits, lengthen average maturity of sterilization operations, extend maturity of bank funding, and encourage investment in longer-term assets such as government bonds.
  - NBU intends to monitor bank reactions; pre-war operational design (including a 2-week operation at the KPR) could be reinstated in due course.

### Exchange rate policy and FX controls
- Near-term assessment:
  - Exchange rate peg remains appropriate in the near term given sizable external support has eased FX imbalances; peg serves as an important nominal anchor.
  - Conditional on continued scale and pace of external financing inflows and assuming no increase in net FX demand, the peg can be maintained in the near term.
  - Over time, peg can introduce distortions, be costly to defend, and repeated devaluations would weigh on credibility.
- Measures to improve FX market balance:
  - Measures reduced the spread between the official and cash rate; include an FX-linked term deposit facility launched in October and easing access to FX at the official rate for businesses, households, and humanitarian causes.
  - Reducing spread lowers incentives to circumvent FX controls; frequent monitoring and enforcement will support regulation fine tuning.
- Transition planning:
  - NBU will prepare a conditions-based strategy for the move to a more flexible exchange rate, ease FX controls, and transition back to inflation targeting (Structural Benchmark, end-June 2023). In consultation with IMF staff, the strategy will set out key prerequisites and principles and contingency plans given balance of risks.
- FX control measures under Resolution No. 18:
  - Resolution No. 18 (adopted February 24, 2022) set out controls on current and capital account transactions and banking system controls; Ukrainian authorities notified the IMF Executive Board that Resolution No. 18 and amendments are measures taken solely for reasons of national or international security under Decision No. 144.
  - Measures within scope of Resolution No. 18 that amount to restrictions on payments and transfers for current international transactions are considered approved exchange restrictions consistent with Article VIII, Section 2(a).

*Italic line: Content derived from 1ukrea2023001 - 40. Building on their achievements under the PMB, the authorities remain committed*

### 57. In light of BoP pressures and the need to ensure adequate FX reserves, staff

### 57. In light of BoP pressures and the need to ensure adequate FX reserves, staff

### FX restrictions, repatriation, and reserve implications
- Staff supports continuation of the restriction preventing the repatriation of proceeds from nonresident government debt redemptions.
- Current stock of such redemptions is estimated at US$1.56 billion between April 2023 and May 2027; these redemptions could constitute a significant outflow in FX reserves in conflict with program objectives.
- Authorities have allowed repatriation of interest payments received after April 1, 2023, on such claims.
- Size of these interest payments is expected to be about US$120 million between April and December 2023.
- Staff assesses that allowing repatriation of those interest payments would not materially impact the level of FX reserves.

### Multiple currency practices (MCPs) under Resolution No. 18 and staff recommendations
- Staff identified two MCPs arising from the exchange rate system set out under Resolution No. 18 and recommends their temporary approval under Article VIII, Section 3:
  - MCP 1: A spread of more than 2 percent between exchange rates that banks may freely set for certain non-cash FX transactions and the official exchange rate or exchange rate tied to the official exchange rate (i.e., +/- 1 percent around the official rate) required to be used for the purchase/sale of FX for other non-cash transactions (including government transactions).
  - MCP 2: Potential for a spread of more than 2 percent between (i) the official exchange rate of the day of the FX transactions and (ii) the official exchange rate of the previous business day or the official exchange rate which the NBU sets monthly that are required to be used for certain FX transactions.
- Rationale for temporary approval:
  - Risks to the outlook and the role of FX controls in preserving external stability in the near term.
  - Program objective to maintain an adequate level of FX reserves.
  - Measures are maintained for BoP reasons and are expected to be temporary and unwound in line with authorities’ intentions under the program (¶54).
  - MCPs do not give Ukraine an unfair competitive advantage over other members or discriminate among members.

### Need to unwind unconventional war-related measures and preserve NBU independence
- Many suboptimal policy measures were necessitated by the war and should be phased out when conditions permit:
  - allowing monetary financing;
  - modification of reserve requirements to support government bond primary issuances;
  - unconventional operational design of monetary policy;
  - limits on deposit withdrawals that underpin abundant bank liquidity;
  - restrictions on the repatriation of nonresident redemptions.
- Outstanding stock of legacy monetary financing will need to be addressed over the medium term to support monetary policy transmission.
- Keeping these measures longer than needed could adversely impact the credibility of the NBU.
- An exit strategy for the unconventional measures undertaken by the NBU to support government financing in the context of the war will be required over the medium term.
- An updated safeguards assessment mission was completed in March 2023; key recommendations from the assessment will be adopted in course of the program (see ¶86).

### Financial sector: unwinding emergency measures and restoring oversight
- Emergency measures under Martial Law are being carefully unwound (¶60):
  - Resumed count of loan days past due in June 2022.
  - Introduced a procedure under Martial Law to resolve insolvent systemic banks in October 2022.
  - Submitted a draft law in March 2023 to improve procedure for withdrawing non-systemic banks from the market under Martial Law.
  - NBU plans to resume scheduled onsite supervision inspections for bank and non-bank financial institutions (Structural Benchmark, September 2023).
  - Aim to unwind all emergency prudential measures by end-March 2024, if conditions allow.

### Financial sector strategy and diagnostics
- Authorities will update their 2021 financial sector strategy by end-June 2023 to prepare for safe and prompt unwinding of emergency measures and restore accounting and prudential norms.
  - Key elements: coordinated steps to safely unwind exceptional measures; diagnostics to quantify bank asset values and NPL resolution priorities; framework to address potential vulnerabilities; prioritized action plan to monitor and tackle high NPL levels; contingency plans; prioritized transposition of EU banking norms; coordination arrangements.
  - Strategy will be periodically reviewed; non-market-sensitive parts will be published.
- NBU preparations for detailed bank diagnostics:
  - January 2023: NBU adopted a Terms of Reference in preparation for an independent asset quality review (AQR) once conditions stabilize.
  - AQR will inform (i) a subsequent bank viability assessment and (ii) a prioritized interagency NPL resolution action plan by end-June 2024 (or update that plan if AQR occurs later).
  - Current prohibition on bank capital distributions remains until independent AQR findings are fully reflected in banks’ regulatory ratios and financial statements.
  - While awaiting AQR conditions, NBU’s oversight teams will undertake an asset valuation and solvency assessment of banks comprising 90 percent of banking system assets by end-December 2023 to inform supervisory priorities.

### Contingency planning and safety nets
- NBU and Deposit Guarantee Fund (DGF) are updating contingency plans using a risk-based approach that considers high-probability or high-impact events (cyberattacks, sanctions, adverse court rulings, rapid asset value deterioration, etc.).
- Financial Stability Council will adopt by end-June 2023 contingency plans related to potential adverse rulings from constitutional challenges against the DGF Law and the Bank Resolution Law (Law #590), and an updated contingency plan for litigation risks concerning past bank resolution decisions.
- Rehabilitation framework updates (Structural Benchmark, end-March 2024) to include:
  - Financial backstops to support bank recapitalization and resolution;
  - Regularly updated bank recovery and resolution plans;
  - Improving the DGF’s financial position;
  - Aligning NBU frameworks for counterparty eligibility in monetary policy operations and lender-of-last-resort operations with international best practice.

### State ownership, nationalizations, and commitments
- Risk of further bank nationalizations remains elevated; one small bank is in the process of being nationalized (¶15).
- Authorities commit that any decisions increasing state ownership will be taken in consultation with IMF staff and be strictly limited to matters related to national security during Martial Law and preserving financial stability.
- Any further nationalizations should include plans to promptly re-privatize or resolve the banks concerned.

### Strengthening bank regulation, supervision, and EU alignment
- EU accession preparations and regulatory alignment:
  - NBU with EBRD undertook gap analyses relative to the EU Capital Requirements Directive; gap analysis shared with the European Banking Authority.
  - NBU aims to close gaps in the regulatory capital structure by end-September 2023 and other gaps by end-September 2024.
- Governance and oversight commitments (Structural Benchmark, end-September 2023):
  - Separate the related-parties-unit from banking supervision teams.
  - Strengthen Supervisory Committee decision-making by implementing “supervisory panels.”
  - Resume onsite inspections as described in ¶60.
- Risk-based supervision:
  - Implement supervisory risk assessment methodology to inform supervisory engagement priorities (Structural Benchmark, end-June 2024).
  - Apply methodology to all banks and prepare a supervisory action plan by end-December 2024.
  - Adjust organizational structure for bank supervision and introduce a multi-year training program for new hires.

### Reforms for Non-Bank Financial Institutions (NBFIs)
- Disclosure of ownership:
  - NBU required all NBFIs (except credit unions) to disclose owners; non-transparent ownership structures required to change by October 2021.
- Strengthening supervision:
  - Legislation on Financial Services and Financial Companies (law #5065) and Insurance firms (law #5315) has been promulgated.
  - Transition to a risk-based supervision approach for NBFIs and prepare supervisory risk assessment methodology by end-September 2024.
- Securities market alignment:
  - Authorities committed to amend the NSSMC Law by end-May 2023 following technical assistance; aim to enhance NSSMC powers, independence, and institutional capacity.
  - Law implementation timetable: become eligible to be a signatory of IOSCO’s multilateral MoU by end-December 2024; law will be fully implemented by end-December 2025.
- Credit Unions law (#5125) committed to promulgation by end-June 2023.

### Long-term priorities: NPLs, asset recovery, and reconstruction
- Authorities committed to:
  - Reducing historical non-performing loans (NPLs) while maximizing recovery of economic value.
  - Recovering value from assets of failed banks and abstaining from interference with current asset recovery strategies of the largest bank nationalized in 2016 and of the DGF.

### Growth, reconstruction, and EU accession
- High and sustained economic growth after the war is required to rebuild productive capacity and recover standards of living.
- Reconstruction will require unprecedented investment and rebuilding human capital; public sector will play an important role while private (largely foreign) investment will be critical.
- EFF will support reforms to support reconstruction and EU accession (Box 4).
- Build-back-better principles: use innovative and green technologies; develop ICT services competitiveness; invest in agriculture technologies and further liberalization of the land market starting 2024; increase labor market participation and support return of migrated labor and war veterans.
- Reconstruction should meet high standards of transparency and accountability with anti-corruption institutions, international partners, and civil society support; enhance governance of the Anti-Monopoly Committee of Ukraine.

*Source: Excerpt from IMF staff report (Ukraine) contained in content unit 1ukrea2023001.*

### 72. Sustained reforms efforts on anti-corruption and rule of law will mitigate

### 72. Sustained reforms efforts on anti-corruption and rule of law will mitigate

### Anti-corruption and rule of law: findings and commitments
- Competitive, open, and robust selection processes for the head of the National Anti-Corruption Bureau of Ukraine, who was appointed on March 6 (Prior Action), and members of the High Council of Justice are key milestones to raising public trust.  
- Institutional independence is key to strengthening the effectiveness of anti-corruption institutions, including amendments to enhance the institutional autonomy of the Specialized Anti-Corruption Prosecutor’s Office (SAPO) (Structural Benchmark, end-December 2023).  
- Further legal reforms on the selection process for constitutional court judges and the new framework following the dissolved Kyiv District Administrative Court will advance the rule of law and contribute toward EU membership efforts.  
- A new governance and corruption diagnostic to be conducted with IMF technical assistance after the war will provide a roadmap of reforms to assess and further mitigate governance weaknesses and corruption vulnerabilities.  

### Preventing illicit enrichment and AML/CFT implementation
- Restore asset declaration requirement for high-risk and senior level public officials (temporarily suspended) to help detect illicit gains and assets laundered abroad (Structural Benchmark, end-July 2023).  
- Enhance the asset declaration system by automatic linkages to other public databases and registers while maintaining legal obligations for truthful and timely submission of simplified asset declarations (Structural Benchmark, end-October 2023).  
- NBU will undertake risk-based on-site AML/CFT supervisory activities to ensure banks and other financial institutions comply with AML/CFT obligations in line with their risks; this will require the development of appropriate guidelines consistent with FATF standards.  
- Amend the AML/CFT legal framework regarding enhanced due diligence for politically exposed persons to be consistent with the risk-based approach under the FATF standard and reverse the November 2022 amendments (Structural Benchmark, end-September 2023).  
- Improve verification of accuracy, adequacy, and up-to-date information in the beneficial ownership registry managed by the Ministry of Justice to support transparency in public procurement, detection of conflicts of interest, and preventing misuse of companies.  

### Corporate governance in SOBs and SOEs
- Authorities committed to strengthen corporate governance in SOEs. A draft law aligning the SOE corporate governance framework with OECD Guidelines on Corporate Governance of SOEs, including strengthening supervisory boards’ accountability and powers to appoint and dismiss CEOs, will be adopted by October 2023.  
- Authorities will reform corporate governance of the gas transmission operator of Ukraine (GTSO) (¶76).  
- SOB governance improvements:  
  - Adoption in 2018 of a dedicated SOB framework within the banking law.  
  - For each SOB: (i) appointed a majority-independent supervisory board, and (ii) signed a Memorandum of Understanding defining the relationship between each SOB and the MoF and CMU as shareholder.  
  - New procedures for appointments to SOB supervisory boards adopted ahead of the current cycle; recruiting independent supervisory board members expected to be completed in H1 2023. Selected candidates are subject to NBU’s fit and proper assessment framework.  
  - MoF introducing an annual business planning and performance assessment procedure for all SOBs; first application in 2024 based on 2023 performance. MoF will publish its first annual assessment of key findings in August 2024, together with the Cabinet’s actions to address those findings.  

### Energy sector reforms and immediate priorities
- Priorities once the war tapers off: restore competition in retail and wholesale gas markets; ensure cost-reflective tariffs in gas and electricity while protecting vulnerable households to contain quasi-fiscal risks.  
- Immediate priorities to contain adverse war impact: accommodate potential spending pressure from gas imports, compensation to Naftogaz for public service obligations, or other energy-related support through an adjustor on fiscal balance targets, subject to available financing (MEFP ¶60).  
- Recent increase in electricity Transmission System Operator (TSO) tariffs for 2023 provides additional resources to Ukrenergo for repairs; further increases may be needed due to larger use of gas in electricity generation and need to fully compensate renewable energy producers.  
- Gas import needs largely contained due to low domestic consumption, resilient domestic production, and a mild winter; however, need to increase gas storage ahead of next winter projected to require an additional 2 billion cubic meters under the baseline.  

### GTSO corporate governance and financial situation
- GTSO experiencing a difficult financial situation compounded by inadequate governance framework; revenues impacted by low tariffs, large unauthorized gas offtakes, unchanged payments to Ukrtransgaz despite large drop in transit revenues since May 2022 (entry point Sokhranivka located in occupied regions).  
- Authorities committed to implement the following steps:  
  - Transfer the GTSO shareholding directly from the Main Gas pipelines of Ukraine (MGU) to the Ministry of Energy and adoption of the new charter of the GTSO developed and agreed with the Secretariat of the Energy Community (Structural Benchmark, end-June 2023).  
  - Selection and appointment of a supervisory board for the GTSO by end-October 2023, subsequent appointment of a new CEO, and eventual liquidation of MGU.  
- Current liquidity crisis could require budget support if expenditures reductions are insufficient.  

### Program modalities and monitoring — Program design and financing gap
- Ukraine’s external financing gap estimates:  
  - External fiscal financing gap in 2023 estimated at US$41.9 billion (slightly higher than US$39.5 billion at the time of the PMB request in December 2022).  
  - Over 2023–27, external financing gap amounts to US$114.4 billion.  
  - Downside scenario financing gap stands at US$139.6 billion.  
- Authorities request a 48-month extended arrangement under the EFF with proposed access SDR 11,608.25 million (577.01 percent of quota), equivalent to about US$15.6 billion. Access is frontloaded.  
- For each purchase intended for budget support, a special agreement between the National Bank of Ukraine and the Ministry of Finance will be signed to clarify responsibilities for timely servicing financial obligations to the Fund.  

### Program conditionality, monitoring frequency, and quantitative targets
- Initial phase monitoring: three reviews in 2023 and four reviews in 2024; quarterly reviews envisaged in 2024; semi-annual reviews from mid-2025. All reviews based on continuous and quantitative performance criteria (QPCs) and structural benchmarks (SBs).  
- Quantitative conditionality: PMB two quantitative targets become QPCs (floor on the primary cash balance of the general government excluding defense-related activity and grants; floor on net international reserves); two ITs retained (floor on overall cash balance excluding grants; ceiling on general government borrowing from the NBU). Additional QPCs and ITs:  
  - Floor on nominal tax revenues (QPC) to support revenue mobilization.  
  - Continuous ceiling on publicly guaranteed debt at UAH37 billion (continuous PC).  
  - Ceiling on stock of general government domestic arrears (IT).  
  - Floor on social spending (IT) to protect social spending despite streamlining of non-defense spending.  
  - Standard continuous conditionality on non-accumulation of external arrears.  

### Debt sustainability, restructuring strategy, and financing assurances
- Public debt increased to 82.1 percent of GDP at end 2022.  
- DSAs assess outcomes under baseline and downside scenarios; absent substantial policy commitments, debt treatment, and financing assurances, debt is unsustainable under the baseline and more so under the downside. Prospective EFF requires sufficient debt treatment and concessional financing.  
- Downside scenario requires further exceptional financing of roughly US$7 billion per year in the post-program period (2028–2033) via higher program-period grants, additional financing consistent with assurances, and further debt treatment.  
- Authorities announced intention to restructure public debt (March 24) to restore forward-looking sustainability. Key elements:  
  - Official bilateral debt: Group of Creditors for Ukraine (GCU) committed to a 2-step process involving a 3-year extension of current debt standstill set to expire end-December 2023, followed by final debt treatment before expiry of the EFF arrangement; committed to necessary relief in baseline and additional relief if downside emerges.  
  - External commercial debt: authorities intend to seek agreement with bondholders on a debt operation consistent with IMF DSA parameters and comparability of treatment, aiming to finalize by end of current debt standstill expiring August 31, 2024. Staff assesses a credible process is in place.  
- Financing commitments secured to address external financing needs for first 12 months of program (April 2023–March 2024) under baseline. For remaining 2023–2027 gaps and post-program financing needs, staff received credible high-level signal of support and assessed needed financing will be available on adequate terms and conditions to help restore debt sustainability in both baseline and downside scenarios.  

### Capacity to repay and tail risks
- High uncertainty around scale, intensity, and duration of the war creates tail risks beyond the downside; program cannot fully establish a safeguard on capacity to repay in UCT lending contexts. A credible assurance about the member’s capacity to repay is required under IMF policies.  
- Q2 thru 24Q1 12-month basis financing gap and financing composition (selected items as presented):  
  - Financing gap: 37.9 (US$ billion)  
  - Underlying BOP Gap 1/: 40.2  
  - Gross international reserves accumulation (+ = increase): -2.3  
  - Official financing (excl. IMF): 32.5 (US$ billion) including Multilateral 20.6 (Loans 20.6), EU MFA 14.5, World Bank 3.9, Japan credit enhancement 3/ 3.0, UK guarantees 0.5, World Bank lending 0.4, Other 2.2; Grants 0.0  
  - Bilateral: 11.9 (Loans 4.0; Grants 7.9)  
  - IMF (prospective): 5.4 (US$ billion)  
  - Potential flow relief from debt operations: 0.1 (US$ billion)  
  - Residual gap: 0.0 (US$ billion)  

*Italic: IMF staff report chapter — "72. Sustained reforms efforts on anti-corruption and rule of law will mitigate" (extracted content).*

### 88. In the case of Ukraine’s EFF-supported program, management and staff has

### 88. In the case of Ukraine’s EFF-supported program, management and staff has

### Creditor assurances and IMF lending safeguards
- A group of countries — Canada, France, Germany, Italy, Japan, Spain, United Kingdom, and United States — is prepared to extend an assurance.
- The group is considered sufficiently large to:
  - mitigate the risk of any change in an individual country’s external position; and
  - represent a sufficient shareholding in the IMF.
- These creditors are all participants in the Fund’s FTP, and all have provided debt relief within multilateral initiatives in the past on a significant scale.
- Management and staff note:
  - a signal of strong support for Ukraine from the leadership of these countries; and
  - that this group of countries:
    - reaffirm their recognition of the Fund’s preferred creditor status in respect of the amounts currently outstanding to Ukraine, plus any purchases under the proposed extended arrangement; and
    - further undertake to provide adequate financial support to secure Ukraine’s ability to service all of its obligations to the Fund, in accordance with the Fund’s preferred creditor status and complementing the IMF’s multilayered risk management framework.
- Given statements by Ukraine’s partners that they intend to stand by Ukraine and support its independence, territorial integrity and sovereignty, staff also assesses that scenarios when assurances cease to be effective because the member could not exercise its rights and obligations in the Fund are very unlikely and that adequate safeguards for Fund lending are in place.

### Repayment capacity and program conditionality
- Notwithstanding exceptional risks, and taking into account assurances provided by the significant group of creditors/donors, Ukraine’s capacity to repay the IMF is adequate.
- Under the program’s baseline and downsides scenarios, Ukraine’s capacity would be adequate, provided there is full implementation of the program.

### Fund exposure and debt service projections (near term)
- Under the proposed arrangement, under the baseline scenario, the stock of total Fund credit is expected to peak at:
  - 5.5 percent of GDP in 2024; and
  - 25.9 percent of gross reserves in 2024.
- Debt service to the Fund would peak at:
  - 1.2 percent of GDP in 2024; and
  - 5.8 percent of gross reserves in 2024.
- A materialization of downside risks would increase these ratios.

### Safeguards assessment of the NBU
- An update safeguards assessment of the NBU is substantially completed.
- Key findings:
  - The NBU has adapted its operations well to the war.
  - Its mandate has been significantly impacted with regard to monetary financing of the government.
  - While the NBU has maintained a broadly strong safeguards framework, governance practices need to be strengthened further.
  - Monetary financing poses a risk to the NBU’s financial autonomy and will need to be curtailed through a well-defined framework (¶45, MEFP ¶40) and, over the medium-term, resolved through a comprehensive exit strategy (¶58).
  - Scope remains to further strengthen governance practices at the NBU, including through legal amendments on eligibility criteria and experience for appointments at the Council and Executive Board.
  - Financial reporting, external and internal audit mechanisms, and risk management all have sound practices.

### Staff appraisal — macroeconomic and program assessment
- The war continues to have a severe social and economic impact on Ukraine, yet overall macroeconomic and financial stability has been maintained.
- Observations on social and economic conditions:
  - rising civilian casualties;
  - over a third of the population has been displaced;
  - widespread attacks on critical energy infrastructure;
  - productive capacity has been greatly curtailed, including key export sectors.
- Policy response and outcomes:
  - Skillful policymaking and generous external support have sustained a broadly stable economy.
  - Strong policy actions have included:
    - a consolidation in nonessential spending;
    - a sharp increase in the key policy rate;
    - the switch to a pegged exchange rate and its subsequent devaluation; and
    - FX controls.
  - Despite these measures, the fiscal deficit and public debt have ballooned, greatly limiting fiscal space.
- Program track record:
  - The authorities met all quantitative and structural benchmarks under the 4-month PMB.
  - This demonstrated the authorities’ ability to design and undertake coordinated macroeconomic policies, provide adequate data for policymaking, and embark on critical structural reforms.

### EFF request and program design
- The authorities have requested a 48-month extended arrangement under the EFF with access of SDR 11,608.25 million to meet their large BoP needs and anchor macroeconomic stability.
- The program is carefully calibrated and contemplates a two-phased approach:
  - Phase 1: anchor macroeconomic stability as the war continues.
  - Phase 2: implement ambitious structural reforms to restore medium-term viability, support post-war reconstruction, accelerate growth, and support efforts toward eventual EU accession.
- Near-term policy priorities:
  - a robust budget for 2023;
  - boosting tax revenue;
  - developing a medium-term fiscal framework that anchors fiscal policy;
  - ensuring price and exchange rate stability;
  - safeguarding financial sector stability;
  - essential governance and anti-corruption reforms to set the stage for recovery.
- Medium-term priorities (as conditions permit):
  - revert to pre-war policies such as a more flexible exchange rate to underpin the transition to inflation targeting;
  - enhance productivity and competitiveness;
  - address energy sector vulnerabilities.

### Program compliance with Fund policies and financing assurances
- The proposed EFF satisfies Fund policies governing the Fund’s financing assurances for UCT-financing under exceptionally high uncertainty.
- Design features:
  - The program can achieve its objectives across a range of assumptions about the large-scale war.
  - Authorities have the capacity and commitment to implement the program.
  - A credible process to restructure private external commercial claims is underway.
  - Adequate financing assurances on debt relief and concessional financing during and after the program have been received from official bilateral creditors and donors to support debt sustainability in the baseline and downside scenarios.
  - A significant group of Fund shareholders has provided an assurance to the Fund about Ukraine’s capacity to repay, completing necessary safeguards.

### Risks, contingency and structural reform imperatives
- Risks:
  - Risks to the program are exceptionally high; swift recalibration may become necessary.
  - The program’s success hinges on several factors, most notably developments in the war, which are outside the direct economic control of the authorities.
  - The program depends on large and sustained flows of external financing at concessional terms to help close fiscal and external gaps and restore external viability and debt sustainability on a forward-looking basis.
  - Policy slippages cannot be ruled out given current circumstances.
- Program design mitigants:
  - Authorities’ track record of undertaking very tough policies when warranted;
  - understandings on contingency plans;
  - higher frequency reviews in the initial phase to allow timely adjustment and ensure robustness to negative shocks.
  - Given large enterprise risks to the Fund, heightened safeguards will need to be secured at every review as long as the exceptionally high uncertainty persists.
- Medium-term growth conditionalities:
  - Securing strong and sustained medium-term growth is conditional on timely and well-prioritized structural reforms.
  - Key actions needed to restore and revitalize productive capacity:
    - enabling the swift return of migrants;
    - advancing reconstruction-related investment;
    - boosting productivity and strengthening institutions.
  - Conditional on sufficient financing and sustained commitment to implement required policy reforms, especially regarding facilitating EU accession, including governance, competition, and green technology.
  - Establishing frameworks for post-war reconstruction would enable Ukraine to absorb substantial official resources and catalyze private investment.

*Source: IMF staff report text as provided in the content unit.*

### 98. Staff recommends approval of the 48-month extended arrangement under the EFF

### 98. Staff recommends approval of the 48-month extended arrangement under the EFF (with access of SDR 11,608.25 million)

### Recommendation and program design
- Staff recommends approval of the 48-month extended arrangement under the EFF (with access of SDR 11,608.25 million).
- In circumstances of exceptionally high uncertainty, staff assesses the proposed program is appropriately designed to:
  - resolve Ukraine’s balance of payments problem, and
  - restore Ukraine to medium term external viability in both a baseline and downside scenario.
- Staff also recommends the temporary approval by the Executive Board of the two MCPs subject to Fund jurisdiction.
- Ukraine’s capacity to repay the Fund is subject to exceptional risks and will depend critically on the authorities’ ability to fully implement the program.
- Repayment capacity is supported by capacity to repay assurances from a significant group of creditors/donors, providing management and staff the basis to assess that there are adequate safeguards in place for tail risks beyond the Fund supported program.

### Prior actions and structural benchmarks (overview)
- Prior Actions (required before approval):
  1. Appointment of the NABU Head following an open, credible, and transparent process consistent with the law (Governance/Anti-Corruption) — Prior Action.
  2. The CMU to approve a second supplementary budget, and submit it to Parliament (Fiscal) — Prior Action.
  3. The CMU to adopt a decision tasking the MoF to start the preparation of the NRS (2024-2030) (Fiscal) — Prior Action.

- Selected Structural Benchmarks and timing (sector; timing as specified):
  - Enact the second supplementary Budget 2023 (Fiscal) — End-April 2023.
  - Submit to Parliament a draft law to restore and strengthen Article 52 of the Budget Code to minimize ad hoc amendments to the budget law (MEFP ¶21) (Fiscal) — End-May 2023.
  - Adopt the draft law on tax policy and administration prepared under the PMB (MEFP ¶19) (Fiscal) — End-June 2023.
  - Update and publish the Medium-Term Debt Management Strategy to align it with the program objectives (MEFP ¶30) (Fiscal) — End-September 2023.
  - Present in the 2024 budget declaration projections for major revenue and spending categories and sources of deficit financing for 2025-2026, and a fiscal risks statement including details on energy and critical infrastructure SOEs (MEFP ¶23) (Fiscal) — End-September 2023.
  - Prepare an action plan, including to address the weaknesses identified in taxpayers’ perception survey, as an input into National Revenue Strategy roadmap (MEFP ¶22) (Fiscal) — End-May 2023.
  - Submit to Parliament a draft law which will re-instate articles of Budget Code that establish limits on issuance of public guarantee with clear criteria for such provision (including for priority sectors) (MEFP ¶24) (Fiscal) — End-May 2023.
  - Enact amendments to the Budget Code and related regulatory framework to enhance transparency and accountability of the special accounts and consolidate them within general government as a special fund of the State Budget (MEFP ¶25) (Fiscal) — End-May 2023.
  - Review the current PIM procedures and develop a roadmap of measures so that: (i) all public investment projects follow unified PIM approaches, including PPPs; (ii) investment projects are selected on a competitive basis, with transparent selection criteria, and consistent with the medium-term budget framework; (iii) stronger powers are provided to MoF, including a clear gatekeeping role during the different stages of the investment project cycle (MEFP ¶26) (Fiscal) — End-December 2023.
  - Adopt National Revenue Strategy by the end of 2023 (MEFP ¶22) (Fiscal) — End-December 2023.
  - Prepare a conditions-based strategy to move to a more flexible exchange rate, ease FX controls and transition to inflation targeting (MEFP ¶32) (Monetary and Exchange Rate) — End-June 2023.
  - Transfer the GTSO shareholding directly to the Ministry of Energy and adopt the new charter (MEFP ¶58) (Energy/Corporate Governance) — End-July 2023.
  - Enact the law to restore asset declaration of public officials not directly involved in the mobilization and war efforts and reinstating the NACP’s function to examine and verify them (MEFP ¶56) (Governance/Anti-Corruption) — End-July 2023.
  - Amend the AML/CFT Law to re-establish enhanced due diligence measures on politically exposed persons consistent with the risk-based approach consistent with the FATF standards (MEFP ¶56) (Governance/Anti-Corruption) — End-September 2023.
  - Simplify the asset declaration system through linking with other databases and registers consistent with the public officials’ legal obligations to make truthful and timely submissions (MEFP ¶56) (Governance/Anti-Corruption) — End-October 2023.
  - Legislation will be adopted to enhance the institutional autonomy of the SAPO, specifically, on the selection procedures, capacity to regulate organizational activities, and mechanisms for discipline and accountability (MEFP ¶56) (Governance/Anti-Corruption) — End-December 2023.
  - Strengthen bank governance and oversight by: (i) separating the related-parties-unit from banking supervision; (ii) implementing “supervisory panels” as a consulting body to the Supervisory Committee; and (iii) resume scheduled inspections for both banking and non-banking institutions, while ensuring NBU discretion on matters related to staff safety (MEFP ¶49) (Financial Sector) — End-September 2023.
  - Prepare a bank rehabilitation framework in consultation with the DGF and IMF staff (MEFP ¶47) (Financial Sector) — End-March 2024.
  - Implement a supervisory risk assessment methodology to inform supervisory engagement priorities (MEFP ¶49) (Financial Sector) — End-June 2024.

### Macroeconomic outlook and key projections (selected)
- Real economy:
  - Nominal GDP (billions of Ukrainian hryvnias) projections: 2024: 5,460; 2025: 4,700; 2026: 4,900; 2027: 6,100; 2028: 6,050; 2029: 7,365; 2030: 8,685; 2031: 9,700; 2032: 10,592; 2033: 11,571.
  - Real GDP (percent change): 2021 Act.: 3.4; 2022 Act.: -33.0; 2023 PMB Request: -30.3; 2024 Proj.: 1.0 [ -3 to +1 ]; 2025 Proj.: 3.2; 2026 Proj.: 6.5; 2027–2033: various projections including 5.0, 4.0, 4.0, 4.0, 4.0, 4.0, 3.8, 3.8.
  - Unemployment rate (ILO definition; period average, percent): 2024 Act.: 9.8; 2025: 24.5; 2026: 24.5; 2027: 20.9; 2028: 20.9; 2029: 11.9; 2030: 9.7; 2031: 9.2; 2032: 8.7; 2033: 8.5.
  - Consumer prices (period average): 2024 Act.: 9.4; 2025: 20.6; 2026: 20.2; 2027: 5.0; 2028: 21.1; 2029: 15.5; 2030: 10.0; 2031: 6.9; 2032: 5.5; 2033: 5.0.

- Fiscal (General Government, percent of GDP, baseline scenario):
  - Fiscal balance: 2021: -3.9; 2022: -20.5; 2023: -16.7; 2024 PMB Request: -9.1; 2025 Proj.: -20.4; 2026 Proj.: -17.9; 2027–2033 trajectory includes: -9.8, -5.2, -3.4, -2.1, -1.6, -1.2, -0.8, -0.8, -0.8.
  - Fiscal balance, excl. grants: 2021: -4.0; 2022: -30.3; 2023: -26.5; 2024 PMB Request: -21.6; 2025 Proj.: -28.2; 2026 Proj.: -21.7; subsequent years: -12.1, -6.5, -4.6, -3.2, -2.5, -2.1, -1.6, -1.6, -1.5.
  - Public and publicly-guaranteed debt (percent of GDP): 2021: 50.4; 2022: 89.4; 2023: 81.7; 2024 PMB Request: 90.2; 2025 Proj.: 98.3; 2026 Proj.: 105.0; 2027–2033: 104.1, 102.0, 100.2, 97.2, 93.6, 89.8, 85.6, 81.6, 77.8.

### External sector and financing
- Staff projects the current account balance (percent of GDP, baseline):
  - 2021 Act.: -1.6; 2022 Act.: 4.4; 2023 PMB Request: 5.7; 2024 Proj.: -4.0; 2025 Proj.: -4.4; 2026 Proj.: -6.2; 2027–2033: -6.7, -6.5, -3.2, -3.5, -3.9, -4.0, -4.1, -3.9, -3.6.
- Gross reserves (end of period, billions of U.S. dollars): 2021: 30.9; 2022: 25.1; 2023: 28.5; 2024 Proj.: 21.1; 2025: 29.6; 2026: 32.4; 2027–2033: 35.6, 38.8, 44.6, 46.1, 50.5, 53.9, 54.9, 55.7, 58.0.
- Months of next year's imports of goods and services (selected): 2021: 4.6; 2022: 3.0; 2023: 3.9; 2024: 2.5; 2025: 4.0; 2026: 4.2; later years vary in the 3–5 range, ending 2033: 5.0.
- Gross External Financing Requirement (selected, Billions of U.S. dollars):
  - Total financing requirements (A): 2021 Act.: 37.2; 2022: 65.1; 2023 PMB Request: 57.6; 2024 Proj.: 67.9; 2025 Proj.: 68.8; 2026 Proj.: 64.1; 2027–2033 series include 53.9, 54.0, 48.8, 51.3, 51.5, 51.1, 54.7, 53.5, 53.3.
  - Total financing sources (B): 2021 Act.: 37.2; 2022: 28.7; 2023 PMB Request: 24.4; 2024 Proj.: 26.8; 2025 Proj.: 29.0; 2026 Proj.: 32.2; 2027–2033 include 34.3, 44.0, 41.0, 42.6, 46.7, 45.6, 47.2, 46.0, 46.9.
  - Financing needs (A - B): 2021 Act.: 0.0; 2022: 36.4; 2023: 33.2; 2024: 41.1; 2025: 39.8; 2026: 31.9; 2027: 19.6; 2028: 10.0; 2029: 7.8; 2030: 8.6; 2031: 4.8; 2032: 5.6; 2033: 7.5.
- Official financing (E) (Billions of U.S. dollars, selected):
  - 2021 Act.: 1.7; 2022: 30.6; 2023 PMB Request: 30.6; 2024 Proj.: 37.0; 2025 Proj.: 40.9; 2026 Proj.: 34.7; later years: 22.8, 15.8, 13.6, 10.1, 9.3, 8.9, 8.5, 8.4, 8.7.
  - IMF component (IMF-) shown with net purchases/repurchases patterns and purchases data in Table 4 (detailed program accounting).

### Monetary and financial sector indicators (selected)
- Monetary aggregates (end of period, percent change unless otherwise noted):
  - Base money (percent change): 2021: 11.2; 2022: 14.8; 2023: 19.6; 2024 Proj.: 9.0; 2025: 23.4; 2026: 15.6; subsequent years include 9.5, 7.5, 6.0, 5.1, 5.0, 5.0, 5.0, 5.0, 5.0.
  - Broad money (percent change): 2021: 12.0; 2022: 17.0; 2023: 20.8; 2024 Proj.: 15.0; 2025: 20.5; 2026: 18.5; later years: 15.0, 12.0, 9.2, 9.2, 9.2, 9.2, 9.2, 9.0.
  - Credit to nongovernment (percent change): 2021: 8.4; 2022: 3.4; 2023: -3.1; 2024 Proj.: 2.0; 2025 Proj.: 2.5; 2026 Proj.: 15.4; later years: 14.8, 13.4, 12.4, 12.3, 12.9, 15.5, 18.1, 20.7, 20.7.
- Banking sector policy and measures:
  - Structural benchmarks include strengthening bank governance and oversight, preparing a bank rehabilitation framework, and implementing a supervisory risk assessment methodology.

### Program monitoring: performance criteria and indicative targets (selected)
- Quantitative Performance Criteria (cumulative flows for 2023 unless noted; end-of-period values in millions of Ukrainian hryvnia, unless otherwise indicated):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (- implies a deficit): selected entries include 86,950; 402,002; -8,240; 258,352; 318,502; 337,998; 96,737.
  - Floor on net international reserves (in millions of U.S. dollars) 3/: 15,000; 17,879; 11,500; 15,500; 15,500; 15,500; 15,500.
  - Floor on tax revenues (excluding Social Security Contributions): 451,700; 696,400; 1,094,700; 1,679,170.

- Indicative targets and continuous performance criteria (selected):
  - Floor on the overall cash balance of the general government, excluding budget support grants (- implies a deficit): -1,425,762; -1,298,698; -506,476; -356,500; -638,300; -1,046,000; -1,708,700.
  - Ceiling on general government borrowing from the NBU: 388,500; 388,400; -7,600; -2,551; -2,573; -1,153; -704.
  - Ceiling on general government arrears: 6,000; 4,500; 3,000; 1,600.
  - Floor on social spending: 187,000; 258,100; 372,600; 499,600.
  - Continuous criteria: Ceiling on non-accumulation of new external debt payments arrears by the general government: 0; Ceiling on publicly guaranteed debt: 20,000; 37,000; 37,000; 37,000.

- Memorandum items (selected):
  - External project financing: 51,733; 48,700; 13,713; 23,718; 28,453; 42,660; 56,852.
  - Budget support grants: 461,940; 456,270; 182,843; 178,363; 268,871; 404,632; 422,916.
  - Budget support loans: 577,814; 562,446; 164,559; 324,762; 531,646; 713,899; 945,126.
  - NBU profit transfers to the government: 19,700; 19,700; 71,000; 71,600; 71,600; 71,600; 71,600.

*Source: IMF staff presentation and program documents as presented for Ukraine EFF request and related tables.*

### Annex I. Post-War Recoveries

### Annex I. Post-War Recoveries

### Key findings on war impacts on output
- Using a sample of 400 wars over the last two centuries, Koczan and Chupilkin (2022) find GDP per capita is lower on average by 7 percentage points following the end of the war.
- Theis and Baum (2020) find that the impact of wars on GDP per capita varies with the intensity of war; for wars with the highest battle deaths (e.g., Vietnam 1955), per capita GDP can decline by up to a fifth over a five-year period.
- Literature suggests that civil wars generally bring larger costs to output than inter-state wars (Koczan and Chupilkin 2022, Murdoch and Sandler 2002).
- Channels through which wars affect output levels include destruction of human and physical capital, dislocations in logistics and labor markets (including outward and internal migration), and uncertainty that deters investment and trade, weighing on total factor productivity.
- Footnote clarification: this analysis excludes countries that are party to a conflict but whose territory is not directly impacted (example given: the United States in the Iraq or Afghanistan wars). Koczan and Chupilkin (2022) find that GDP per capita can increase for countries involved in wars outside of their territory.

### Variation in the pace of post-war recoveries
- Real GDP per capita returns to pre-war levels within five years for about half the sample (data sources: Uppsala Conflict Data Program (UCDP), PRIO’s Armed Conflict Dataset, Economies at War Atlas, IMF World Economic Outlook Database).
- There is sizable variation: output remains below pre-war levels at 10 years following the outbreak of war for several drawn-out conflicts, including Democratic Republic of the Congo, Eritrea 1998, Lebanon 1982, Sierra Leone.
- Only a fifth of wars are followed by at least 25 years of peace (Economies at War database).

### Factors explaining strength of post-war recovery
- Intensity and duration of the war:
  - Longer, more intense wars result in greater destruction of capital stock and erosion of human capital.
  - Rapid improvements in GDP often reflect abbreviated duration or limited damage to key productive sectors (example: Kuwait 1991).
  - Longer wars are more expensive to wage amid worsening economic conditions and are often associated with economic crises that further impair recoveries.
- Resolution of the war:
  - A definitive end versus a long stalemate matters; longstanding fragility due to unresolved conflict can impair growth (examples: Lebanon, Georgia, Yemen).
  - Risk of repeat conflicts is high, which heightens uncertainty, dampens consumer sentiment, deters investment, and can keep reconstruction assistance at bay.
- Extent of post-war reconstruction support:
  - Concerted reconstruction drives with external financial and technical support can quickly replenish capital stock, encourage return of labor, raise productivity, and strengthen investment and trade links (examples: Western Europe after World War II — Marshall Plan; South Korea following the Korean War (1950)).
  - Absorption capacity matters: despite significant external assistance after World War II, Japan took nearly 25 years to recover to pre-war output levels.
- Institutional strength:
  - Strong institutional settings (strong rule of law, economic freedom) and a quicker return to domestic political stability are associated with stronger postwar recoveries.

### How the ongoing war in Ukraine differs from 2014/15
- The destruction of the capital stock is much more severe in the ongoing war: 60 percent of pre-war GDP in 2022 compared with 10 percent of pre-war GDP in 2014–15.
- The current destruction is larger than many other conflict cases, implying potentially stronger and more prolonged challenges to recovery.

*International Monetary Fund — Annex I. Post-War Recoveries*

### 2. Given that the uncertainties on Ukraine’s macroeconomic outlook remain

### 2. Given that the uncertainties on Ukraine’s macroeconomic outlook remain

### 2022 outturn
- Economic contraction for 2022 is estimated to be 30.3 percent (33 percent previously).
- GDP deflator was 28.7 percent (forecast was 28.5 percent).
- Disbursed and prospective external official financing was a significant US$32 billion, and only US$0.5 billion lower than expected; over 40 percent came in the form of grants.
- Primary deficit was 13.4 percent of GDP (better than early forecast of 17.9 percent).
- Total public debt stock at end 2022 was 82.1 percent of GDP.
- Debt service standstills have been in effect since August 2022 as agreed with official bilateral and private Eurobond and GDP warrant holders; staff did not encounter any evidence of external arrears.

### Macroeconomic outlook (baseline)
- Revised baseline assumes weaker near-term growth: contraction of 3 percent in 2023 (versus a positive growth rate of 1 percent previously).
- Assumptions and implications:
  - Continuing war assumed to persist longer and cause deeper economic scarring.
  - No significant reconstruction effort assumed; recovery expected to be measured with only a brief peak above growth potential, estimated at around 3.5 percent.
  - Inflation expected to recede only slowly, reaching a stable level only in the longer term.
  - Downside risks remain very large, notably from accruing damage to energy infrastructure and uncertainties on agricultural activity; continued extensions of the Black Sea Grain Initiative are critical.

### Financing assumptions (baseline)
- External financing assumptions for 2023 are broadly unchanged at around US$42 billion; identified financing commitments are sufficient to fill the external financing need for the year.
- Budget support grants expected to total about US$11.6 billion (somewhat less than the US$18 billion assumed under the previous DSA); remainder generally highly concessional lending.
- Pre-structuring baseline reflects expiration of agreed debt service standstills with bilateral official lenders (payments resuming at start of 2024) and private bondholders (as of August 2024).
- Medium-term (2024–27) assumes further official financing of over US$80 billion, with annual levels falling over time.
- Assumed financing composition: around 80 percent concessional loans and a further 20 percent grants.
- Longer term: relatively smaller flows of official financing of US$8-9 billion per year, including a return to market financing in the extended projection (starting 2029).

### Debt sustainability assessment (pre-restructuring baseline)
- Without additional financial support on appropriate terms, including debt restructuring, Ukraine’s debt is assessed to be unsustainable in both the baseline and downside scenarios.
- Pre-restructuring baseline DSA projection:
  - Debt increases to over 105 percent of GDP by 2024 due to projected primary deficits and high defense spending.
  - Debt then gradually declines to 78 percent of GDP by 2033 as recovery proceeds.
- Medium-term modules signal high sovereign stress risks:
  - Very wide fanchart indicating very high uncertainty around forecast.
  - GFN stress tests find persistently high financing needs, especially in the near term.
- Restoring medium-term external viability (illustrative modeling) requires:
  - Average gross financing needs contained to 8-9 percent of GDP in the post-program period (i.e., 2028–2033).
  - Debt-to-GDP ratio declining to 60–65 percent of GDP.
- Preconditions for achieving medium-term viability:
  - (i) Official bilateral creditors’ commitment to extend the debt service standstill through the program period, commit to restructure amounts needed in the baseline, and definitive restructuring based on updated data when high uncertainty ends.
  - (ii) Ukrainian authorities’ commitment to seek agreement on comparable terms with private external commercial creditors and credible process underway.
  - (iii) Credible and specific assurances from donors about support on adequate financial terms in both baseline and downside scenarios.

### Risk of sovereign stress and public debt structure (key indicators)
- Overall risk of sovereign stress in the baseline scenario: High.
- Medium-term: High; Long-term: High.
- DSA summary assessment: Unsustainable in a pre-restructuring scenario.
- Commentary highlights:
  - Debt targets in a post-restructuring scenario: GFN targets of 8-9 percent of GDP and public debt of 60-65 percent of GDP.
  - Medium-term modules show high sovereign stress risks and high financing needs in the near term.
- End-2022 debt structure notes:
  - Externally held debt rose to 62 percent of total public and publicly guaranteed debt, with multilateral debt accounting for the largest share (42 percent).
  - Domestic debt mostly held by residents and denominated in hryvnia.
  - Share of FX debt in total debt expected to continue to rise based on expected official financing to over 80 percent, then slowly decline in extended projection.

### Debt decomposition (selected figures, 2022–24)
- Total debt stock (end 2022): US$109.8 bln (100.0 percent total debt; 81.7 percent GDP).
- External debt (end 2022): US$69.9 bln (63.6 percent total debt; 51.9 percent GDP).
- Multilateral creditors (end 2022): US$38.3 bln (34.9 percent total debt; 28.6 percent GDP).
- IMF component (end 2022): US$14.0 bln (12.8 percent total debt; 10.5 percent GDP).
- Bonds (end 2022): US$22.5 bln (20.5 percent total debt; 16.8 percent GDP) — Sovereign Eurobonds.
- Domestic debt (end 2022): US$39.9 bln (36.4 percent total debt; 29.8 percent GDP).
- Memo items:
  - Contingent liabilities: 9.8 (end 2022) / 9.0 (2023) / 6.5 (2024) [units per table].
  - External guarantees (IMF loan to NBU): 3.6 / 3.3 / 2.4 [units per table].

### Downside scenario (Annex V summary)
- Scenario assumptions:
  - Longer and more intense war versus baseline, weighing on sentiment, dampening migrant returns, causing further infrastructure damage.
  - Real GDP decline of -10 percent in 2023 and further contraction of 2 percent in 2024.
  - Higher fiscal deficits in 2023–24 and more gradual improvement thereafter.
  - Imbalances in FX market persist longer, leading to higher nominal depreciation; real depreciation contained by relatively higher inflation.
  - Subsequent recovery more subdued; output remains well-below pre-war levels.
- Financing implications:
  - Cumulative financing gap would reach around US$140 billion for 2023–27, about a US$25 billion increase compared to the baseline.
  - Entirety of additional financing in downside would need to be in the form of highly concessional loans (close to grant terms).
  - Presence of exceptional financing of US$7.1 billion per year in the 5-year post-program period; scenario would require additional grants in the program period, highly concessional financing consistent with assurances, and further debt treatment.
  - Expected outcome: total public debt decreased to around 60 percent of GDP by end of 10-year projection and manageable gross financing needs of 8-9 percent of GDP per year in the post-program period.

### Authorities’ response, contingency planning, and additional measures
- Authorities’ track record since start of war:
  - Streamlined capital expenditure and other lower priority expenditure items.
  - Identified additional financing.
  - Implemented measures to maintain financial stability and protect FX reserves, including capital controls.
  - Demonstrated ability to take on additional reforms and measures in the PMB to achieve economic and financial stability.
- Contingency plans in downside:
  - Mix of increases in tax revenues, larger mobilization of domestic financing, and likely further CFMs (temporary and part of broader package).
  - Given compressed 2023 expenditures, bulk of adjustment would come from tax measures that could be rapidly implemented to boost revenues.
  - Use necessary measures to access additional domestic financing as needed, without compromising economic and financial stability.
  - Temporary pressures on exchange rate peg may require reintroduction of CFMs or FX controls (e.g., critical import list, tightening repatriation requirements, tighter limits on payment card usage abroad).
- If shocks exceed downside scenario:
  - Potential additional measures include a solidarity tax (supplement to PIT), additional tax on luxury goods, excise duties/fees, larger-scale domestic bond financing.
  - Possible administrative measures: require banks to hold a stipulated amount in or minimum holding period of government securities; differentiate among banks based on liquidity conditions.
  - Secondary purchases of government bonds by the NBU could serve as backstop for primary market.
  - Consider instruments such as inflation- or exchange-rate-linked bonds.
  - If permanent exchange rate pressures but adequate reserves remain: combination of expanded CFMs and FX controls and proactive FX policies could be considered.
  - Spending under certain categories would ultimately be contingent on the flow of highly concessional/grant-based external financing.

*Source: Fund staff.*

### 6. Overall, extensive discussions with the authorities on contingency plans suggest

### 6. Overall, extensive discussions with the authorities on contingency plans suggest

### Program robustness and downside scenario assessment
- The program remains robust under the downside scenario given:
  - The authorities’ policy commitments and track record.
  - Financing assurances from international partners and expected debt relief.
- Under the downside scenario, additional financial assurances provided by Ukraine’s international partners would restore debt sustainability on a forward-looking basis.

### Key real economy projections (Downside Scenario)
- Nominal GDP (billions of Ukrainian hryvnias): 5,460; 4,700; 4,900; 6,100; 5,800; 7,200; 8,200; 9,150; 10,039; 10,942; 11,925; 12,997; 14,166; 15,439; 16,821
- Real GDP (percent change): 3.4; -33.0; -30.3; 1.0; -10.0; -2.0; 0.0; 2.0; 4.0; 3.8; 3.8; 3.8; 3.8; 3.8; 3.8
- GDP deflator (percent): 25.1; 28.5; 28.7; 28.5; 31.5; 26.7; 13.9; 9.4; 5.5; 5.0; 5.0; 5.0; 5.0; 5.0; 5.0
- Consumer prices (period average): 9.4; 20.6; 20.2; 25.0; 27.6; 25.3; 17.2; 12.6; 8.4; 5.1; 4.9; 5.0; 5.0; 5.0; 5.0
- Unemployment rate (ILO; percent): 9.8; 24.5; 24.5; 20.9; 22.5; 17.5; 15.0; 10.7; 9.6; 9.9; 9.7; 9.5; 9.4; 9.2; 9.0
- Nominal wages (average, percent change): 20.8; -12.0; -5.1; 21.9; 21.3; 25.3; 18.4; 16.0; 12.7; 9.1; 8.9; 9.0; 9.0; 9.0; 9.0
- Real wages (average, percent change): 10.5; -27.0; -21.1; -2.5; -5.0; 0.0; 1.0; 3.0; 4.0; 3.8; 3.8; 3.8; 3.8; 3.8; 3.8
- Investment (percent of GDP): 13.8; 8.4; 16.2; 9.9; 14.3; 13.9; 15.3; 16.6; 17.9; 17.8; 17.5; 17.5; 17.3; 17.2; 16.9

### Fiscal outlook (General Government, Downside Scenario)
- Fiscal balance (percent of GDP): -3.9; -20.5; -20.1; -9.1; -23.1; -22.3; -20.2; -17.2; -8.8; -6.0; -5.8; -5.2; -3.9; -3.7; -3.2
- Fiscal balance, excluding grants (percent of GDP): -4.0; -30.3; -29.5; -21.6; -35.4; -32.2; -27.2; -21.9; -10.3; -7.4; -7.0; -6.2; -4.9; -4.7; -4.1
- Public and publicly-guaranteed debt (percent of GDP): 50.4; 89.4; 81.7; 90.2; 112.5; 124.8; 138.6; 149.2; 149.3; 146.9; 144.2; 140.6; 135.4; 130.3; 124.9
- General government revenue (billions of Ukrainian hryvnias): 1,983; 2,606; 2,585; 2,895; 2,860; 3,210; 3,496; 3,884; 4,051; 4,417; 4,756; 5,172; 5,716; 6,174; 6,762
- General government expenditure (billions of Ukrainian hryvnias): 2,198; 3,569; 3,569; 3,448; 4,201; 4,815; 5,150; 5,462; 4,931; 5,076; 5,451; 5,844; 6,262; 6,751; 7,302
- Grants (billions of Ukrainian hryvnias): 146; 246; 276; 371; 571; 757; 243; 115; 148; 135; 140; 144; 148; 153
- Contingency reserve (billions of Ukrainian hryvnias): 0; 44; 81; 80; 77; 87; 74; 82; 25; -51; -55; -60; -66
- Memorandum: Primary balance (percent of GDP): -6.1; -8.7; -2.5; -8.2; -25.4; -21.6; -19.7; -16.4; -2.4; -0.4; -0.5; 0.1; 1.3; 1.3; 1.8

### Balance of payments and external sector
- Current account balance (percent of GDP): -1.6; 4.4; 5.7; -4.0; -4.9; -6.1; -5.4; -2.1; -1.5; -1.4; -2.5; -3.2; -3.6; -3.9; -3.7
- Goods (net, percent of GDP): -6.6; -15.9; -14.6; -30.4; -26.7; -26.2; -26.1; -28.7; -31.5; -33.7; -34.3; -34.7; -34.7; -34.6; -34.0
- Services receipts (percent of GDP): 18.4; 16.0; 16.2; 17.9; 13.4; 15.0; 17.4; 20.3; 23.6; 27.3; 29.0; 30.1; 31.3; 32.6; 33.9
- Gross reserves (end of period, billions of U.S. dollars): 30.9; 25.1; 28.5; 21.1; 29.5; 32.4; 35.1; 38.3; 43.0; 44.3; 49.1; 52.2; 52.9; 53.0; 55.3
- Months of next year's imports of goods and services: 4.6; 3.0; 3.9; 2.5; 4.0; 4.2; 4.3; 4.5; 4.8; 4.7; 5.0; 5.1; 4.9; 4.8; 4.8
- Percent of the IMF composite metric (float): 98.8; 80.0; 91.6; 61.6; 81.6; 84.2; 80.4; 81.9; 83.8; 91.3; 98.3; 102.3; 102.7; 102.2; 105.0

### Gross external financing requirement (Downside Scenario)
- A. Total financing requirements (Billions of U.S. dollars): 37.2; 65.1; 57.6; 67.9; 72.2; 69.6; 55.6; 51.8; 45.7; 47.2; 47.3; 47.9; 52.0; 51.7; 51.2
- B. Total financing sources (Billions of U.S. dollars): 37.2; 28.7; 24.4; 26.8; 27.8; 31.3; 30.5; 37.9; 36.7; 38.5; 42.9; 42.0; 44.2; 43.5; 44.8
- C. Financing needs (A - B, Billions of U.S. dollars): 0.0; 36.4; 33.2; 41.1; 44.4; 38.3; 25.2; 14.0; 9.0; 8.7; 4.4; 5.9; 7.7; 8.3; 6.4
- E. Official financing (Billions of U.S. dollars): 1.7; 30.6; 30.6; 37.0; 45.4; 41.2; 27.8; 19.7; 13.6; 10.1; 9.3; 8.9; 8.5; 8.4; 8.7
  - IMF (component, Billions of U.S. dollars): -0.7; 0.7; 0.7; -2.5; 1.9; 3.0; -0.6; 0.6; 0.1; -1.0; -1.8; -2.1; -2.5; -2.6; -2.3
  - Purchases (IMF, Billions of U.S. dollars): 0.7; 2.7; 2.7; 0.0; 4.5; 5.4; 1.8; 2.6; 1.3; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
  - Repurchases (IMF, Billions of U.S. dollars): 1.4; 2.1; 2.1; 2.5; 2.6; 2.4; 2.3; 2.0; 1.2; 1.0; 1.8; 2.1; 2.5; 2.6; 2.3
- F. Increase in reserves (Billions of U.S. dollars): 3.3; -5.0; -2.2; -4.1; 1.1; 2.9; 2.6; 3.2; 4.7; 1.4; 4.8; 3.0; 0.7; 0.1; 2.3

### Monetary accounts (Downside Scenario, selected)
- Broad money (end period, billions of Ukrainian hryvnias): 2,071; 2,423; 2,501; 2,787; 2,890; 3,600; 4,100; 4,575; 5,020; 5,471; 5,963; 6,499; 7,083; 7,720; 8,410
- Base money (end period, billions of Ukrainian hryvnias): 662; 761; 793; 829; 952; 1,157; 1,257; 1,350; 1,431; 1,505; 1,580; 1,659; 1,742; 1,829; 1,920
- Credit to the economy (end period, billions of Ukrainian hryvnias): 1,023; 1,057; 991; 1,078; 1,116; 1,272; 1,427; 1,569; 1,671; 1,764; 1,889; 2,033; 2,209; 2,436; 2,685
- Credit-to-GDP ratio (percent): 18.7; 22.5; 16.6; 17.7; 19.2; 17.7; 17.4; 17.2; 16.6; 16.1; 15.8; 15.6; 15.6; 15.8; 16.0
- Real credit to the economy (year-on-year percent): -1.5; -20.5; -23.5; -16.7; -15.0; -5.0; -2.5; 0.0; 0.0; 0.5; 2.0; 2.5; 3.5; 5.0; 5.0

### Indicators of Fund credit (Downside Scenario)
- Stock of existing Fund credit (end of period, millions of SDR): 5,704; 3,924; 2,187; 690; 0; 0; 0; 0; 0; 0; 0; 0; 0; 0
- Prospective purchases (disbursements, millions of SDR): 3,340; 4,024; 1,328; 1,945; 972; 0; 0; 0; 0; 0; 0; 0; 0; 0
- Stock of existing and prospective Fund credit (millions of SDR): 9,043; 11,287; 10,878; 11,326; 11,385; 10,634; 9,353; 7,821; 5,967; 4,032; 2,320
- In percent of quota: 450; 561; 541; 563; 566; 528; 464; 388; 296; 200; 115
- Stock in percent of GDP: 5.2; 6.4; 6.1; 6.1; 5.8; 5.2; 4.3; 3.4; 2.5; 1.6; 0.9

### Public debt dynamics and risks (Pre-Restructuring Downside Scenario)
- Public debt (percent of GDP): 81.7; 112.5; 124.8; 138.6; 149.2; 149.3; 146.9; 144.2; 140.6; 135.4; 130.3; 124.9
- Change in public debt (percent of GDP): 31.3; 30.8; 12.2; 13.8; 10.6; 0.1; -2.4; -2.7; -3.6; -5.1; -5.1; -5.4
- Gross financing needs (percent of GDP): 20.1; 31.4; 32.7; 30.1; 36.8; 26.8; 26.8; 26.0; 26.3; 24.7; 26.3; 20.8; 20.1
  - Of which: debt service (percent of GDP): 3.2; 13.2; 17.5; 15.5; 23.8; 24.4; 25.7; 25.8; 24.8; 27.6; 22.2; 21.9
- Contribution of identified flows to debt change (percent of GDP): 33.4; 21.5; 16.7; 15.0; 11.5; -1.2; -3.5; -3.6; -4.1; -5.3; -5.2; -5.4
- Automatic debt dynamics (percent of GDP): 16.5; 3.4; 1.5; 0.5; -1.5; -3.5; -3.8; -4.1; -4.0; -4.0; -3.8; -3.6
- Memo: Real GDP growth (percent): -30.3; -10.0; -2.0; 0.0; 2.0; 4.0; 3.8; 3.8; 3.8; 3.8; 3.8; 3.8

### Debt realism and medium-term risk analysis
- Probability of debt not stabilizing (percent): 16.6; 0.1
- Debt fanchart width: 206.8; 3.0
- GFN financeability index: 58.8
- Bank claims on government (percent bank assets): 21.3; 6.9
- Change in claims on government in stress (percent bank assets): 124.0; 41.5
- Commentary: Medium-term modules signal high sovereign stress risks in the downside scenario. Fanchart metrics deteriorate and the GFN financeability module shows a notable increase in financing needs in the downside relative to the baseline.

*Source: IMF staff estimates and projections based on Ukrainian authorities' data, National Bank of Ukraine, Ministry of Finance, World Bank, and IMF staff.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Program request and financing
- Request for a 48-month Extended Arrangement under the Extended Fund Facility (EFF).
- Requested amount: SDR11,608.25 million (577.01 percent of quota, about US$15.6 billion).
- Initial purchase: SDR2,011.83 million (100 percent of quota; about US$2.7 billion).
- For each purchase intended for budget support, a special agreement between the National Bank of Ukraine and the Ministry of Finance will be signed to clarify responsibilities for timely servicing their financial obligations to the Fund.
- Public announcement of intention to undertake a debt treatment of external public debt; planning to start negotiations with bond holders in early 2024 with the objective of completing needed operations no later than mid-2024.
- A group of official creditors have committed to a two-step process for a debt treatment.

### Program objectives and design
- Ultimate goals: restore fiscal and debt sustainability, restore medium-term external viability, promote long-term growth in the context of post-war reconstruction and EU accession.
- Program designed to resolve balance of payments problems and restore medium-term external viability in the baseline scenario and under a downside scenario.
- Two-phased approach given exceptional uncertainty:
  - Phase 1: Preserve macroeconomic and financial stability during the ongoing war; prepare for strong post-war recovery; implement structural reforms in fiscal area, financial sector, monetary and exchange rate policies, governance, anti-corruption, and the energy sector.
  - Phase 2 (post-war): Deepen structural reform agenda; implement additional macroeconomic reforms to restore medium-term external viability, support reconstruction, promote strong long-term growth, and accelerate progress toward EU accession. As conditions allow, revert to pre-war policy frameworks, including a flexible exchange rate underpinning the inflation targeting regime.
- Commitment to design and implement policies that could achieve much stronger economic outcomes; attached MEFP lays out detailed program.

### Recent program performance and institutional actions
- Strong performance under the Program Monitoring with Board Involvement (PMB) demonstrated ability to implement sound economic policies despite the war.
- Met all three fiscal structural benchmarks (see ¶14 of MEFP).
- National Bank of Ukraine (NBU) Board on January 26 approved Terms of Reference (TOR) for undertaking an asset quality review (AQR), viability analysis, and diagnostics steps needed to design an NPL resolution strategy; diagnostics to be undertaken when appropriate.
- Cabinet of Ministers of Ukraine (CMU) on January 24 appointed four new independent members and two out of three state representatives for Naftogaz’s new supervisory board; supervisory board is fully functional though one position remains to be filled.

### Macroeconomic outlook and key projections
- Output: Following a decline in output of about 30 percent in 2022, expect a gradual recovery in 2023 with Q1 expected to be flat and Q4/Q4 growth could be strongly positive; annual growth for 2023 projected in the -3 to +1 percent range.
- Inflation: 26.6 percent y/y in end-2022; 24.9 percent in February 2023; expected to moderate to about 20 percent y/y by end-2023.
- Current account: Expected deficit of US$6.5 billion in 2023, following an estimated surplus of US$8.6 billion in 2022.
- Gross international reserves: Expected to strengthen to US$29.6 billion by end-2023 under the baseline scenario, equivalent to 4 months of imports.
- Recovery upside: Faster rebound possible if security situation improves, enabling quicker resolution of war-related supply disruptions, increased access to seaports, and faster return of migrants.

### Risks, downside scenarios, and contingency measures
- Downside risks: Prolonged security risks, insufficient donor support, interruption of the grain corridor, further damage to energy infrastructure or continuing power outages, worsening war-related supply chain disruptions, and widened fiscal and external financing gaps.
- Contingent policy responses:
  - Stand ready to take feasible fiscal measures in downside scenarios, including identifying tax policy measures that can be rapidly implemented or spending that could be deferred pending external grants or concessional support.
  - Identify additional domestic financing as needed to ensure financing gaps are closed without compromising economic and financial stability.
  - Welcome partners’ readiness to provide additional financial resources sufficient to close financing gaps and preserve debt sustainability.

### External debt strategy
- Intention to proceed with a debt treatment on external public debt announced on March 24.
- Strategy aims to close financing gaps during the program period, reduce gross financing needs to manageable levels (including after the program), and place public debt on a sustainable path.
- Objectives include creating conditions for private sector participation in post-war reconstruction while preserving financial stability.
- External advisors have been hired; committed to a credible and transparent process for information and communication.
- Financing assurances will be sought from international partners to ensure the two-step approach will restore public debt sustainability and fully finance the program throughout its duration, including in a downside scenario.

### Program monitoring, conditionality, and transparency
- Program monitoring: Reviews initially at quarterly frequency based on prior actions, quantitative performance criteria, indicative targets, and structural benchmarks as described in the MEFP and TMU.
- Number of reviews: Eleven reviews planned to examine progress and agree on corrective measures.
- Timing of early reviews: First review to be completed on or after June 15, 2023; second review on or after October 13, 2023.
- Exchange and payment measures: Introduced exchange restrictions for reasons of national or international security and notified these measures to the Fund for approval under Decision 144; introduced two multiple currency practices subject to Fund approval under Article VIII, Section 3 and requested temporary approval for balance of payments reasons; will gradually remove exchange restrictions as circumstances normalize in consultation with IMF staff.
- Data provision: Commit to provide IMF staff with data and information needed to monitor program implementation, including adherence to data provision requirements in the TMU.
- Transparency: Consent to IMF publication of this letter, the MEFP, the TMU, and accompanying Executive Board documents.

*Source: Appendix I. Letter of Intent, March 24, 2023.*

### 11.      The debt treatment will comprise the following elements:

### 11.      The debt treatment will comprise the following elements:

### Official bilateral debt
- Paris Club creditors committed to a two-step process involving a 3-year extension of the current debt standstill that expires at end-December 2023, coupled with a separate assurance to deliver a final debt treatment sufficient to restore debt sustainability before the final review of the prospective IMF-supported program.
- Will seek treatments on comparable terms with other official creditors.

### External commercial debt
- August 2022 agreement with international bondholders included a voluntary 24-month deferral of debt service on Ukraine’s direct and state-guaranteed Eurobonds; similar deferrals were agreed on some non-guaranteed external commercial debt.
- Will begin discussions with commercial creditors in early 2024, with a goal to complete the needed debt operation no later than mid-2024 on terms consistent with the most up-to-date IMF’s macro framework and the parameters of the debt sustainability assessment.

### Guarantees and safeguards for debt sustainability
- Strictly limit the issuance of guarantees (Quantitative Performance Criterion, see ¶24).
- Provide adequate space to facilitate guarantees supporting critical needs, including essential loans from International Financial Institutions (IFIs) and other partners to ensure investments for critical infrastructure needs.

### Source attribution
*Source: 1ukrea2023001 - 11.      The debt treatment will comprise the following elements:*

### C.   Fiscal Policy

### 2022 fiscal outcomes and context
- Russia’s invasion forced fiscal policy management under unprecedented war-related uncertainty, creating complexities in budget predictability and a large fiscal deficit.
- War impacts:
  - Prioritized defense, security and social protection; compressed non-priority spending.
  - Adopted several supplementary budgets to calibrate spending needs and financing sources.
  - Financing gap from sizeable increase in defense spending in the last supplementary budget closed by combination of additional financing sources and under-execution of some expenditures.
- Arrears and expenditures:
  - Capped general government arrears (overdue account payables) in 2022 at UAH 1,585 billion (below 0.1 percent of GDP).
  - Actual expenditures of general government in nominal terms were almost 50 percent higher than the pre-war 2022 budget, estimated at 69.9 percent of GDP.
- Revenues and deficit:
  - Tax revenues: 36.4 percent of GDP; 0.3 percent lower in nominal terms than the pre-war budget.
  - General government fiscal deficit for 2022: UAH 817.9 billion or 16.7 percent of 2022 GDP, supported by external grants of UAH 481.3 billion or 9.8 percent of 2022 GDP.
  - Deficit excluding grants: UAH 1,299.2 billion (26.5 percent of GDP).
- Financing and debt:
  - Deficit financed primarily by external official financing and NBU monetary financing; net financing from domestic banks and non-banks turned negative.
  - Public debt increased to slightly over 80 percent of GDP at end-2022.

### Fiscal structural achievements in 2022
- Met all fiscal structural benchmarks under the PMB.
- Tax measures:
  - Prepared and submitted for adoption by Parliament a package of tax policy and administration measures to restore the pre-war setup; expected adoption by end-June 2023.
- Arrears prevention:
  - Repealed Martial Law clause limiting MoF’s powers to collect financial reports; CMU protocol tasked line ministries and executive bodies to report on budget arrears at end-2022 and develop action plan to clear arrears outstanding at end-January 2023.
  - Reported stock of overdue account payables of general government estimated at below 0.1 percent of GDP as of end-December 2022.
- Social safety nets:
  - With World Bank TA, prepared a concept note identifying reform priorities for a more targeted, adequate, and efficient social assistance system.
  - Emphasized need for reforms consistent with fiscal sustainability to ensure a sustainable social protection system in the long term.

### Fiscal policy stance and constraints for 2023
- Objectives:
  - Support fiscal and debt sustainability while ensuring resources for core spending priorities and preparing for reconstruction.
  - Refrain from tax policy and administrative measures that may erode the tax revenue base in 2023 and beyond.
  - On spending, revise categories only in consultation with IMF staff and with identified financing sources.
- Quantitative and indicative targets:
  - Establish a floor on the non-defense cash primary balance of the general government excluding grants (Quantitative Performance Criterion).
  - Establish a floor on the overall cash primary balance of the general government excluding grants (Indicative Target).
  - Establish a floor on state budget spending on social programs (Indicative Target).

### Supplementary budgets and 2023 adjustments
- First supplementary budget (February):
  - Reallocated existing resources to the newly established Ministry of the Development of Communities, Territories and Infrastructure for reconstruction start-up.
  - Transferred “Fund for the Liquidation of Consequences of the Armed Aggression” from MoF to the new Ministry.
  - Earmarked new grants and channeled savings from the Unemployment Fund for businesses’ support under the Ministry of Economy.
- Second supplementary budget (CMU approved and submitted to Parliament; prior action):
  - Recognized increases in defense and security needs and enhanced cost-efficiency efforts.
  - Identified about 8.6 percent of GDP in additional defense and security related spending.
  - Effective February 1, 2023, revised wage policies in defense and security to optimize increases and incentivize combat recruitment.
  - Announced a 19.7 percent indexation of pensions, effective March 1, 2023; increases overall social spending by 2.3 percent of GDP, with no additional impact expected on budget transfers to social funds.
  - Revised receipts from personal income tax and social security contributions up by about 2 percentage points of GDP due to higher public sector wage bill.
  - Added 0.3 percent of GDP to contingency fund, bringing undistributed expenditures to 1.14 percent of GDP (partly reallocated to specific spending categories).
  - Projected total expenditures of general government at 67.7 percent of GDP, about 11.2 percentage points of GDP increase over the original budget.
  - Second supplementary budget to be enacted by end-April 2023 (Structural Benchmark).

### 2023 deficit projection and monitoring
- Deficit excluding external grants in 2023 budget expected to reach UAH 1,708.8 billion, or about 28.2 percent of GDP.
  - This is about UAH 424 billion higher than envisaged in the initial 2023 budget.
  - About 1.7 percentage points of GDP higher than the estimated 26.5 percent of GDP deficit excluding external grants for 2022.
- Monitoring instruments:
  - Floor on non-defense cash primary balance of general government excluding grants (Quantitative Performance criterion).
  - Floor on overall cash primary balance of general government excluding grants (Indicative Target).
  - Floor on state budget spending on social programs (Indicative Target).

### Revenue developments and projections
- Tax revenues estimated at 36.3 percent of GDP, consistent with projected macro framework and measures adopted end-2022 (effective July 1, 2023), combined with measures in ¶19.
- Expectations:
  - Profit taxes expected to deteriorate with lower corporate profits.
  - Decline in personal income tax due to structural labor market changes and decline in public sector wage bill partly offset by increased military wage bill.
  - Taxes on goods and services projected to improve as consumption recovers and Martial Law measures are lifted.

### Revenue mobilization measures (¶19 and ¶22)
- Commitment to revenue mobilization with a floor on nominal tax revenues excluding SSC (Quantitative Performance Criterion).
- Legislative and administrative actions:
  - Adopt draft law prepared under the PMB by end-June (Structural Benchmark), effective July 1, 2023.
    - Restore pre-war setup for taxpayers who moved from universal tax regime to single tax.
    - Restore pre-war brackets of single tax eligible groups and close loopholes in application of the single tax rate of 2 percent.
    - Remove idiosyncrasies of simplified tax regime and restore pre-war regime effective July 1, 2023.
    - Cancel moratoria on tax audits, effective July 1, 2023.
    - Restore liability for failure to use cash registers in retail outlets, effective July 1, 2023.
- Phasing out Martial Law tax deferrals:
  - Cancelled deferrals for customs duties starting from March 1, 2023.
  - Will cancel remaining deferrals on import duties from June 1, 2023.
  - Will not extend Tax Code provisions introduced during Martial Law that relaxed administration of taxes and fees.
  - Will refrain from introducing tax amnesties during program or any tax measures jeopardizing tax base.
  - Exemptions for special equipment for electricity generation and distribution and heating supply will expire on May 1, 2023.

### Fiscal structural reforms and medium-term priorities
- Objectives:
  - Anchor medium-term fiscal path, maintain fiscal and debt sustainability, and lay foundations for long-term growth.
  - Channel resources from winding down defense spending to recovery, reconstruction and social safety nets.
  - Undertake substantial changes to pension and social safety nets after comprehensive reforms including improved targeting and means-testing per social policy concept note (see ¶14).
- Reform focus (¶21):
  - (i) Raise adequate revenue for reconstruction and social spending via measures enhancing efficiency, fairness and simplicity, including a home-grown multi-year National Revenue Strategy (NRS).
  - (ii) Prepare public investment and financial management for post-war era by strengthening public investment processes, project management cycle and commitment controls.
  - (iii) Enhance fiscal transparency and management of fiscal risks.
  - (iv) Ensure fiscal sustainability and predictability by restoring and strengthening provisions of the Budget Code governing cases for budget amendments; submit draft law to restore and strengthen Article 52 of the Budget Code (Structural Benchmark, May 2023).

### National Revenue Strategy (NRS) and administrative reforms (¶22)
- Short-term actions:
  - Publish relevant parts of independent survey of taxpayer perception and satisfaction with State Tax Service (STS) conducted in November 2022 (with Swedish International Development Cooperation Agency).
  - With IMF and World Bank support, prepare an action plan to address weaknesses identified in the survey as input to NRS (Structural Benchmark, end-May 2023).
  - Institutionalize and strengthen the survey, make it annual covering STS and State Customs Service.
  - Approve measures to address main issues identified within a month following survey publication as part of NRS implementation.
  - STS to review stock of tax arrears, establish those not related to Russian aggression/occupation, and review possibility of arrears repayment; prepare by end-August 2023 a detailed action plan to progressively reduce arrears.
  - Identify by end-September 2023 further revenue measures for 2023 to integrate into 2024 budget revenue projections (e.g., harmonization of taxes with EU directives).
- Multi-year NRS (2024-2030):
  - CMU will adopt decision tasking MoF to start NRS preparation (Prior Action).
  - Gap analysis with IMF TA to inform roadmap for NRS (2024-2030) with clear revenue and other policy targets, finalized by end-July 2023.
  - Final strategy adopted by end-December 2023 (Structural Benchmark) and will include:
    - (i) measures to strengthen tax and customs services drawing on perception survey analysis;
    - (ii) revised simplified tax regime to address erosion of labor taxes by moving legal basis for labor relations to civil law;
    - (iii) alignment of VAT and excise duties with the EU acquis;
    - (iv) strengthened anti-corruption measures and governance procedures;
    - (v) tax reforms balancing revenue needs with post-war reconstruction and industrial development;
    - (vi) reorganization of the Economic Security Bureau of Ukraine (ESBU) under subordination of the MoF.
- ESBU reforms:
  - Prepare amendments to the Law and reorganization to define functions, strengthen analytical component, and subordinate ESBU to MoF.
  - Revise legal basis, develop transparent and competitive staff and management selection processes, strengthen selection commission requirements, introduce competitive selection, streamline civil control council activity, develop mechanism for staff attestation, and introduce contract system for employees.

### Medium-term budget framework (MTBF) commitments (¶23)
- Restore MTBF:
  - Submit to Parliament in May a draft law repealing suspension of medium-term budget preparation (Budget Declaration) ahead of 2024 budget cycle, with effect from January 2024.
  - Present in the 2024 budget projections key revenue and expenditure categories and deficit financing sources for general government for 2025-26 as basis for 2025 budget preparation.
  - Include a fiscal risks statement in 2024 budget preparation with details on energy and critical infrastructure SOEs (Structural benchmark, end-September 2023).
  - Prepare comprehensive MTBF (2025-2028) for 2025 budget cycle as prescribed by budgetary legislation.
  - With IMF TA, improve strategic budgeting and costing of new public services and define mechanisms to strengthen the link between the budget and fiscal risk assessments.

### Fiscal transparency and risks
- Commitments outlined to enhance fiscal transparency, manage fiscal risks, and strengthen public investment and financial management frameworks in preparation for post-war reconstruction.

### Source attribution
*Source: 1ukrea2023001 - 11.      The debt treatment will comprise the following elements:*

### 24.      We will continue taking measures to enhance fiscal transparency, address fiscal risks

### 24.      We will continue taking measures to enhance fiscal transparency, address fiscal risks 

### Strengthening commitment controls and arrears prevention
- Building on progress under the PMB, the MoF will continue strengthening the current centralized approach to commitment control to prevent of arrears (overdue accounts payable) financial obligations on all levels of government, except those that were caused by the Russian military aggression and occupation of Ukrainian territories by Russia.
- General government arrears (overdue accounts payable) will be monitored through a cumulative indicative target (Indicative Target), as specified in the Technical Memorandum of Understanding (TMU).
- Plan to restore regular reporting by SOEs that are not located in temporarily occupied territories.
- To strengthen risk assessment of guarantees (see also ¶12):
  - Prepare by September 2023 rules and regulations to tighten risk assessments to avoid abuse and introduce risk-based fees for guarantees.
  - Submit to Parliament a draft law (Structural Benchmark, end-May 2023) to re-instate articles of the Budget Code that establish limits on issuance of public guarantees with clear criteria for such provision (including for priority sectors).

### Transparency in management and spending of budgetary funds and special accounts
- Rules and regulations prepared for the “Fund for the Liquidation of the Consequences of the Armed Aggression.”
  - Despite the administrative role of the new government agency managing this Fund, control over commitments and appropriations will remain with the MoF as prescribed by the budgetary legislation.
  - The Fund finances a budgetary program through a special fund and is subject to relevant articles of the Budget Code.
  - Commit to complement existing reporting with a regular consolidated report summarizing the sources of financing and the nature of spending in one report.
  - Commit to refrain from using the NBU profit for earmarked spending in 2024 and direct this revenue category to General Fund of the State Budget.
- Special accounts at the NBU that gather donations for Ukraine:
  - Work towards treating programs implemented with resources of these accounts as budget programs under a Special Fund of the State Budget.
  - Take further steps to bring commitment controls and appropriations under the control of the MoF as envisaged by the budgetary legislation.
  - Enact amendments to the Budget Code and related regulatory framework to enhance transparency and accountability of the special accounts and consolidate them within general government as a Special Fund of the State Budget (Structural Benchmark, end-May 2023).

### Strengthening Public Investment Management (PIM)
- Commit to strengthen PIM ahead of post-war reconstruction, building on EU4PFM and the World Bank’s Public Investment Management Diagnostic Assessment Report 2022.
- With World Bank TA, review current PIM procedures and develop a roadmap of measures (Structural Benchmark, end-December 2023) to ensure:
  - (i) all public investment projects follow unified PIM approaches, including PPPs;
  - (ii) investment projects are selected on a competitive basis, with transparent selection criteria, and consistent with the medium-term budget framework;
  - (iii) stronger powers for MoF, including a clear gatekeeping role during the different stages of the investment project cycle.
- Adapt the national e-procurement system to be compliant with international competitive bidding standards used by Multilateral Development Banks to avoid multiple procurement platforms.

### External financing: recent flows and commitments
- External disbursements of about US$32.1 billion in 2022 were crucial to close external and fiscal financing gaps and maintain macroeconomic and financial stability.
- Firm commitments for calendar year 2023 already amount to US$37.5 billion.
- Over the first 12 months of the IMF-supported program (April 2023–March 2024), the program is fully financed thanks to large official multilateral and bilateral commitments totaling US$30.2. billion.
- Key partners have assured continued support beyond March 2024, providing good prospects for program financing over the program period.

### Domestic financing strategy and debt management
- Intend to mobilize domestic financing to help meet fiscal needs, maximizing issuance of domestic government securities in the primary market with an objective of at least covering the expected redemptions, allowing elimination of monetary financing.
- As of March 1, we have raised UAH 97.3 billion in the primary market in 2023, achieving a year-to-date rollover rate of 142 percent, thereby providing net financing to the budget of about US$0.8 billion.
  - About three-quarters of this amount has been raised through designated benchmark bonds that banks have been allowed to use to meet reserve requirements.
  - Issuance yields were gradually increased; during November-December 2022, yields increased from 18 to 19.75 percent for longer-term instruments, and longer maturity bonds were offered on some issuances.
- Continue issuing government securities with an objective of at least covering the redemptions expected in 2023.
- Plan to identify and implement ways to increase bank financing in a more sustainable way, including studying the flow of liquidity into the banking system on a bank-by-bank basis.
- Establish a joint Working Group under the Financial Stability Council (FSC), with participation from relevant parties including the NBU and the Ministry of Finance, to consult regularly on strategies to mobilize domestic financing.
- Update and publish the Medium-Term State Debt Management Strategy (Structural Benchmark, end-September 2023) to fully take into account developments since the start of the war, support development of benchmark securities, and expand and diversify the set of investors, including encouraging return of non-residents to domestic bond markets.

### Commitment to eliminate monetary financing
- Contained monetary financing to the gross amount envisioned in 2022 (UAH 400 billion), and committed to eliminate it in 2023.
- Commitment to this objective will be monitored by a ceiling on general government borrowing from the NBU (Indicative Target).
- If unexpected critical financing needs or delays in external disbursements occur, first explore additional measures (drawing down excess government deposits, borrowing from government debt market); request monetary financing from the NBU only as a last resort and in strictly limited amounts.

### Monetary policy stance and inflation outlook
- Near-term objective: safeguard price and exchange rate stability and protect international reserves; gradually move to a more flexible exchange rate, ease FX controls, and transition back to an inflation targeting framework when conditions permit.
- Commit to prepare a conditions-based strategy (Structural Benchmark, end-June 2023), in consultation with IMF staff, to establish and assess prerequisites for that transition.
- Recent developments:
  - Over the past three months, headline inflation has been slower than expected due to easing supply constraints, including from liberation of occupied regions, and despite high energy costs; core inflation remains elevated.
  - Expect inflation to further slow through 2023 to around 20 percent, though upside risks remain, most notably from the security situation.
- In March Monetary Policy Committee (MPC) meeting, maintained the key policy rate (KPR) at 25 percent.
- Continue efforts to strengthen monetary transmission of the KPR and stand ready to adjust monetary conditions in view of risks and economic developments.

### Liquidity management and measures to improve transmission
- Record structural surplus of liquidity of UAH 300 billion as of end-February 2023, concentrated in state-owned banks, has weakened KPR transmission.
- Strategy to prudently manage liquidity while preserving space for banks to participate in government bond auctions and prevent monetary financing; monitor timing and size of flows to design appropriate measures.
- Measures taken:
  - Reserve requirements tightened in December 2022 and January 2023: increased by 5 percentage points each for current account and demand deposits of legal entities and individuals, and an additional 10 percentage points for hryvnia and FX retail demand deposits and current accounts, effective March 11. Part of obligatory reserves can be met through benchmark government bonds.
  - Intend to fine-tune calculation mechanism so that higher reserve requirements apply to ultra-short-term deposits.
  - Operational adjustments: introduce three-month certificates of deposit at the key policy rate; volumes limited and conditional on the stock of banks’ term-deposits with maturity longer than 3 months, to incentivize competition for term deposits.
  - Adjust rate on standing facilities as needed to maintain an appropriate monetary policy stance.
- These steps aim to restore effectiveness of KPR, revive interbank money market, support sterilization operations, and link operational framework to the KPR to facilitate eventual easing of FX controls and return to inflation targeting.

### Exchange rate policy and FX controls
- Exchange rate peg supported by FX controls (introduced solely for reasons of national security) has served as an important nominal anchor during the war.
- The NBU has been a net seller of FX of US$28.3 billion between February 24, 2022, and end-February 2023.
- Spread between official and cash segments of the FX market narrowed to around 10 percent through the winter, and reached 5 percent in early March 2023.
- Program envisages stabilizing reserves at a modest but adequate level in the near term and gradually building them over the medium term; progress monitored by a floor on net international reserves (Quantitative Performance Criterion).
- Measures to increase attractiveness of hryvnia assets (e.g., FX-linked deposit facility, allowing individuals to purchase FX at the cash rate) have started bearing fruit; continue studying measures to stimulate increase of hryvnia term deposits.
- Intend to carefully adjust FX controls to support economic recovery while maintaining exchange rate stability and national security; continue fine-tuning FX controls to ease pressure on the FX cash market, eliminate multiple currency practices, reduce incentives for circumvention, and anchor exchange rate expectations.
- Extended restriction on repatriation of principal payments to non-resident holders of domestic government securities after April 1, 2023; will allow repatriation of interest paid after April 1, 2023, balancing preservation of FX reserves with incentives for nonresident reinvestment in government bonds.

*IMF country report content (from the supplied source).*

### 40.      We intend to eliminate monetary financing, thereby upholding the financial autonomy

### 1ukrea2023001 - 40.      We intend to eliminate monetary financing, thereby upholding the financial autonomy of the NBU

### Monetary financing and NBU autonomy
- 2022 monetary financing of the state budget amounted to 8 percent of GDP.
- Nominal base money growth was contained at about 20.8 percent y/y as of end-December.
- Commitments and measures:
  - Intention to eliminate direct monetary financing of the budget deficit (¶31).
  - NBU and MoF will establish, in consultation with the IMF, a framework stipulating the preconditions and procedures for short-term advances to accommodate temporary liquidity shortfalls for the duration of Martial Law by end-July 2023.
  - Strive to limit indirect forms of monetary financing outside the core functions of the NBU (e.g., directed liquidity to banks or SOEs for purchase of government securities on the primary market).
  - Commit to refrain from using the NBU profit for earmarked spending in 2024 and to direct this revenue category to General Fund of the State Budget.
  - Direct financing of off-budget programs by the NBU will be avoided altogether.
- Safeguards for central bank autonomy and price stability:
  - Measures to mitigate risks to price stability and enhance transparency.
  - Use monetary financing only when other options have been exhausted.

### NBU independence, unconventional measures, and exit plans
- Commitment to uphold independence and institutional effectiveness of the NBU to support macroeconomic stability and eventual transition back to an inflation targeting framework.
- Safeguards Assessment undertaken in February 2023; commitment to implement measures in line with key recommendations.
- Profit retention rules to be adhered to; distribution of NBU profits to the state budget to follow established procedures in a transparent manner.
- Over the medium term:
  - Intend to carefully unwind unconventional wartime measures that supported price and external stability.
  - Wartime measures to be well-targeted, clearly communicated and time bound.
  - Commitment to develop a plan to phase out war-time measures when conditions permit to strengthen monetary policy toolkit and support return to inflation targeting.

### Financial sector emergency measures and current stability (¶43–44)
- Emergency measures helped preserve financial stability; banks entered the war well-capitalized and liquid.
- Operational continuity highlights:
  - Majority of bank branches remained operational.
  - Online banking services available to clients with internet connectivity.
  - Non-cash payment system functioning normally.
  - Liquidity recovered for most banks.
  - “Power Banking” network established in late 2022 with over 2,000 bank branches able to provide services during prolonged blackouts.
- Licenses of six small banks revoked under Martial Law (around 3 percent of system net assets as of end-2021).
- Key emergency measures implemented:
  - Administrative controls to preserve FX liquidity and channel it towards priority imports.
  - An unsecured funding facility (maturity up to one year) for amounts up to 30 percent of banks’ late-January 2022 retail deposits; discontinued on November 5, 2022 due to decline in usage.
  - Suspension of enforcement actions for war-inflicted breaches of prudential requirements; postponement of audits of banks’ financial statements; cancellation of regular bank stress testing in 2022.
  - Loans restructured during Martial Law exempt from reclassification for credit risk.
  - Prohibitions on related party lending (with exceptions), capital distributions, and bonus payments for banks.
  - 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.

### Strategy for unwinding emergency measures and diagnostics (¶45–47)
- Update of financial sector strategy by end-June 2023 to implement safe, coordinated, and prompt unwinding of emergency measures and restore accounting and prudential norms.
- Key elements of updated strategy:
  - Coordinated steps to safely unwind exceptional measures; aim to unwind emergency prudential measures by end-March 2024 if conditions allow.
  - Diagnostics to quantify bank asset values and NPL resolution priorities.
  - Framework to safely address potential vulnerabilities.
  - Prioritized action plan to monitor and tackle high NPL levels.
  - Contingency plans to respond to potential further shocks.
  - Prioritized transposition of EU banking norms.
  - Coordination arrangements among key stakeholders.
- Publication commitment: parts of the strategy that are not market sensitive will be published.

### Bank asset diagnostics, AQR, and supervisory actions (¶46)
- NBU undertakings and timetable:
  - Complete an independent asset quality review (AQR) once conditions have stabilized.
  - Carry out a subsequent bank viability assessment.
  - Prepare a prioritized interagency NPL resolution action plan by end-June 2024.
  - Prohibition on bank capital distributions to remain until independent AQR findings are fully reflected in banks’ regulatory ratios and financial statements.
  - NBU banking oversight teams to undertake an asset valuation and solvency assessment of banks comprising 90 percent of banking system assets by end-December 2023 and share results with IMF staff.

### Contingency planning, bank rehabilitation, and fiscal containment (¶47–48)
- Priorities to preserve financial stability and limit potential fiscal cost:
  - NBU and Deposit Guarantee Fund (DGF) to prepare contingency plans for high-impact events in consultation with stakeholders and IMF staff.
  - Financial Stability Council to adopt by end-June 2023 contingency plans related to adverse rulings from constitutional challenges against the DGF Law and the Bank Resolution Law (Law #590), and an updated contingency plan for litigation risks concerning past bank resolution decisions.
  - Prepare a bank rehabilitation framework in consultation with DGF and IMF staff (Structural Benchmark, end-March 2024) including:
    - Financial backstops.
    - Regularly updated bank recovery and resolution plans.
    - Improving the DGF’s financial position.
    - Aligning NBU frameworks for counterparty eligibility in monetary policy operations and for lender-of-last-resort operations with international best practice.
  - Continued focus on longstanding priorities: (i) reducing historical NPLs while maximizing recovery of economic value; (ii) recovering value from assets of resolved banks; (iii) developing regulatory framework for the non-bank financial sector and financial markets.
- Any decision potentially increasing state ownership in the banking sector will be taken in consultation with IMF staff and strictly limited to matters related to national security during Martial Law and preserving financial stability.

### Strengthening regulation and supervision (¶49–50)
- Gap analysis relative to the EU Capital Requirements Directive undertaken to prepare for EU accession.
- Timelines to close gaps:
  - Close gaps in regulatory capital structure by end-September 2023.
  - Close other gaps by end-September 2024.
- Governance and oversight actions (Structural Benchmark, end-September 2023):
  - Separate the related-parties-unit from banking supervision.
  - Strengthen Supervisory Committee decision-making by implementing “supervisory panels” as a consulting body to provide additional independent review and challenge.
  - Resume scheduled onsite inspections for both banking and non-banking institutions, ensuring NBU discretion on staff safety.
- Transition to risk-based supervision:
  - Implement a supervisory risk assessment methodology to inform supervisory engagement priorities (Structural Benchmark, end-June 2024).
  - Apply methodology to all banks and prepare a supervisory action plan by end-December 2024.
  - Adjust organizational structure for bank supervision and improve professional capacity via development of professional profiles and a multi-year training program for new hires.
- Non-bank financial institutions (NBFIs) and markets:
  - NBU required all NBFIs (apart from credit unions) to disclose owners and change non-transparent ownership structures by October 2021; continued monitoring and supervisory actions against non-compliant NBFIs.
  - Prepare supervisory risk assessment methodology distinguishing NBFI types by end-September 2024.
  - Legislation passed on Financial Services and Financial Companies (#5065) and Insurance firms (#5315).
  - Adopt amendments by end-May 2023 to the Law on the National Securities and Stock Market Commission (NSSMC) to enhance powers, independence and capacity; aim to allow Ukraine to become a signatory of IOSCO’s multilateral MoU by end-December 2024 with full implementation of other provisions by end-December 2025.
  - Adopt Credit Unions Law (#5125) by end-June 2023.
  - Exclude NBU regulations for NBFIs from the scope of Law of Ukraine “On principles of state regulatory policy in the field of economic activity”.

### Recovery of value and state ownership policy (¶51–48)
- Commitment to continue efforts to recover value from assets of failed banks and to abstain from interference with current asset recovery strategies of the largest bank nationalized in 2016 and of the DGF.
- Overall strategy to reduce state ownership in the banking sector maintained.

### Governance, reconstruction, and public sector reforms (¶52–54)
- Structural reform agenda to underpin post-war growth and EU accession:
  - Need for high and sustained rates of economic growth, unprecedented investment, and rebuilding human capital.
  - Public sector role emphasized for recovery and donor financing facilitation.
  - Reforms to ensure rule of law and level playing field to attract private investment and encourage return of migrants.
  - Near-term focus: strengthen public procurement system to align with EU acquis; deregulate economic activity; improve business climate.
  - Strong, stable banking sector seen as pillar of reconstruction to mobilize savings and support productivity.
- Reconstruction strategy commitments:
  - Meet highest standards of transparency and accountability.
  - Use digital technologies and a platform to transparently track and analyze reconstruction-related procurement processes and expenditures (see ¶26).
  - Integrate mechanisms to prevent and identify corruption risks; refer cases to anti-corruption institutions as appropriate.
  - Comprehensive audits and performance audits of selected projects; timely publication of audit reports.

### Anti-monopoly, anti-corruption, and rule of law measures (¶54–56)
- Anti-Monopoly Committee of Ukraine (AMCU) reforms:
  - Adopt amendments by end-September to strengthen legal framework enabling effective promotion of competition and combating monopolistic practices.
  - Identify steps to ensure anti-monopoly framework does not inappropriately discourage public investment or state aid, especially in reconstruction.
  - Submit new draft law by end-December to parliament ensuring AMCU’s institutional independence, enhancing appointment procedures, and strengthening enforcement powers.
- Anti-corruption institutional support:
  - NABU, SAPO, HACC, and NACP have continued operations despite the war.
  - Eight new SAPO prosecutors onboarded in December 2022.
  - New members constituting a quorum of the High Council of Justice appointed in January 2023.
- Structural reform measures to prioritize (selected items):
  - Strengthening anti-corruption institutions:
    - CMU appointed a new head of NABU last March 6 (prior action).
    - Ensure NABU access to competent, independent, and speedy forensic examinations.
    - Enhance SAPO capacities and institutional autonomy; adopt legislation following SAPO framework analysis to (a) improve selection procedures of SAPO head and key officials; (b) strengthen capacity to regulate organizational activities; (c) establish mechanisms for discipline and accountability including performance evaluation and periodic external audit by external experts with international experience (Structural Benchmark, end-December 2023).
  - Targeted restoration of asset declaration obligations:
    - Enact law to restore obligation of public officials (not directly involved in mobilization and war efforts) to submit and disclose asset declarations during Martial Law and reinstate NACP function to examine and verify declarations (Structural Benchmark, end-July 2023).
    - Enhance asset declaration system to allow automatic populating from linked databases while maintaining truthful and timely submission of simplified declarations during Martial Law (Structural Benchmark, end-October 2023).
    - Consider publishing summary information about assets and liabilities of high-responsibility officials during Martial Law, balancing transparency and personal security.
    - NABU and SAPO to receive full, direct, and confidential access to submitted asset declarations.
    - Once Martial Law is lifted, fully restore the asset declarations system including disclosure requirements for all covered public officials, risk-based verification, and public access.
  - Ensuring effective risk-based AML/CFT regime:
    - IMF capacity development to support NBU in developing guidelines consistent with FATF standards for risk-based supervisory on-site activities.
    - Amend AML/CFT law to re-establish obligations of financial institutions to implement enhanced due diligence on politically exposed persons on a risk-based approach consistent with FATF standards (Structural Benchmark, end-September 2023).
    - Improve effectiveness of beneficial ownership regime to enhance transparency in public procurement and detect conflicts of interest.
    - By end-September 2023, adopt amendments to align the definition of beneficial owner with FATF standards and implement verification measures to ensure accuracy and up-to-date beneficial ownership information.
  - Advancing rule of law and judicial reforms:
    - Complete appointments for remaining vacancies of the High Council of Justice ensuring open and transparent proceedings by the Ethics Council.
    - Adopt a law by end-June 2023 to provide an effective solution to break ties with the six-member Advisory Group of Experts when vetting candidates to the Constitutional Court.
    - Establish a new court by end-December 2023 to hear administrative cases against national state agencies (e.g., NBU, NABU, NACP) staffed by properly vetted judges.

### Governance diagnostics and next steps (¶56)
- Seek IMF technical assistance to conduct, after Martial Law is lifted, a new Governance and Corruption Diagnostic to:
  - Take stock of progress since the 2014 Diagnostic.
  - Assess corruption vulnerabilities and governance weaknesses linked to key state functions.
  - Lay out future reforms in a post-war scenario.

*International Monetary Fund — Ukraine: program document excerpts (selected paragraphs 40–56)*

### 57.      We remain committed to strengthening the governance of state-owned banks (SOBs).

### 1ukrea2023001 - 57. We remain committed to strengthening the governance of state-owned banks (SOBs).

### Governance of state-owned banks (SOBs)
- Commitment to strengthen governance of SOBs to preserve financial stability, protect public finances, and maintain international confidence.
- Prior reforms: adoption in 2018 of a dedicated SOB framework within the banking law.
- For each SOB, the authorities have:
  - (i) appointed a majority-independent supervisory board, and
  - (ii) signed a Memorandum of Understanding that defines the relationship between each SOB and the MoF and CMU as shareholder.
- Commitments and actions going forward:
  - Uphold reforms and ensure SOBs operate on a professional and commercial basis without political interference on operational matters.
  - New procedures for appointments to SOB supervisory boards were adopted ahead of the current cycle of recruiting independent supervisory board members.
  - Ensure operational continuity and institutional memory at each SOB.
  - The NBU will rigorously apply its fit and proper assessment framework to new supervisory board members put forward following the recent selection process.
  - Introduce a procedure for conducting annual business planning and performance assessments for all SOBs.
  - The first performance assessment will be conducted for each of the banks in 2024 (based on 2023 performance).
  - In August 2024, the MoF will publish its first annual assessment’s key findings, together with Cabinet’s actions to address them findings.

### Corporate governance in state-owned enterprises (SOEs)
- Commit to continue strengthening corporate governance in SOEs.
- Legislative and governance actions:
  - Adopt by October 2023 the SOE corporate governance law #5593-D to align the SOE corporate governance framework with OECD Guidelines on Corporate Governance of SOEs, including by strengthening the accountability and broadening the powers of supervisory boards so they have the ultimate authority to appoint and dismiss CEOs.
  - In line with commitments under the PMB, supervisory board members of Naftogaz have been appointed and the board is now fully operational.
  - Commit to implement corporate governance reform at the Gas Transmission System Operator (GTSO) with the following steps:
    - (i) transfer the GTSO shareholding from MGU to the Ministry of Energy and adoption of the new charter (Structural Benchmark, end-July 2023);
    - (ii) selection and appointment of a supervisory board for the GTSO by end-October 2023.

### Energy sector reforms and near-term priorities
- Strategic objective: implement a timely and ambitious reform agenda to tackle structural challenges in the energy sector exacerbated by the war.
- Medium-term policy direction:
  - Restore and enhance competition in wholesale and retail gas markets once the war winds down.
  - Ensure sustainability of the system and reduce quasi-fiscal liabilities by gradually increasing gas and electricity tariffs to cost recovery while allocating adequate and well-targeted resources to protect vulnerable households.
- Immediate priority: contain the adverse impact of the war on the sector by ensuring sufficient resources for key large SOEs.
- Short-term policy menu includes: tariff increases, securing external financing, or transparent and exceptional direct budget support.
- Specific sector developments and pledges:
  - Ukrenergo:
    - Secured significant external financing support that should be sufficient for the most urgent repair of the electricity grid.
    - The recent increase in the TSO tariffs for 2023 is helping, though operator costs remain under pressure from increased ancillary costs (from increased use of gas for electricity generation) and from the need for full payment of electric power generated from renewable energy sources.
  - Gas imports and Naftogaz:
    - Low domestic consumption, resilient domestic production, and a mild winter limited the need for gas imports for this season.
    - For the next heating season, about 2 bcm of additional gas imports could be required under the baseline.
    - Naftogaz has made progress securing additional financing for gas imports through the EBRD and bilateral donors.
    - In case of a liquidity shortfall, including in a downside scenario where more gas imports would be needed, the authorities will assess the amount of PSO compensation in 2023 based on actual documentary proven expenditures of Naftogaz verified by the State Audit Service and other relevant stakeholders.
    - The relevant calculations will be finalized by end-August 2023.
    - Potential spending pressure from gas imports and PSO compensation will be accommodated through an adjustor on fiscal balance targets, subject to the above assessment, available financing, and capped at UAH 60 billion (about 1 percent of GDP).
  - GTSO:
    - Revenues impacted by low tariffs, large unauthorized gas offtakes, payments to Naftogaz, and a drop in transit revenues since May 2022 (one key entry point is located in occupied regions).
    - GTSO is reducing expenditures, but the current liquidity crisis could require budget support.
    - Once corporate governance reforms are finalized, the company’s strategy should be adjusted to reflect its new operating environment by rightsizing the system and identifying alternative sources of supply.

### Program monitoring, conditionality, and TMU highlights
- Program monitoring instruments: reviews (initially at higher frequency, then semi-annual), quantitative performance criteria, indicative targets, structural benchmarks, and continuous performance criteria.
- Authorities’ commitments:
  - Provide IMF staff all data needed for program monitoring, including data and information detailed in the attached TMU.
- Review schedule:
  - First and second reviews tentatively planned for July 2023 and October 2023, based on quantitative performance criteria for end-April 2023 and end-June 2023, respectively, and corresponding structural benchmarks.
- Selected quantitative and memorandum items from Table 1 (values preserved as in source):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (- implies a deficit): 86,950; 402,002; -8,240; 258,352; 318,502337,998; 96,737.
  - Floor on net international reserves (in millions of U.S. dollars): 15,000; 17,879; 11,50015,500; 15,50015,50015,500.
  - Floor on tax revenues (excluding Social Security Contributions): 451,700; 696,400; 1,094,700; 1,679,170.
  - Indicative target—Floor on the overall cash balance of the general government, excluding budget support grants (- implies a deficit): -1,425,762; -1,298,698; -506,476; -356,500; -638,300; -1,046,000-1,708,700.
  - Adjustor/cap on spending on gas purchases, PSO compensation and transfer to GTSO: 10,000; 30,00045,000; 60,000.
  - Memorandum item—Budget support grants: 461,940; 456,270182,843178,363; 268,871; 404,632422,916.
  - Memorandum item—Budget support loans: 577,814 562,446; 164,559324,762; 531,646; 713,899; 945,126.
  - Memorandum item—Interest payments: 39,052; 129,702183,898; 279,937.
  - Memorandum item—NBU profit transfers to the government: 19,700; 19,700; 71,00071,600; 71,60071,600; 71,600.
- TMU exchange rate and valuation specifics:
  - Official exchange rate of the Ukrainian hryvnia to the U.S. dollar: 36.5686 (set by NBU as of March 13, 2023).
  - Reference exchange rates as of March 13, 2023: Swiss Franc 0.9107 Swiss Franc per U.S. dollar; Euro 0.933 per U.S. Dollar; Pound Sterling [0.8226] pound per U.S. dollar; Australian Dollar 1.5435 dollars per U.S. dollars; Canadian Dollar 1.3715 dollars per U.S. dollar; Chinese Renminbi 6.875 yuan per U.S. dollar; Japanese Yen 133.960 yen per U.S. dollar.
  - Accounting exchange rate for the SDR: 0.748641 SDR per U.S. dollar.
  - Official gold holdings valued at 1,902.6 dollars per fine ounce.
  - These accounting exchange rates are kept fixed over the program period; program exchange rate may differ from actual exchange rate set by NBU during Martial Law.
- Definitions and procedural notes:
  - General government definition includes central (state) government, road fund, all local governments, all extra budgetary funds (including the Pension and Unemployment Funds of Ukraine), and special accounts which provide resources to key spending units.
  - Definition of “debt” follows paragraph 8(a) of the Guidelines on Public Debt Conditionality, including loans, suppliers’ credits, and leases (debt equals the present value at inception of lease payments expected to be made, excluding payments covering operation, repair, or maintenance).
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are considered debt.

*Source: IMF staff and Ukrainian authorities, March 24, 2023 (MEFP and TMU excerpts).*

### 6. For program purposes, Gross Domestic Product is compiled as per the System of National

### 1ukrea2023001 - 6. For program purposes, Gross Domestic Product is compiled as per the System of National

### Definitions and scope
- GDP compilation:
  - For program purposes, Gross Domestic Product is compiled as per the System of National Accounts 2008 and excludes territories that are or were in direct combat zones and temporarily occupied by Russia.

- External financing (paragraph 7; Table B):
  - Budget support loans and grants: unearmarked financial support provided to the government of Ukraine for general government financing. These include financing from official multilateral creditors (World Bank, European Commission,) and official bilateral creditors.
  - Project support loans and grants: earmarked financial support provided to the government of Ukraine for financing specific projects and appear as part of government financing. These include financing from official multilateral creditors (European Investment Bank, World Bank and European Bank for Reconstruction and Development) and official bilateral creditors.

- Defense expenditures (paragraph 8):
  - For program purposes defense expenditures include expenditures of the defense and security sector pursuant to the articles of the Law of Ukraine “On National Security of Ukraine”.
  - Such expenditures shall include total amounts of all current (including goods and services, wage bill, social payments, etc) and capital expenditures.

- Proceeds of sales of confiscated Russian assets (paragraph 9):
  - For program purposes the proceeds of sales of confiscated Russian assets or bank accounts balances are recorded below the line as a deficit financing source with counter-entry into deposits of the Treasury Single Account.

### Arrears (overdue accounts payables) definitions (paragraph 10 and subpoints)
- General definition:
  - Arrears are defined as the amount of payments due on the 30th day after the deadline for mandatory payment, in line with the legal contract in effect.
  - If payment deadline is not specified, the 30th day after confirmation of goods received, works done and services rendered applies.

- Specifics:
  - 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 definition. Information on arrears in the security and defense sector can be presented in aggregated form considering 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 and Unemployment Fund of Ukraine): comprise all insurance benefits of these funds; arrears refer to payments not executed at 30th day after the payment deadline.
  - Exclusions: unpaid pensions to individuals who continue to reside in territories that are or were in direct combat zones and temporarily occupied by Russia are excluded.

### Quantitative performance criteria and indicative targets — overview
- Section title: QUANTITATIVE PERFORMANCE CRITERIA AND INDICATIVE TARGETS

- Subsections included in source:
  - A. Floor on Net International Reserves (Quantitative Performance Criterion)
  - B. Ceiling on General Government Direct Borrowing from the NBU (Indicative Target)
  - C. Floor on Overall Cash Balance of the General Government excluding Budget Support Grants (Indicative Target)
  - D. Floor on Non-Defense Cash Primary Balance of the General Government excluding Budget Support Grants (Quantitative Performance Criterion)
  - E. Floor on Tax Revenues (excluding SSC) (Quantitative Performance Criterion) — heading present

### A. Net International Reserves (NIR) — definitions and adjustors
- NIR definition (paragraph 11):
  - 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 comprise (paragraph 12 and Table 6.1, item A):
  - All readily available claims on nonresidents denominated in convertible foreign currencies, consistent with the Balance of Payments Manual (Sixth Edition) and the Special Data Dissemination Standard (SDDS).
  - Excluded inter alia:
    - any assets denominated in foreign currencies held at, or which are claims on, domestic institutions; all 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 that correspond 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 that are 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 (paragraph 13):
  - Include:
    - all short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign currencies with a 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 (note: 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.

- Adjustors to NIR targets:
  - Downward adjustments by the full amount of the cumulative shortfall in external financing disbursements (defined in paragraph 7) 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 relative to amounts expected under the baseline.
  - Symmetric adjustors for central bank swap operations:
    - If the NBU converts any non-reserve currency provided under a central bank swap agreement into a reserve currency through an outright sale, NIR targets adjusted upward by the amount converted at the time of conversion and adjusted downward by the amount of a reserve currency (principal and interest) when repaid.
    - If the NBU draws reserve currency provided under a central bank swap agreement with maturity over 1 year, NIR targets adjusted upward by the amount used with maturity over 1 year and adjusted downward when repaid.

### Table A: Components of Net International Reserves (as presented)
- Type of Foreign Reserve Asset or Liability — NBU Balance Sheet and Memorandum Accounts (list of items as in Table A; account codes preserved where listed):
  - 1. International reserves
    - Monetary gold: 1100, 1107
    - Foreign exchange in cash: 1011, 1017
    - Demand deposits at foreign banks: 1201, 1202, 2746, minus 4746
    - Short-term time deposits at foreign banks: 1211
    - Long-term deposits at foreign banks: 1212
    - SDR holdings and Reserve Position in the IMF: IMF, Finance Department; account codes 1300, 1305, 1307, 1308, minus 1306
    - Securities issued by nonresidents: (listed under International reserves)
  - 2. Short-term liabilities to nonresidents (in convertible currencies)
    - Correspondent accounts of nonresident banks: 3201
    - Funds borrowed using repos: 3210
    - Short-term deposits of banks: 3211
    - Operations with nonresident customers: 3401, 8805
    - Operations with resident banks: 3230, 3232, 3233, 8815
    - Use of IMF credit: IMF, Finance Department; account codes referenced

- Notes:
  - Definitions used in this TMU will be adjusted to reflect any changes in accounting classifications introduced during the program.
  - The definitions of the foreign accounts correspond to the system of accounts in existence on October 31, 2022.
  - Components will be calculated on the basis of preliminary data from the NBU and memorandum accounts before receiving monthly data from the IMF’s Finance Department.

### Table B: Disbursements from IFIs and Official Sources (selected cumulative figures)
- Cumulative flows from January 1, 2023, in USD billions (at program exchange rates). Excludes prospective IMF disbursements under prospective EFF.
- Selected rows and cumulative totals by measurement dates (as presented):
  - Total (cumulative): 9,553 14,407 22,669 31,754 38,965
  - Bilateral: 3,475 6,462 8,937 12,811 13,311
    - Loans-: 1,750 1,750 1,911 1,911
    - Grants: 3,475 4,713 7,188 10,900 11,400
  - Multilateral: 5,688 7,296 12,953 17,777 24,100
    - Loans: 5,523 7,131 12,788 17,612 23,935
    - Grants: 165 165 165 165 165
  - Project support: 389 649 778 1,167 1,555

- Note in table footer:
  - Totals differ from Ukrainian authorities' projections under the supplementary budget due to different exchange rate assumptions.

### B. Ceiling on General Government Direct Borrowing from the NBU (indicative target) — definition and adjustors
- Definition (paragraph 14):
  - General government direct borrowing from the NBU, net of redemptions and repayments, is the cumulative change in the stock of outstanding claims on the general government held by the NBU, including general government securities, direct loans and credits, other accounts receivable, and overdraft transfers from the NBU in accounts of the general government.
  - The stock of general government securities held by the NBU will be measured at face value as reported on the NBU’s balance sheet.
  - Exclusions: securities acquired as collateral under loans provided by the NBU during the measurement period; loans exclude those to the Deposit Guarantee Fund.
  - Measurement: change measured relative to the stock as of end March 2023, and adjusted for exchange rate valuation effects using program exchange rates.

- Precondition for activating monetary financing (paragraph 15):
  - Drawing down of government deposits (consistent with ¶31 of MEFP), with criteria determined in discussion between the NBU and the Ministry of Finance.

- Adjustors (paragraph 16):
  - If there is a shortfall in external financing (as defined in Table B) and primary issuances on government bonds exceed 120 percent of redemptions, then the ceiling on general government borrowing from the NBU, net of redemptions and repayments, will be adjusted upward by the smaller of:
    - the amount of the shortfall in external financing; or
    - a cap on general government borrowing from the NBU, equivalent to gross borrowing of UAH50 billion every quarter.
  - The ceiling resets every quarter (on March 31, June 30, September 30) and is not carried over between quarters.
  - The amount of the shortfall in external financing is assessed as the total cumulative shortfall from end-March 31, 2023, at the last day of the previous month.
  - The amount of primary issuances of government bonds is assessed as the total cumulative issuance from end-March 31, 2023.

- Specific quarterly conditional adjustments:
  - For the end-April 2023 Indicative Target:
    - If cumulative primary issuances of government bonds maturing after April 30, 2023 measured at face value > UAH 51 billion, ceiling adjusted upward by the smaller of:
      - shortfall in external financing, if any; or
      - UAH 14.116 billion.
  - For the end-June 2023 Indicative Target:
    - If cumulative primary issuances of government bonds maturing after June 30, 2023 measured at face value > UAH 175 billion, ceiling adjusted upward by the smaller of:
      - shortfall in external financing, if any; or
      - UAH 30.760 billion.
  - For the end-September 2023 Indicative Target:
    - If cumulative primary issuances of government bonds maturing after September 30, 2023 measured at face value > UAH 266 billion, ceiling adjusted upward by the smaller of:
      - shortfall in external financing, if any; or
      - UAH 48.847 billion.
  - For the end-December 2023 Indicative Target:
    - If cumulative primary issuances of government bonds maturing after December 31, 2023 measured at face value > UAH 329 billion, ceiling adjusted upward by the smaller of:
      - shortfall in external financing, if any; or
      - UAH 49.296 billion.

### C. Floor on Overall Cash Balance of the General Government excluding Budget Support Grants (indicative target) — definition
- Measurement and definition (paragraphs 17–19):
  - The overall cash balance of general government excluding budget support grants is a cumulative balance starting from January 1 of a calendar year, adjusted by the amount of budget support grants recorded above the line in non-tax revenues. Positive number = surplus; negative number = deficit.
  - The overall cash balance is measured by net financing flows excluding valuation changes, comprising:
    - Total net treasury bill sales (in hryvnias and foreign currency) as measured by the NBU registry of treasury bill sales; net treasury bill sales defined as cumulative funds realized from primary auction sales and government securities issued for recapitalization of banks and SOEs less cumulative principal redemption, excluding bonds issued to recapitalize Naftogaz and other SOEs (including State Housing Financial Corporation).
    - Other net domestic banking system credit to general government as measured by monetary statistics provided by the NBU (includes all non-treasury bill financing extended to general government by banks less change in government deposits in banking system) and any other financing extended by entities not in NBU monetary statistics.
    - Total receipts from privatization (including change in stock of refundable participation deposits and sale of nonfinancial assets) and proceeds from uncompensated seizures.
    - Total proceeds from sales of confiscated Russian assets and bank account balances.
    - Difference between disbursements and amortizations on any bond issued by the general government or the NBU to nonresidents for financing the general government.
    - Difference between disbursements of foreign loans attracted by the State (including budget support, project support, including on-lent to public enterprises) and amortization of foreign credits by the general government (including on-lent project loans, e.g., budgeted payments on behalf of the road fund per item 90 of this TMU).
    - Net sales of SDR holdings in the IMF’s 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.
  - Accounting rule (paragraph 19):
    - All flows to/from the budget in foreign currency will be accounted for based on paragraph 3 of this TMU.
    - Financing changes resulting from exchange rate valuation of foreign currency deposits are excluded from the computation of balance.
    - Government deposits in the banking system exclude VAT accounts used for electronic administration and escrow accounts of taxpayers used for customs clearance.

### D. Floor on Non-Defense Cash Primary Balance of the General Government excluding Budget Support Grants (quantitative performance criterion)
- Definition (paragraph 20):
  - Non-Defense Cash primary Balance = Overall Balance of the General Government excluding budget grants (section C) less interest payments (total interest paid on domestic and external debt) less defense spending as defined in paragraph 6 of this TMU.
  - Measured on a cumulative basis, starting from January 1st of each calendar year.

- Adjustors for balances in parts C and D:
  - Upward adjustment by the full amount of any increase above the projected stock of budgetary arrears (overdue account payables) in state budget and social funds (definition excludes domestic arrears in territories that are or were in direct combat zones and temporarily occupied by Russia).
  - Automatic downward adjustor for shortfalls in external budget support loans (paragraph 7/Table B): if cumulative proceeds from external budget support loans (in hryvnia evaluated at program exchange rate) fall short of program projections, the floor on the consolidated general government balance will be adjusted downward by the full amount of the shortfall in external financing.
  - Automatic downward adjustor corresponding to the full amount of government bonds issued for the purposes of banks recapitalization and DGF financing, up to a cumulative maximum amount to be set in future reviews. The amount included in the targets is zero.
  - Automatic upward adjustment corresponding to the full amount of profits transferred by the NBU in excess of UAH 71.6 billions in 2023.
  - Automatic downward adjustment to accommodate gas purchases, PSO compensation and transfer to GTSO up to a cumulative maximum amount of UAH 60 billion in 2023, conditional upon availability of financing.
  - Automatic downward adjustor up to a cumulative maximum amount of UAH 17 billion corresponding to the full amount of receipts from sales of confiscated Russian assets and transfers of bank accounts. (Note: For the period of the Martial law, the data from territories that are or were in direct combat zones and temporarily occupied by Russia.)

### E. Floor on Tax Revenues (excluding SSC)
- Heading present in source; detailed definition and targets follow in subsequent text (not included in supplied excerpt).

*Source: IMF technical memorandum excerpt from 1ukrea2023001 (selected paragraphs and tables).*

### 21. The floor on tax revenues is measured on a cumulative basis starting from January 1

### 1ukrea2023001 - 21. The floor on tax revenues is measured on a cumulative basis starting from January 1

### Floor on Tax Revenues (Performance Criterion)
- Measured on a cumulative basis starting from January 1st of each calendar year.
- Includes total tax revenues and fees as defined by the tax national legislation, including pension fees imposed on certain transactions.
- Excludes Social Security Contributions tax.
- Cumulative targets are set in Table 1 of MEFP.

### Floor on the General Government Social Spending (Indicative Target)
- Definition: Social spending of general government = spending on social programs through General Fund and Special Funds, covering categories reflected in budget treasury code 2700.
- Includes social insurance and social assistance programs on budget (including but not limited to social assistance to low-income families, housing utility subsidies, child support, support to internally displaced persons, etc.), and transfers to Pension Fund.
- Indicative Target is set in Hryvnas on a cumulative basis starting quarterly January 1st of each calendar year.

### Ceiling on the General Government Domestic Arrears (Indicative Target)
- Ceiling derived from the definition in paragraph 10 of this TMU (excluding arrears of local governments) and reporting format in paragraph 77 of this TMU.
- Target is cumulative starting January 1st of each calendar year and covers arrears of state budget (general and special funds) and social funds (as defined in paragraph 10).
- The stock of arrears measured in that way will not exceed the stock of arrears at end December 2022.
- Arrears computation excludes arrears accrued in territories that are or were in direct combat zones and temporarily occupied by Russia.

### Ceiling on Non-Accumulation of New External Debt Payments Arrears by the General Government (Continuous Performance Criterion)
- Definition: Arrears = external debt obligations of the general government not paid when due in accordance with contractual terms (taking into account any contractual grace periods).
- PC excludes arrears on external financial obligations of the government subject to rescheduling.
- For this PC, “external” = debt payments to non-residents.

### Ceiling on Publicly Guaranteed Debt (Continuous Performance Criterion)
- Applies to the amount of guarantees issued by the central (state) government once officially enacted.
- Set at UAH 37 billion, consistent with 3 percent of current year revenues of the state budget general fund (as defined in Budget Code).
- Applies to the cumulative amount of guarantees issued by the central (state) government from January 1st of 2023 calendar year including guarantees to priority sectors.
- Official exchange rate will apply to all non-UAH denominated debt.
- Ceiling excludes guarantees for NBU borrowings from IMF.
- Automatic upward adjustor for guarantees signed for selected projects financed by multilateral and bilateral donors (e.g., WB, EIB, EBRD, KfW) for specified projects (listed in source).
- Adjustor will be capped at 30 billions UAH and discussed in program review.

### Other Continuous Performance Criteria
- During the period of the EFF, Ukraine will not:
  - (i) impose or intensify restrictions on the making of payments and transfers for current international transactions;
  - (ii) introduce or modify multiple currency practices;
  - (iii) conclude bilateral payments agreements that are inconsistent with Article VIII; and
  - (iv) impose or intensify import restrictions for balance of payments reasons.

### 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 are determined by the NBU on the basis of this official exchange rate.
- The NBU will aim to make public its cross rates no later than 4 pm of the day preceding the one for which it is set.

### Reporting Requirements — National Bank of Ukraine (NBU)
- Monthly sectoral balance sheets for the NBU and other depository corporations (banks) according to the 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: daily operational data on the stock of net and gross international reserves, at both actual and program exchange rates; full breakdown of NBU accounts included in net international reserves; any additional information needed to monitor reserves.
- Monthly (no later than 20th of the following month): balance data on the stock of net and gross international reserves and flows affecting net international reserves.
- Monthly (no later than 25th of the following month): data on the currency composition of reserve assets and liabilities.
- Daily: information on total foreign exchange sales (including total from nonresidents and sales by clients in the interbank market, and any obligatory sales, if any) and approved foreign exchange demand in the interbank market, including Naftogaz foreign exchange purchases.
- Daily: official foreign exchange interventions and intervention quotations in the breakdown agreed with IMF staff; results of any foreign exchange auctions.
- Quarterly: information on the indicators of FX interventions approved by the NBU Board (if any changes).
- Immediate notification to IMF of any updates to FX interventions methodology documentation and any decisions that define these indicators.
- Daily: balances held in analytical accounts 2900 “Accounts payable per transactions for the foreign exchange, banking and precious metals purchase and sale on behalf of banks’ clients.”
- Continued public provision on NBU web site of daily holdings of domestic government securities and 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 the rate fixed on the day of auction; information on domestic government securities sales from the beginning of the year at the official rate as of the date of placement; domestic government securities in circulation by principal debt outstanding at the official exchange rate as of the 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 (the latter further broken down by bank group: State Participation, Foreign Banking, and Private Capital).
- Daily: information on transactions (volumes and yields) on the secondary market treasury bills (including over-the-counter transactions and breakout for any NBU transactions).
- Provide NBU financial statements (income and expenses, balances on the general reserves and 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; IMF to be notified immediately of any update.
- Daily and monthly: data on the NBU financing operations (including swaps or refinancing) of the banks of Ukraine, and on mopping up (absorption) of the liquidity from the banking system (including through the CDs issuance) in formats and timeliness agreed with IMF staff.
- Monthly: information on collateral pledged to the NBU for loans (by bank and loan type as well as by collateral type, haircut, and currency).
- Monthly: 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 values before and after haircuts). Monthly reporting to separately identify which banks are under temporary administration or liquidation.
- Monthly (not later than 30 days after the expiration of the reporting month; except end-of-year data: no later than 41st day after reporting year): core FSIs for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group, as defined in the IMF Compilation Guide.
- Daily and monthly (not later than the 25th day after termination of the report month; except end-of-year data: no later than the 41st day): depository corporations surveys including additional information needed to monitor monetary policy and banking sector developments, in particular:
  - domestic claims, including NBU loans and liabilities with banks;
  - detailed information on loans of the banking sector provided to the general government, with detailed breakdown by indebtedness of the central (state) government and local budgets and the DGF, including in national and foreign currency, by loan and by security;
  - information on balances of the funds of the government held at the NBU, including Single Treasury Account denom. in national currency (account 3240 A) and funds of the Treasury denom. in foreign currency (account 3513 A) and DGF.
- Monthly: projections for external payments falling due in the next 12 months.
- Quarterly (within 80 days following the end of the quarter): data on actual settlement of external obligations, reflecting separately principal and interest payments and actual outturns for both the public and private sectors.
- Quarterly: stock of short- and long-term external debt for both public and private sectors; information on the stock of external arrears reported on a continuous basis.
- Daily: data on foreign exchange export proceeds and foreign exchange sales; data on import transactions for goods and services; data on amounts of foreign exchange transferred from abroad to the benefit of physical persons—residents and nonresidents—to be paid in cash without opening an account; data on foreign exchange wires from Ukraine abroad for current foreign exchange nontrade transactions on the basis of the orders of physical persons; data on sales and purchases of foreign exchange cash by individuals (incl. through banks, exchange offices, and UkrPoshta).
- Weekly: 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.
- Daily: data on foreign assets and liabilities of the overall banking system (excl. the NBU); data on banks’ open foreign exchange positions by main groups of banks; data on deposits on aggregated basis for the overall banking system (excl. the NBU) broken down by households and legal entities, maturity, and by national and foreign currency; data on loans on aggregated basis for the overall banking system (excl. the NBU) broken down by households and legal entities and by national and foreign currency.
- Daily: deposits and credits aggregated for 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 and by national and foreign currency.
- Weekly: 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: foreign assets for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group broken down 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). For foreign credit lines from banks and for securities, rollover rates will also be provided.
- Daily (bank-by-bank for the largest 35 banks): 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 for State Participation Group, Foreign Banking Group, and Private Capital Group): total assets and liabilities; loans and claims (by households, legal entities, and banks); foreign exchange net open position. Data 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; continued daily information on exchange market transactions including exchange rate.
- Monthly: information on reserve requirements at the individual bank level, including 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 the average interest rate on deposits to customers (by domestic and foreign currency, and non-financial corporations and households, and by maturity—demand and time accounts).
- Weekly (after Martial Law is cancelled): average interest rate on interbank borrowings (by domestic and foreign currency, and by maturity—overnight, 1–7 days, and over one week).
- Monthly (in agreed format): data for 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 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); loans and claims by maturity buckets; deposits by maturity buckets; 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.
- Monthly (in agreed format): bank-by-bank amounts of 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 and borrower categories); provisions on loans and claims; large exposures (loans >= 10 percent of equity), refinanced loans, and restructured loans (by households, legal entities, and banks) (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 specified bank groups): deposits of related parties (by domestic and foreign currencies, and households and legal entities); deposits of related parties pledged as collateral (by domestic and foreign currencies, and households and legal entities); other liabilities to related parties (by domestic and foreign currencies); related-party loans (by households, legal entities, and banks); counterparty names and amounts of the largest 20 loans to related parties; collateral for loans and claims on related parties (by type, borrower categories, and currency); provisions on loans and claims on related parties (by borrower categories and currency).

*Source: 1ukrea2023001 - 21. The floor on tax revenues is measured on a cumulative basis starting from January 1*

### 50. The NBU will provide to the IMF, on a monthly basis, aggregate and bank-by-bank and by

### 1ukrea2023001 - 50. The NBU will provide to the IMF, on a monthly basis, aggregate and bank-by-bank and by

### A. National Bank of Ukraine (NBU) — reporting requirements and frequency
- Monthly bank-by-bank and aggregate data on:
  - loans and provisions (by households and legal entities, domestic and foreign currencies, and by debtor classification categories), and by asset class (e.g. corporate, and retail.)
  - deposits (by households and legal entities, and domestic and foreign currencies)
  - due from banks (by domestic and foreign currencies)
- Monthly reporting for each bank in the State Participation Group showing:
  - nonperforming loans (NPLs), including migration from NPLs to performing loans (PLs); migration from PLs to NPLs
  - form of NPL repayments (cash, loan sales, collateral sales, etc.)
  - write-offs; other factors (e.g., exchange differences and revaluations)
  - comparison with banks’ respective timebound plans for reducing NPLs once approved
- Monthly sector-wide and bank-by-bank reporting by bank groups (State Participation Group, Foreign Banking Group and Private Capital Group) on cumulative income statements, including:
  - 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: 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, including disclosure of instrument or transactions (e.g., capital injection, conversion of subordinated debt to equity, etc.)
- Monthly notification of any regulatory and supervisory measures against banks violating NBU regulations on capital adequacy, liquidity ratio, large exposures, and related or connected lending; decisions on declaring a bank problem or insolvent, including banks whose license has been revoked without declaring the bank insolvent
- Continued provision of detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter
- NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, banks, or nonbank entities and individuals; in such case provide information on outstanding interest and principal payments
- NBU will inform IMF staff of any changes to reserve requirements for other depository corporations
- NBU will communicate electronically any changes in accounting and valuation principles applicable to the balance sheet data and notify staff before introducing changes to the Charts of Accounts and reporting forms of both the NBU and the commercial banks
- NBU Internal Audit Department to 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
- NBU to provide the IMF with a copy of the annual management letter from the external auditor within six weeks of completion of each audit (remains in effect for the duration of the arrangement and while credit remains outstanding)
- Monthly, 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, NBU will provide information on hryvnia-denominated securities that are indexed (i.e., to inflation; USD), broken down by the type of the owner

### B. Deposit Guarantee Fund (DGF) — reporting requirements
- Monthly, bank-by-bank for the largest 35 banks and aggregate for remaining banks: total number and volume of household deposits broken down by deposit size
- Monthly, bank-by-bank for all banks: amount of insured deposits and total household deposits, by domestic and foreign currency (format agreed)
- Monthly, bank-by-bank: 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 (format agreed)
- Monthly: financial position of the DGF, including cash balance, bond holdings, credit lines, and loans (format agreed)
- Monthly: financing arrangements of the DGF, including contracted financing from MoF (format agreed)
- Monthly: one-year forecast of amount and type of financial resources expected from MoF, NBU and other entities; amount DGF expects to pay out to insured depositors in banks in liquidation; amount of asset recoveries expected by DGF (format agreed)

### C. Ministry of Finance — reporting requirements and deadlines
- 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
- Treasury to provide 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, 10-day and monthly reports on execution of state, local, and consolidated budgets on the revenue side and data on revenues from social security contributions, including by oblast breakdown, monthly data on funds deposited with the Single Treasury Account, on registration accounts of entities not included in the state sector, information on balance of funds as of the 1st day of the month on account #3712 “accounts of other clients of the Treasury of Ukraine,” on inflow to the State budget from placing Treasury or any other liabilities to households in foreign and domestic currency and their redemption
- Monthly and quarterly treasury reports in electronic form, including on accounts payable by budget institutions no later than 25 and 35 days after the end of the period respectively
- Final fiscal accounts at the end of each fiscal year, no later than March of the following year, including expenditure data by programs and key spending units and standard functional and economic classifications; quarterly reports to contain standard information on budget expenses to cover called government guarantees
- Report data on the public wage bill (excluding SOEs) in line with template agreed with IMF staff, including all payment categories, including defense wages
- Provide quarterly Treasury reports on expenditure under the medical guarantee program by economic classification
- Quarterly report information on municipal borrowing and amortization of debt in format agreed with IMF staff
- Together with NBU, monthly provide information about redemptions of domestic bonds and bills in favor of residents (banks, non-banks) and non-residents; weekly provide information on face value of government bonds redeemed and face value of government bonds placed during the week
- Monthly, no later than 15 days after the end of the month, report cash balance of the general government, 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 updated list of project financing credits (distinguishing grant and loan financing) to be disbursed to the special fund of the State Budget of Ukraine (project-by-project basis), as well aggregated cash expenditures for such projects through the most recent month
- Monthly, no later than on the 1st day of the second subsequent month, provide data on the stock of all budgetary arrears, including separate line items for wages, pensions, social benefits accrued by social funds, energy, communal services, and 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 that are or were in direct combat zones and temporarily occupied by Russia; provided information will include defense and law-enforcement
- Monthly, no later than 25 days after the end of each month, provide amounts and terms of all external debt contracted or guaranteed by the central government, including external and domestic credit to key budgetary spending units as well as 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)
- Quarterly, no later than 25 days after the end of the quarter, provide (a) data on outstanding stock of domestic and external debt of the state and local budgets (including general and special funds); (b) 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; and 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, provide disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements
- Monthly, no later than 25 days after the end of the month, provide data on external and domestic credit to key budgetary spending units as well as nongovernment units that is 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)
- Quarterly, no later than 50 days after the end of each quarter (each month in case of the Pension Fund), provide data on the approved budgets and quarterly operational data (daily for the Pension Fund only) on revenue, expenditures, arrears, and balance sheets of the Pension Fund, Employment Fund, and any other extra budgetary funds managed at the state level; report any within-year amendments to the budgets of these funds within a week after their approval; annual financial statements including final fiscal accounts of those funds no later than April of the following year
- No later than 15 days after the end of each month, provide monthly data on the budgetary costs associated with the recapitalization of banks and SOEs, including upfront cash impact and costs associated with payment of interests, including changes due to supplementary budgets; provide quarterly performance reports for the Fund for Entrepreneurship Development; registry of fiscal risks to be available to IMF staff on semi-annual or, if available sooner, basis

### D. State Tax Service (STS) and State Customs Service (SCS)
- STS and SCS to provide quarterly listing of all tax exemptions granted, specifying beneficiary, duration, and estimated subsequent revenue loss for current fiscal year, no later than two months after the end of the quarter; revenues foregone 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 provide monthly reports 1.P0 on actual tax revenue and 1.P6 on tax arrears, inclusive of deferred payments, interest and penalties outstanding 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 STS in each reporting period and number of internally resolved appeals indicating appeals resolved in favor of the controlling body, in favor of taxpayer and partial satisfaction

### E. Other ministries, SOEs, and agencies
- Naftogaz Group and the GTSO to provide monthly cash flow information to IMF staff, no later than the 25th of the following month (electronic, agreed format)
  - Naftogaz report to include volumes and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households, heating utilities, budget institutions, and industries), main revenue, expenditure, and financing items; monthly updated information on the company’s financial liabilities, with schedule of loan-by-loan interest and principal payments
- Ministry of Economy to provide consolidated information from financial statements of the 10 largest SOEs on a quarterly basis, no later than 80 days after the end of each quarter, 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; and (h) other payment arrears
- Agency for the Restoration and development of the infrastructure of Ukraine to provide monthly reports on execution of budgetary programs associated with road construction and maintenance, including borrowing (disbursements, interests, and amortization) in agreed format
- State Statistics Service to provide revised quarterly GDP data (nominal, real, deflator) and components (economic activities, expenditure, income) no later than 10 days after any revisions have been made
- Ministry of Social Policy to collect and submit quarterly data on social assistance programs in agreed excel format showing, for each program including IDPs:
  - (a) 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

*Source: Request for an Extended Arrangement under the Extended Fund Facility and Review of Program Monitoring with Board Involvement—Supplementary Information (March 30, 2023).*

### 1. This supplement provides an update on developments since the issuance of the

### Supplement: Update on developments since the issuance of the Staff Report (EBS/23/30)

### Recent Developments
- Newly available data suggest real GDP contraction for 2022 was -29.2 percent y/y versus the -30.3 percent y/y estimate in the Staff Report.
- SSSU released 2022Q4 flash estimates on March 14: Q4 real GDP growth estimated at -31.4 percent y/y compared with staff’s earlier estimate of -35 percent y/y.
  - This reflects a less severe impact from countrywide power outages stemming from attacks on critical energy infrastructure, and increased spending for repairs.
  - Inclusion into 2022Q4 GDP of agricultural crops sown in 2022 but harvested in early-2023 also lifted 2022Q4 output.
- Y/y growth in GDP for Q2 was estimated at -37.2 percent and for Q3 at -30.8 percent (earlier quarters not revised).
- Implications for 2023:
  - The upward revision to 2022 could push 2023 GDP growth toward the upper end of staff’s baseline range.
  - Applying the same sequential quarterly growth rates as in staff’s current projections, growth could be at the higher end of the projected range of 2023 GDP growth of [-3 to +1].
  - Staff awaits more complete and final real sector statistics and continues to examine high frequency indicators and consult counterparts; findings will be factored into the macroeconomic framework for the first review.

### Prior Actions
- Authorities have completed all three prior actions for the EFF request:
  - (i) Head of the National Anticorruption Bureau of Ukraine (NABU) was appointed on March 6.
  - (ii) Cabinet of Ministers of Ukraine (CMU) approved and submitted to the Rada the second supplementary budget on March 13; it has since been approved by the Rada and is awaiting signature by the President.
  - (iii) On March 24, the CMU adopted a decision tasking the Ministry of Finance to start preparations of the National Revenue Strategy (NRS) (2024–2030), designating the Ministry of Finance as coordinator and outlining steps, timeline, core principles, and objectives of tax policies during wartime and post-war reconstruction.

### Financing
- Canadian authorities announced a loan totaling C$2.4 billion (US$1.8 billion), expected to be disbursed this week via the IMF Administered Account for Ukraine; these resources were already anticipated and listed as “Other” in the 12-month Financing Gap Table (¶86).
- Norwegian authorities confirmed plans for NOK 2 billion (US$190 million) of budget support in 2023 to be disbursed via a World Bank multi-donor trust fund to support education, health care, and pension payments.
  - This bilateral financing was not incorporated in the program projections.
  - It forms part of a NOK 75 billion (US$7.2 billion) broader package to be disbursed over five years (2023–27).
- Note: The Canadian bilateral financing was already fully embedded in the program projections presented in EBS/23/30 under the US$115 billion baseline financing gap in the 48-month program.

### Financing Assurances / Capacity to Repay
- Additional countries joined the group extending assurances to help allay risks to the Fund from lending to Ukraine under current exceptional circumstances.
- Countries now comprising the list: Belgium, Canada, France, Germany, Italy, Japan, Lithuania, the Netherlands, Spain, United Kingdom, and United States.

### Statement by Vladyslav Rashkovan (Alternate Executive Director for Ukraine) — Key points
- Authorities thank staff, Management, and the Executive Board for support and constructive engagement.
- Broad agreement with staff assessment of the devastating social and economic impact of Russia’s invasion.
- View of the EFF program’s objectives:
  - (i) restore fiscal and debt sustainability,
  - (ii) restore medium-term external viability,
  - (iii) promote long-term growth for post-war reconstruction and EU accession path.
- Authorities reaffirm commitment to program policies while preserving gains from past Fund-supported programs.

### War economy — Impact and Needs
- Russia's invasion (started February 24, 2022) continues to have enormous negative human, social, and economic impact.
- GDP and poverty:
  - Ukraine’s GDP shrank by about 30 percent in 2022.
  - Poverty increased from 5.5 percent to 24.1 percent in 2022 (World Bank assessment based on the poverty line of $6.85 per person per day).
- Human and infrastructure impacts:
  - Civilian casualties are large; over a third of the population has been displaced.
  - Damage to critical infrastructure is massive.
- Damage and losses estimates:
  - World Bank Rapid Damage Needs Assessment (RDNA2): direct damage during the full year of the invasion reached over $135 billion (over 60 percent of pre-war GDP), with housing, transport, energy, commerce, and industry most affected.
  - Kyiv School of Economics estimates damage increased by another $6 billion in January-February 2023 due to attacks on civil infrastructure.
  - Losses of potential output measured at $290 billion.
  - Reconstruction and recovery needs estimated at $411 billion.
  - Urgent reconstruction needs include restoration of energy, housing, critical and social infrastructure, basic services for the most vulnerable, and private sector development.
- Authorities believe the macro framework in both EFF scenarios will provide a base for donors to finance rapid recovery and post-war reconstruction.
- Authorities expect gradual economic recovery in 2023, slowing inflation, and growth of NBU reserves, contingent on the security situation.

### Economic policies — Recent performance and commitments
- Macroeconomic management has been exceedingly difficult but authorities have largely maintained macroeconomic and financial stability.
- Fiscal performance and measures:
  - 2022 nominal government expenditures were almost 50 percent higher than the pre-war 2022 budget, estimated at 69.9 percent of GDP.
  - Tax revenues were 36.4 percent of GDP and only 0.3 percent lower in nominal terms than the pre-war budget, despite structural and cyclical impacts and Martial Law measures.
  - Trade deficit widened substantially due to the war.
- Fiscal management achievements:
  - Authorities met all fiscal structural benchmarks under the PMB.
  - Timely measures capped general government arrears (overdue account payables) in 2022.
  - Submitted a package of tax policy and administration measures to restore pre-war critical policy and administration components.
  - With World Bank technical assistance, prepared a concept note on social safety nets to identify reform priorities and policy options for a more targeted, adequate, and efficient social assistance system.
- 2023 fiscal policy orientation:
  - Designed to support fiscal and debt sustainability while ensuring resources for core spending and preparing for reconstruction.
  - 2023 deficit (excluding external grants) is forecasted high; government committed to revenue mobilization steps to anchor the medium-term fiscal path.
  - Commitment to enhance fiscal transparency, address fiscal risks, and strengthen commitment controls.
  - Strengthening public investment management ahead of post-war reconstruction is a priority, building on EU4PFM and World Bank Public Investment Management Diagnostic Assessment Report 2022.
- Monetary and financial sector policy:
  - Program envisages mobilizing external and domestic financing while eliminating monetary financing to uphold NBU financial autonomy.
  - NBU will maintain an appropriate monetary policy stance to support steady disinflation, manage inflation expectations, and support exchange rate stability.
  - When conditions allow, NBU intends to revert to pre-war frameworks, including a flexible exchange rate underpinning inflation-targeting.
  - During the program, NBU intends to maintain adequate FX reserves, carefully adjust FX controls, and unwind unconventional wartime measures.
- Banking system resilience:
  - Banks operate without interruption; sector liquidity remains high.
  - Banks entered the war with significant capital and liquidity buffers, operational stability, efficiency, and contingency plans.
  - NBU will update the 2021 financial sector strategy to reflect war impacts.
  - NBU approved TOR for an Asset Quality Review (AQR), viability analysis, and diagnostics for an NPL resolution strategy to be undertaken when opportune.
  - NBU and government committed to preserving financial stability and limiting potential fiscal cost of interventions for problem banks.
- Governance and anti-corruption:
  - Sustained reform efforts on anti-corruption and rule of law expected to mitigate corruption risks and promote public trust and donor confidence for reconstruction.
  - Authorities request IMF technical assistance for an updated governance and corruption diagnostic to build a roadmap of reforms.
  - GRECO Fourth Round Interim Compliance Report: Ukraine’s compliance no longer “globally unsatisfactory,” and Ukraine exits GRECO’s non-compliance procedure; GRECO recognizes strong commitment during difficult times.

### Program modalities
- Program objective: resolve Ukraine’s balance of payments problems and restore medium-term external viability in both the baseline and downside scenarios.
- Authorities view policies under the EFF arrangement as adequate for program objectives in both scenarios and commit to consult IMF as conditions evolve.
- Two-phased approach given exceptional uncertainty:
  - Phase 1: preserve macroeconomic and financial stability during the ongoing war and prepare the ground for post-war recovery, including structural reforms in fiscal, financial sector, monetary/exchange rate, governance, anti-corruption, and energy sectors.
  - Phase 2 (post-war): deepen the structural reform agenda to support reconstruction, promote long-term growth, and accelerate EU accession progress.
- Authorities committed to implementing additional macroeconomic policy reforms to support reconstruction and EU accession.

### Coordination of donors
- Authorities welcome the multi-agency Donor Coordination Platform for Ukraine (set up December 2022) to coordinate mechanisms for ongoing short- and long-term financial support.
- First Platform meeting held January 2023; next planned for early April 2023.
- Authorities support G-7 view that IMF should have a central role in donor coordination.
- Authorities express gratitude to partners providing financing assurances: Canada, France, Germany, Italy, Japan, Spain, United Kingdom, United States, the Netherlands, and Belgium.

### Concluding remarks
- Authorities are grateful for cooperation and support from the Fund, other IFIs, and the international community.
- Given significant BOP needs from the war shock, authorities requested a medium-term program to secure macroeconomic and financial stability.
- Authorities view a new EFF arrangement as catalytic for the $115 billion package of external support over 2023–2027, involving grants, concessional loans, and debt relief.
- Authorities remain committed to full and timely implementation of EFF policies to pave the way toward EU accession, which they believe will reinforce long-term growth and stability drivers.

*Source: IMF staff supplement updating developments since issuance of the Staff Report (EBS/23/30).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ukrea2023001.pdf_