## UKRAINE — FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY (Content unit: 1ukrea2023002)

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---

### Overview and program purpose
- 663.9 million (33 percent of quota, or about US$890 million) — staff supports completion of the First Review and enabling a purchase of SDR 663.9 million.
- 48-month EFF arrangement: SDR 11.6 billion (equivalent to US$15.6 billion, or about 577 percent of quota), approved March 31, 2023; part of a US$115 billion support package for Ukraine.
- Program objectives: anchor policies to sustain fiscal, external, price and financial stability; support economic recovery; enhance governance and institutions for long-term growth and EU accession.

### Recent macroeconomic developments and outlook
- Growth and activity:
  - 2022 real GDP: -29.1 percent (revised from -30.3 percent).
  - Q1 2023: 2.4 percent q/q seasonally adjusted.
  - Baseline 2023 real GDP growth revised to a range of 1 to 3 percent.
  - Medium-term baseline: 2024: 3.2; 2025: 6.5; 2026: 5.0; 2027: 4.0 (percent).
- Inflation and prices:
  - Consumer prices (period average): 2022: 20.2; 2023: 17.7; 2024: 13.0; 2025: 8.6; 2026: 6.7; 2027: 5.5 (percent).
  - Consumer prices (end of period): 2022: 26.6; 2023: 15.5; 2024: 10.0; 2025: 7.5; 2026: 6.0; 2027: 5.0 (percent).
  - Headline inflation declined to 15.3 percent y/y in May from 17.9 percent in April.
- External sector and reserves:
  - Gross reserves (end of period, US$ billions): 2021: 30.9; 2022: 28.5; 2023 (end-2023 baseline): 30.5; 2024: 33.2; 2025: 36.1; 2026: 39.4; 2027: 45.7.
  - Months of next year's imports coverage: 2023: 4.1 (Table 1 highlights), other series show 2023: 4.3 (downside) and various projections to 5.2.
  - Q1 2023 recorded the first current account deficit since the start of the war; exports remain some 40 percent below pre-war levels while imports have largely recovered.
- Labor and social:
  - Unemployment (ILO, period average, percent): 2022: 24.5; 2023: 19.4; 2024: 10.6; 2025: 9.2; 2026: 8.7; 2027: 8.4.
  - Memorandum: Per capita GDP / Population (2017): US$2,640 / 44.8 million; Literacy / Poverty rate (2022 est): 100 percent / 25 percent.

### Program implementation and performance to date
- All continuous and end-April quantitative performance criteria (QPCs) were met.
- All structural benchmarks through end-June (or end-May in other listings) were met, including:
  - enact the second Supplementary Budget;
  - strengthen the Budget Code (restore Article 52);
  - complete inputs toward developing the National Revenue Strategy (NRS).
- Missed indicative targets:
  - Overall cash balance of general government, excluding budget support grants — Program: -356,500; Actual: -364,580 — Not met.
  - Floor on social spending — Program: 187,000; Actual: 182,321 — Not met (methodological change for social payments cited).
- Selected QPC outcomes (preserved values):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants — Program: 258,352; Actual: 353,024 — Met.
  - Floor on net international reserves (millions of U.S. dollars) — Program: 15,500; Actual: 23,762 — Met.
  - Floor on tax revenues (excluding SSC) — Program: 451,700; Actual: 472,689 — Met.

### Fiscal policy, targets and measures
- 2023 fiscal targets:
  - Overall deficit projection for 2023: UAH1.24 trillion (19.1 percent of GDP).
  - Projected deficit excluding grants: UAH 1.67 trillion (25.8 percent of GDP).
- Policy priorities:
  - Ensure adequate resources for priority spending; maintain strong tax base and refrain from measures that erode the tax base.
  - Develop and adopt the National Revenue Strategy (NRS) (roadmap by end-July; adoption by end-December 2023).
  - Restore legal framework for medium-term budget preparation, budget credibility and debt management (Budget Code amendments enacted April 11, 2023; further articles to be reinstated).
  - Improve fiscal transparency, strengthen public investment management, and tighten controls on special accounts.
- Revenue mobilization measures:
  - Adopt draft law (#8401) by end-July 2023 to restore pre-war taxation regimes and close simplified tax loopholes; effective August 1, 2023 when passed.
  - Cancel or phase out most tax deferrals introduced during Martial Law; maintain targeted, timebound exceptions for defense/security imports.
- Expenditure management:
  - Contain additional spending pressures; any new current-expense initiatives to be financed by offsets or new financing.
  - Downward adjustor for gas purchases/PSO compensation and GTSO transfers: up to UAH 60 billion in 2023 (conditional).
- Social protection:
  - Preserve social spending within the envelope; improve targeting and means-testing for IDP assistance (new framework effective October 2023).

### Financing strategy and debt sustainability
- Financing composition (2023):
  - Net external financing for 2023: US$29.7 billion out of total net general government financing of US$33.1 billion.
  - Net domestic bond financing expected: US$3.4 billion for 2023; net domestic bond financing reported as US$1.7 billion as of end-May.
  - Through May: about US$19.7 billion in external budget support disbursed (US$13.6 billion loans and US$6.2 billion grants).
- Debt sustainability and restructuring:
  - Baseline program-period financing gap: US$114.2 billion.
  - Downside scenario financing gap: US$139.5 billion.
  - Public and publicly-guaranteed debt (percent of GDP) — Baseline: 2023: 88.1; 2024: 98.6; 2025: 100.7; 2026: 99.5; 2027: 98.4.
  - Downside public debt peaks: 2026: 135.7; 2027: 135.8 (percent of GDP).
  - Group of Creditors for Ukraine (GCU) committed to a 2-step process: extension of debt standstill (set to expire end-December 2023) throughout the program period, followed by final debt treatment before final review.
  - Staff: debt sustainable forward-looking conditional on implementation of restructuring and sufficiently concessional financing.
- Program financing assurances:
  - Firm commitments provided for next 12 months (July 2023–June 2024); assurances from a significant group of Fund shareholders about Ukraine’s capacity to repay and recognition of Fund preferred creditor status.

### Monetary and exchange rate policy
- Key policy rate: 25 percent (NBU maintained KPR at 25 percent).
- Liquidity and transmission:
  - Excess liquidity persists; local currency deposit growth of 36.6 percent y/y as of end-May; credit declined -9.6 percent y/y as of end-May.
  - Stock of NBU CDs increased to US$12 billion at end-April (from US$9.7 billion at end-March).
  - Reserve requirements raised by a cumulative "20 pp since end-January".
- NBU strategy and conditional normalization:
  - Conditions-based NBU strategy to move from the exchange rate peg toward a flexible exchange rate, cautiously ease FX measures, and return to an inflation targeting framework (Structural Benchmark, end-June 2023).
  - NBU signaled an earlier easing in KPR (from Q2 2024 to Q4 2023 initially, with scope for even earlier easing given developments).
- FX market actions:
  - NBU monthly net FX sales stabilized at US$1.6 billion in March–May vs US$2.9 billion in December 2022–February 2023.
  - Official–cash spread stabilized around 2–4 percent since March.
  - Repatriation of coupons to nonresidents: amended to require 90-day minimum holding period for underlying security before coupon repatriation.
- Safeguards and monetary financing:
  - No monetary financing envisioned under baseline (Indicative Target).
  - NBU and MoF developing a framework (by end-July 2023) specifying triggers and terms for temporary short-term advances during Martial Law.

### Financial sector stability, supervision, and state banks
- Banking outcomes Q1 2023:
  - Stock of all client deposits rose by 4 percent in Q1 2023.
  - Return on assets and return on equity annualized exceeded 6 percent and 55 percent respectively.
  - Stock of all loans: 19.3 percent of 2022 GDP as of end-March 2023.
  - Non-performing loans ratio increased by 1 pp in the quarter to 39 percent (from 30 percent in January 2022).
- Subsidized lending (5-7-9 program) risks:
  - Outstanding loans under the program: UAH 110 billion (2.1 percent of 2022 GDP) at end-May 2023.
  - Program share of net hryvnia corporate lending: from 5 percent in 2020 to 26 percent by end-2022.
  - NPL ratio for program loans: under 1 percent during 2020–21; risen to 9 percent in April 2023.
  - Government guarantees issued since 2020: UAH 73.81 billion (1.4 percent of 2022 GDP).
- Financial sector reforms and contingency planning:
  - NBU finalizing financial sector strategy; resilience assessment launched in April covering 20 largest banks (>90 percent of assets); results to be published in "March 2024".
  - Independent Asset Quality Review (AQR) to follow when conditions permit; bank rehabilitation framework (Structural Benchmark, end-March 2024).
  - Supervision reforms: risk-based supervision, separation of related-parties unit, supervisory panels, resumption of onsite inspections (various structural benchmark deadlines).
  - Governance of State-owned banks (SOBs): new independent supervisory board members appointed; roadmap for privatization to be updated after AQR.

### Governance, anti‑corruption and rule of law
- Anti-corruption priorities and benchmarks:
  - Restore asset declaration obligations for public officials not directly involved in mobilization (Structural Benchmark, end-July 2023); simplify declarations by end-October 2023.
  - Amend AML/CFT law to re-establish enhanced due diligence on PEPs (Structural Benchmark, end-September 2023).
  - Adopt legislation to enhance institutional autonomy of SAPO (Structural Benchmark, end-December 2023).
  - NAPC, NABU, SAPO cooperation and MOUs to improve asset recovery and transparency.
- Procurement and transparency:
  - As of March 2023, >70 percent of non-military procurement processed through competitive bids in ProZorro.
  - Amendments to Budget Code enacted April 11, 2023 to consolidate special accounts and enhance transparency and commitment controls; Treasury reporting and publication measures scheduled (June–July 2023 actions).
- Corporate governance in energy:
  - Transfer GTSO shareholding to Ministry of Energy by end-July 2023; select and appoint GTSO supervisory board by end-October 2023 (Structural Benchmarks).
  - Energy tariff actions: household electricity tariffs increased from "UAH 1.44/kWh to UAH 2.64/kWh" effective June 1.

### Reconstruction and public investment management
- RDNA2 (World Bank) 2023 priorities: US$14.1 billion identified; US$3.5 billion already budgeted; remaining US$10.6–10.8 billion to be financed (figures vary across excerpts).
- Reconstruction financing principles:
  - Additional financing must be highly concessional to be consistent with debt sustainability.
  - Projects executed by SOEs requiring government guarantees need appropriately concessional financing consistent with QPC on guarantees.
- Strengthening PIM:
  - With World Bank support, develop PIM roadmap (Structural Benchmark, end-December 2023) to unify PIM approaches, competitive project selection, and strengthen MoF gatekeeping; adapt e-procurement to MDB standards.

### Risks, scenarios, and contingency measures
- Predominant risk: developments in the war — risks are exceedingly high and uncertainty exceptionally high.
- Baseline vs downside:
  - Baseline 2023 growth: 1–3 percent.
  - Downside scenario: real GDP contraction of 7 percent in 2023 and -1.5 percent in 2024; public debt peaks to 135.8 percent of GDP in 2027.
  - Baseline program-period financing gap: US$114.2 billion; Downside: US$139.5 billion.
- Costed scenarios and policy responses:
  - Program designed under the EHU policy to be robust under baseline and downside; contingency measures include seeking further external financing (grant/highly concessional), larger domestic financing, increase tax revenues, make some spending contingent on financing, adjust FX policies and temporary CFMs.
  - Box estimates: grain corridor stoppage implies foregone export receipts of US$290 million per month; compound disruptions could push losses to exceed US$800 million per month.
- Annex risk matrix — selected high-likelihood, high-impact risks:
  - Intensification of regional conflict(s): Likelihood: High; Expected impact: High.
  - Loss of transit corridors and EU restrictions for agricultural produce: Likelihood: High; Expected impact: High.
  - Deepening geo-economic fragmentation and cyberthreats: Likelihood: High; Expected impact: High.
- Staff appraisal:
  - Program performance strong; firm policy actions needed to achieve fiscal targets; continued sizable and timely concessional external financing critical.

### Technical monitoring, definitions and reporting
- TMU sets program accounting conventions and reporting requirements.
  - Official exchange rate for program accounting: 36.5686 UAH per US$ (set by NBU as of March 13, 2023).
  - NIR definition, adjustors for shortfalls, and measurement procedures specified verbatim in TMU.
  - Extensive daily, weekly, monthly and quarterly reporting requirements from NBU, MoF, STS, SCS, DGF, Naftogaz, and major SOEs are specified to monitor QPCs and ITs.
  - Adjustors and precise formulas for ceilings and floors preserved in TMU (e.g., ceilings on borrowing from NBU, NIR floor, debt guarantees ceiling).

### Staff recommendations and conditional policy sequencing
- Fiscal:
  - Prioritize revenue measures via NRS; reverse tax-eroding Martial Law measures; avoid ad hoc loosening and protect social spending.
  - Restore medium-term budget framework and Budget Code provisions to strengthen budget credibility.
- Monetary and FX:
  - Maintain steady disinflation, exchange rate stability and adequate FX reserves; prudently manage wartime liquidity surplus.
  - Conditions-based transition from peg to flexible exchange rate and return to inflation targeting once prerequisites met.
- Financial sector:
  - Complete bank diagnostics and independent AQR; strengthen supervision, SOB governance, contingency planning and NPL resolution frameworks.
- Governance and anti-corruption:
  - Proceed without delay on asset declaration restoration, AML/CFT improvements, SAPO autonomy and judicial reforms to assure investors and donors.
- External financing:
  - Continue external concessional budget support; mobilize domestic financing without monetary financing; ensure reconstruction financing is concessional and consistent with debt sustainability.

*Italic: Source: IMF — FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY (Ukraine), Content unit 1ukrea2023002.*

### 663.9 million (33 percent of quota, or about US$890 million).

### UKRAINE — FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY

### Overview
- 663.9 million (33 percent of quota, or about US$890 million).
- Ukraine’s 48-month EFF arrangement, with access of SDR 11.6 billion (equivalent to US$15.6 billion, or about 577 percent of quota), was approved on March 31, 2023, and forms part of a US$115 billion support package for Ukraine.
- The IMF-supported program aims to anchor policies that sustain fiscal, external, price and financial stability, support the economic recovery, and enhance governance and strengthen institutions to promote long-term growth in the context of reconstruction and Ukraine’s path to EU accession.

### Program implementation and performance
- Despite the war, the economy showed resilience after a sharp contraction in 2022; GDP growth upgraded to 1–3 percent in 2023 as domestic demand recovers, inflation is decelerating, and FX reserves are strong amid a stable FX market.
- All continuous and end-April quantitative performance criteria were met.
- All structural benchmarks through end-June were met, including:
  - enact the second Supplementary Budget;
  - strengthen the Budget Code;
  - complete inputs toward developing the National Revenue Strategy.
- The indicative targets on the overall budget balance and social spending were missed due to higher defense spending and changes in the methodology for effecting social payments.
- Estimates of program external financing gaps remain broadly unchanged, as are medium-term assumptions about growth and financing.

### Policy priorities and recommendations
- Fiscal policy:
  - Focus on ensuring adequate resources for priority spending.
  - Maintain a strong tax revenue base, including by refraining from measures that would erode the tax base.
  - Develop the National Revenue Strategy (NRS) to mobilize revenues to support reconstruction and social spending.
  - Restore the legal framework for medium-term budget preparation, budget credibility and debt management.
  - Improve fiscal transparency and strengthen public investment management.
- Financing strategy and debt sustainability:
  - External budget support should continue to constitute the bulk of fiscal financing; mobilization of domestic financing and elimination of monetary financing remain important.
  - The Group of Creditors for Ukraine (GCU) committed to a 2-step process: extension of the current debt standstill (set to expire end-December 2023) throughout the program period, followed by a final debt treatment before the final review of the Extended Arrangement.
  - A credible process is in place for treatment of external commercial debt; highly concessional financing for reconstruction will remain critical.
- Monetary and exchange rate policy:
  - Continue supporting steady disinflation and exchange rate stability while maintaining adequate FX reserves and prudently managing wartime liquidity surplus.
  - Once conditions permit: transition from the exchange rate peg toward a flexible exchange rate, cautiously ease emergency FX measures, and return to an inflation targeting framework.
  - Conditions-based NBU strategy is appropriate for moving toward normalizing monetary and exchange rate policy frameworks.
- Financial sector:
  - Continue vigilance given opaque true banking system health and persistent risk of shocks, including bank nationalizations.
  - Prioritize bank diagnostics, reforms to banking oversight, governance of state-owned banks (SOBs), and contingency planning.
  - Finalize and implement the financial sector strategy roadmap.
- Governance and anti-corruption:
  - Proceed without delay on strengthening governance, transparency and anti-corruption reforms, including asset declarations, AML/CFT, and strengthening the Specialized Anti-Corruption Prosecutor’s Office (SAPO).
  - These reforms are critical to attract foreign investors, assure donors, and progress toward EU accession.
- External financing:
  - Continued evidence of sustained disinflation and FX market stability provides scope for earlier easing in monetary policy, but significant external financing on concessional terms needs to continue to flow on a timely basis.
  - External financing for budget support should continue on appropriately concessional terms to safeguard macroeconomic stability and ensure reconstruction financing is consistent with fiscal and debt sustainability.

### Risks and scenarios
- The predominant risk is developments in the war; risks are exceedingly high and uncertainty is exceptionally high.
- Program designed to achieve objectives across a range of assumptions about large-scale war and under two scenarios.
- 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 under a downside scenario.
- The assurance provided to the Fund by a significant group of Fund shareholders about Ukraine’s capacity to repay supports needed safeguards.

### Selected economic and social indicators (highlights from Table 1)
- Nominal GDP (billions of Ukrainian hryvnias): 2021: 5,451; 2022: 5,191; 2023: 6,500; 2024: 7,711; 2025: 9,027; 2026: 10,095; 2027: 11,023.
- Real GDP (percent change): 2021: 3.4; 2022: -29.1; 2023: [ 1 to 3 ]; 2024: 3.2; 2025: 6.5; 2026: 5.0; 2027: 4.0.
- GDP deflator (percent): 2021: 24.8; 2022: 34.3; 2023: 22.8; 2024: 15.0; 2025: 9.9; 2026: 6.5; 2027: 5.0.
- Consumer prices (period average): 2021: 9.4; 2022: 20.2; 2023: 17.7; 2024: 13.0; 2025: 8.6; 2026: 6.7; 2027: 5.5.
- Consumer prices (end of period): 2021: 10.0; 2022: 26.6; 2023: 15.5; 2024: 10.0; 2025: 7.5; 2026: 6.0; 2027: 5.0.
- Unemployment rate (ILO, period average, percent): 2021: 9.8; 2022: 24.5; 2023: 19.4; 2024: 10.6; 2025: 9.2; 2026: 8.7; 2027: 8.4.
- Fiscal balance (percent of GDP): 2021: -4.0; 2022: -15.7; 2023: -19.1; 2024: -17.8; 2025: -9.6; 2026: -5.3; 2027: -3.8.
- Fiscal balance, excl. grants (percent of GDP): 2021: -4.0; 2022: -25.0; 2023: -25.8; 2024: -21.1; 2025: -11.6; 2026: -6.4; 2027: -4.9.
- Public and publicly-guaranteed debt (percent of GDP): 2021: 50.5; 2022: 78.5; 2023: 88.1; 2024: 98.6; 2025: 100.7; 2026: 99.5; 2027: 98.4.
- Gross reserves (end of period, billions of U.S. dollars): 2021: 30.9; 2022: 28.5; 2023: 30.5; 2024: 33.2; 2025: 36.1; 2026: 39.4; 2027: 45.7.
- Current account balance (percent of GDP): 2021: -1.6; 2022: 5.0; 2023: -5.7; 2024: -7.2; 2025: -7.1; 2026: -6.1; 2027: -3.4.
- Months of next year's imports of goods and services (reserves coverage): 2021: 4.5; 2022: 3.8; 2023: 4.1; 2024: 4.4; 2025: 4.5; 2026: 4.8; 2027: 5.2.
- Memorandum items: Per capita GDP / Population (2017): US$2,640 / 44.8 million; Literacy / Poverty rate (2022 est): 100 percent / 25 percent.

*Source: IMF — FIRST REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY (Ukraine), as contained in the supplied content.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Russia’s invasion of Ukraine continues to have a devastating economic and humanitarian impact, with continuing combat concentrated in Eastern and Southern parts of Ukraine, escalating air raids since early May, and the recent destruction of the Kakhovka dam.
- The war is causing severe losses in human and physical capital, declines in living standards, a rise in poverty, and infrastructure damages.
- Continuous external support is critical to restore medium-term external viability, prepare for post-war recovery and reconstruction, and facilitate Ukraine’s path to EU accession.

### Outlook
- Economic developments since EFF approval have been more positive than expected, contributing to a modest upgrade in the outlook.
- Baseline real GDP growth in 2023 has been revised up to a range of 1 to 3 percent.
- External financing inflows have materialized in the projected composition and timing; external financing gaps over the program period remain unchanged.
- Exceptionally high uncertainty and risks related to the war and potential policy slippages remain; the downside scenario remains broadly unchanged.
- Staff supports completion of the first review under the EFF to enable a purchase of SDR 663.9 million.

### Recent economic developments and key indicators
- Growth:
  - 2022 real GDP growth was revised to -29.1 percent y/y from -30.3 percent y/y, mainly due to a stronger Q4 2022 (0.7 percent q/q seasonally adjusted (sa) vs. -4.3 percent estimated).
  - Q1 2023 growth was 2.4 percent q/q sa (vs. a flat projection).
- Inflation:
  - Headline inflation declined to 15.3 percent y/y in May from 17.9 percent y/y in April and 26.6 percent at end-2022.
  - Core inflation declined to 15.6 percent y/y in May from 16.9 percent y/y in April and 22.6 percent at end-2022.
  - Household electricity tariffs are set to rise by more than 60 percent with effect from June, with only a minor impact on inflation due to a low base.
- FX market:
  - Conditions improved sharply due to continued external inflows and seasonal factors, including FX sales by agricultural producers.
  - The spread between the official and cash rates stabilized at around 2–4 percent since March.
  - The NBU’s monthly net FX sales stabilized at US$1.6 billion in March-May compared to US$2.9 billion in the winter months (December 2022–February 2023).
- Fiscal:
  - During January–April, tax revenues (excluding social security contributions) grew 17 percent y/y.
  - Personal income tax grew 26 percent y/y; taxes on goods and services expanded close to 24 percent y/y.
  - Nontax revenue rose significantly due to external grants; dividends from state-owned enterprises and banks also performed strongly.
  - Expenditures grew markedly owing to war-related spending pressures (notably military personnel compensation and goods and services); interest fell around 18 percent y/y in line with the debt standstill.
  - The cumulative overall fiscal deficit reached around UAH 185 billion during the first four months of the year, compared with UAH 130 billion in the year-earlier period.
  - The deficit has been financed mainly through external resources so far this year, rather than monetary financing.
- External and domestic financing:
  - Through May, about US$19.7 billion in external budget support financing was reported as disbursed (US$13.6 billion loans and US$6.2 billion grants).
  - Net domestic bond financing was US$1.7 billion as of end-May; bonds eligible to meet reserve requirements comprise over 80 percent of hryvnia bond issuance.
  - Since mid-May, domestic issuance has been capped given ample budget financing; maturities and yields remain largely unchanged.
  - As planned under the program, there continues to be no monetary financing in 2023.

- Revenue table excerpt (as presented in the source):
  - UA H billion / percent change, y/y — Jan-April 2023
  - Total revenue (ex. Social Sec. Contrib.) 92575.3
  - Tax revenue 47317.1
  - Personal income tax 14326.3
  - Corporate profit tax 41-11.5
  - Tax on goods and services 21823.7
  - Other tax revenues 703.8
  - Nontax revenue 453265.4

### Key policy priorities
- Fiscal policy:
  - Ensure adequate resources for priority spending and maintain a strong tax revenue base by refraining from measures that would erode the tax base.
  - Develop the National Revenue Strategy (NRS) to anchor revenue mobilization for reconstruction and social spending.
  - Restore the legal framework for medium-term budget preparation, budget credibility, and debt management.
  - Improve fiscal transparency and strengthen public investment management.
- Financing strategy and debt sustainability:
  - External budget support will remain the bulk of fiscal financing; mobilization of domestic financing and elimination of monetary financing are important to meet large financing needs.
  - The Group of Creditors for Ukraine (GCU) committed in March 2023 to a 2-step process: an extension of the current debt standstill on official sector debt set to expire at end-December 2023 throughout the program period, followed by a final debt treatment before the final review of the Extended Arrangement.
  - Staff assesses that a credible process is in place for the treatment of external commercial debt.
  - Highly concessional financing, including for reconstruction, will remain critical over the medium term.
- Monetary and exchange rate policies:
  - Continue supporting steady disinflation and exchange rate stability by maintaining an adequate level of FX reserves and prudently managing the wartime liquidity surplus.
  - Once conditions permit, support a transition toward a more flexible exchange rate, easing FX controls, and return to an inflation targeting framework.
- Financial sector:
  - Maintain vigilance given opacity in the true health of the banking system and persistence of shock risks, including bank nationalizations.
  - Priorities include bank diagnostics, reforms to banking oversight, governance of state-owned banks (SOBs), and contingency planning.
  - The National Bank of Ukraine (NBU) is finalizing the next iteration of its financial sector strategy as a coordinated vision and roadmap.
- Governance and growth:
  - Robust post-war growth and rigorous structural reforms, including governance and anti-corruption, are needed to recover living standards and advance EU accession.
  - Key legislative measures (e.g., asset declaration, AML, and anti-corruption prosecutor) will mitigate corruption risks during Martial Law and promote public trust and donor confidence.
  - Pursue an integrated strategy for critical spending during recovery and reconstruction, including on energy and procurement.

### Program performance, modifications, and conditionality
- Program performance:
  - The authorities met all quantitative performance criteria (QPC) for end-April and all structural benchmarks (SB) through end-May, as well as some indicative targets (IT).
  - The IT on social spending was missed due to methodological changes to social payments.
  - The IT on the cash overall balance of the general government excluding grants was missed amid higher-than-expected defense-related spending.
- Program modifications requested by the authorities:
  - Modify the NIR QPC by increasing the NIR target for end-June and end-December, reflecting better-than-expected end-April 2023 outturn on net international reserves (NIR).
  - Modify the fiscal QPC (non-defense cash primary balance excluding grants) to reflect (i) a change in the perimeter of defense spending, and (ii) the trajectory of expenditures within the year, while the end-2023 target level remains unchanged.
  - Convert the continuous PC on the issuance of state guarantees into a periodic QPC.
  - Propose four new SBs to reinforce near-term macroeconomic and financial stability and underpin reform momentum:
    - Measures for the tax and customs administrations.
    - Reinstating the articles of the Budget Code to support preparation of the 2024 Budget.
    - Preparing a concept note with proposals for containing potential fiscal risks related to the 5-7-9 affordable loan program.
    - Reinvigorating corporate governance reform at the Gas Transmission System Operator (GTSO) through selection and appointment of a supervisory board.
  - Reset the deadline for the structural benchmark on adoption of the draft law on tax policy and administration from end-June 2023 to end-July 2023.

### Program risks
- The war-related exceptionally high uncertainty implies enormous and unprecedented risks to the program.
- If the war worsens or extends beyond assumptions in the baseline, the economic recovery could sharply reverse and the fiscal position could deteriorate.
- The authorities’ room to maneuver against such shocks is limited despite skillful policymaking.
- The program is highly dependent on external financing; any shortfalls or delays would increase the risk of suboptimal policy choices and the program going off track.
- The program is designed to achieve objectives—resolving BOP gaps and restoring external viability—under both a baseline and a downside scenario; authorities’ capacity and commitment and continued sizable and timely donor support (including credible and specific financing assurances) help mitigate risks, but program risks cannot be fully mitigated by design or contingency planning alone.

*Source: EXECUTIVE SUMMARY (1ukrea2023002)*

### 7. The NBU has maintained the key policy

### 7. The NBU has maintained the key policy rate at 25 percent, while excess liquidity in the banking system persists

### Monetary policy and banking liquidity
- Key policy rate maintained at 25 percent.
- Ex‑ante real rates have shifted more firmly into positive territory amid declining inflation expectations.
- Bank liquidity remains elevated despite recent increases in reserve requirements.
- Drivers of elevated liquidity:
  - Local currency deposit growth of 36.6 percent y/y as of end-May.
  - Declining credit of -9.6 percent y/y as of end-May.
- Following an early April change in operational design of monetary policy, the stock of NBU CDs increased to US$12 billion at end-April (from US$9.7 billion at end-March).

### External sector and reserves
- Gross reserves climbed to an estimated US$35.2 billion as of mid-May.
- Import coverage ratio increased to about 4.7 months.
- Reserve accumulation reflected substantial external financing and smaller-than-expected impact of missile attacks on export capacity.
- Migrant outflows and energy import needs did not materialize as expected, containing FX drains.
- Q1 2023 recorded the first current account deficit since the start of the war; exports remain some 40 percent below pre-war levels while imports have largely recovered.

### Financial system stability
- Overall stability and liquidity maintained; deposits continued to grow while lending declined.
- Q1 2023 specifics:
  - Stock of all client deposits rose by 4 percent.
  - Return on assets and return on equity exceeded 6 percent and 55 percent respectively (annualized).
  - Stock of all loans stood at 19.3 percent of 2022 GDP as of end-March 2023.
  - Subsidized loans via the 5-7-9 scheme grew to 11 percent of total outstanding loans.
  - Non-performing loans ratio increased by 1pp in the quarter to 39 percent (from 30 percent in January 2022).
- Non-bank financial sector:
  - Total assets increased by 11 percent in 2022, but the number of operating firms fell by 24 percent to 1,331.
- Governance/ownership development:
  - The National Agency for the Prevention of Corruption (NAPC) listed foreign owners (through affiliate subsidiaries operating in Russia) of two of the three largest international banks operating in Ukraine (comprising 10 percent of banking system assets) as international sponsors of the war due to continued operations in Russia by other entities owned by their parents.

### Anti-corruption and procurement
- Continued efforts: NABU and SAPO investigated and arrested a top judicial official.
- Information-sharing agreement between NABU and the restoration agency to improve transparency and accountability in recovery/reconstruction.
- As of March 2023, more than 70 percent of non-military procurement were processed through competitive bids in ProZorro, which includes beneficial ownership information.
- OECD invited Ukraine to participate in the Working Group on Bribery in March 2023.

### Program performance (first review)
- Overall: Authorities’ performance broadly strong; solid commitment to reforms.
- Quantitative Performance Criteria (QPCs):
  - All continuous and end-April 2023 QPCs were met.
  - Two indicative targets (ITs) missed: overall balance excluding grants and social spending IT.
  - QPC on floor on the non-defense cash primary balance of general government excluding budget support grants was met with a comfortable margin.
  - IT on overall cash balance excluding budget support grants missed due to high defense spending.
  - IT on social spending (floor) missed in April owing to a change in methodology for effecting social payments.
  - QPC on tax revenues (excluding social security contributions) materially exceeded the floor.
  - Continuous ceiling on public guarantees respected; domestic arrears well below the indicative target.
  - Net international reserves comfortably exceeded end-April QPC.
- Structural benchmarks:
  - All five structural benchmarks set for early-April through end-May 2023 were met.
  - Submitted to Parliament a draft law restoring and strengthening Article 52 of the Budget Code and reinstating articles establishing limits on issuance of public guarantees.
  - On April 11, 2023, Parliament adopted a law amending the Budget Code to enhance transparency and accountability of special accounts and consolidate them within the general government special fund.
  - Head of the State Tax Service issued a directive with an action plan addressing weaknesses identified in taxpayers’ perception survey.

### Selected quantitative outcomes and program table highlights (as reported)
- Floor on the non-defense cash primary balance of the general government, excluding budget support grants:
  - Program: 258,352
  - Actual: 353,024
  - Status: Met
  - Proposed re-definition: 213,000
- Floor on net international reserves (in millions of U.S. dollars):
  - Program: 15,500
  - Actual: 23,762
  - Status: Met
  - Program/June benchmarks also show 15,500 and 16,500 in table context.
- Floor on tax revenues (excluding Social Security Contributions):
  - Program: 451,700
  - Actual: 472,689
  - Status: Met
  - Program projection listed as 696,400
- Indicative Targets:
  - Floor on the overall cash balance of the general government, excluding budget support grants:
    - Program: -356,500
    - Actual: -364,580
    - Status: Not met
  - Ceiling on general government borrowing from the NBU:
    - Program: -2,551
    - Actual: -2,551
    - Status: Met
  - Ceiling on general government arrears:
    - Program: 6,000
    - Actual: 1,757
    - Status: Met
  - Floor on social spending:
    - Program: 187,000
    - Actual: 182,321
    - Status: Not met

### Outlook and risks
- Staff upgraded the baseline forecast for 2023; downside scenario still assumes more severe and protracted contraction.
- Baseline core war-related assumptions unchanged: war expected to wind down by mid-2024; grain corridor remains open; security situation does not significantly deteriorate; no material electricity and gas shortage next winter.
- Baseline 2023 upgrade: growth revised to 1–3 percent for 2023 (from previous range of -3 to +1 percent).
- 2024 growth forecast maintained at 3.2 percent.
- Inflation and reserves outlook:
  - Headline inflation expected to decline to 15.5 percent by end-2023 and 10 percent by 2024.
  - 2023 current account deficit expected to widen to 5.9 percent of GDP (from previously forecast 4.4 percent).
  - Humanitarian and technical aid in 2022 amounted to about US$7 billion and is expected to halve in 2023.
  - Year-end FX reserves expected to strengthen by US$1 billion relative to the EFF request.
- Medium-term baseline:
  - Real GDP growth expected to rebound strongly in 2025–26 (post-war), supported by investment amid measured reconstruction and returning migrants.
  - Inflation expected to decline, returning to the pre-war target of 5±1 percent toward the end of the program period.
  - Reforms for EU accession are a key feature supporting longer-run outlook.
- Downside scenario:
  - Deeper contraction: real GDP contraction of 7 percent in 2023 and -1.5 percent in 2024.
  - Inflation accelerates through 2024 before declining.
  - Fiscal deficit remains more elevated in 2023–24 than baseline.
  - FX market imbalances persist longer, with higher nominal depreciation.
  - Downside assumes additional donor financing relative to baseline for duration of the war.
- Risks remain exceptionally large; key risk areas unchanged: war outlook, external financing, and reform momentum.
- Key risk changes since EFF approval:
  - Loss of transit corridor for agricultural produce could exacerbate financing gaps and FX pressures.
  - Unfunded budget expenditures (including under Martial Law) could derail macroeconomic adjustment and reopen financing gaps.
  - Excessive interference in banks, including prospect of nationalization for reasons unconnected to financial stability, could pose risks to the banking system.

### Box 1 — Costs of disruptions to Ukraine’s food exports (highlights)
- War effects on agriculture:
  - Mines and occupied/combat-affected territory reduced Ukrainian farmland acreage by around 25 percent.
  - Overland transit accounts for about a quarter of total shipments of agricultural produce (relative to a tenth pre-war).
- Black Sea Grain Initiative (BSGI) and transport:
  - BSGI enabled exports from three Ukrainian ports; overland transit and Danube river barges also used.
  - These alternative routes helped restore monthly agricultural exports to around pre-war levels and limited annual decline of food exports to 16 percent in 2022.
- April 2023 disruptions:
  - EU neighbors imposed unilateral import restrictions on Ukrainian agricultural produce; EU announced an emergency restriction on Ukrainian agricultural imports to five countries through mid-September (transit exempted).
  - BSGI subject to frequent renewals and inspection delays, causing uncertainty.
- Quantified impacts of disruptions (NBU estimates and staff analysis):
  - Grain corridor stoppage would imply additional foregone export receipts of US$290 million per month (relative to overall agricultural exports of around US$2 billion per month earlier this year and US$2.3 billion a month in 2021).
  - Impact on grain and non-grain products would be around US$170 million per month through mid-September and rise if it remains in place (average monthly impact of US$270 million).
  - If both import bans are reinstated and the grain corridor were disrupted, compound effects could push losses to exceed US$800 million per month.
- Policy priority: strengthen and diversify trade channels near-term; longer-term recovery needs to tackle the mine problem.

*Source: INTERNATIONAL MONETARY FUND (excerpt).*

### Box 1. The Costs of Disruptions to Ukraine’s Food Exports (concluded)

### Box 1. The Costs of Disruptions to Ukraine’s Food Exports (concluded)

### Disruptions to food exports and agricultural sector impacts
- Realized losses in 2022: 90 percent (buffered by the 5-7-9 loan program).
- Near-term recovery outlook: unlikely amid lower harvests in 2022–23.
- Projected export volumes: Ukrainian grain export volumes expected to fall through 2024 to 60 percent of the pre-war level.
- Farmer responses and behavioral adjustments:
  - Farmers would manage disruptions by reducing acreage planted by another 20-30 percent.
  - Crop switching toward lower volume cultures would accelerate (example: replacing bulky grains with rapeseed, soy, sunflower).
  - More financial support to farmers may be needed.
- Trade and logistics policy implications:
  - EU decision to renew temporary trade liberalization for Ukraine through June 2024 is welcome.
  - Risks: supply glut that would weigh on producer prices in neighboring countries.
  - Recommended actions: strengthen trade channels—more border crossing points, streamlined inspections, increased logistical capacity in the EU.
- Long-run constraint: recovery dependent on de-mining—estimated about 2.5 million hectares of agricultural land to be inspected and cleared.

*POLICY DISCUSSIONS (program framing and contingency design)*
- Program overarching goals: sustaining macroeconomic and financial stability, restoring debt sustainability, supporting recovery on path toward EU accession.
- Two-phased approach remains appropriate given exceptionally high uncertainty.
- Program design under the Fund’s policy for lending under exceptionally high uncertainty (EHU):
  - Program objectives (resolving BOP problems and restoring medium-term external viability) designed to be met under both a baseline and a downside scenario.
  - Policies described refer primarily to the baseline scenario; authorities committed to take measures if necessary under the downside scenario.
  - Potential additional measures under downside scenario could include:
    - 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.
  - Additional contingency measures may be needed if shocks are more severe than the downside scenario; risks cannot be fully mitigated given the war.

### Macro-fiscal policies — Fiscal Policy in 2023 (targets and composition)
- Overall deficit projection for 2023: UAH1.24 trillion (19.1 percent of GDP) — little changed.
- Projected deficit excluding grants: UAH 1.67 trillion (25.8 percent of GDP) — revised down.
- Valuation effects: lowered the hryvnia equivalent value of grants ( (   in    U.S. dollar terms, the value of grants is almost unchanged).
- Revenues (composition changes):
  - Total tax revenue projection for 2023: broadly unchanged.
  - Taxes on goods and services: projection revised up, in line with assumptions on economic activity.
  - Taxes related to income and profits: little changed; corporate taxes now expected to be higher, more than offsetting downward revisions to personal income tax and social security contributions.
  - Lower international gas prices weighing on royalty collections.
  - Non-tax revenues: mostly unchanged—higher fee-related income offsets lower budget support grants.
- Expenditures (composition changes):
  - Expenditures on compensation for military personnel in 2023 will be higher than anticipated following draft law (No. 9342) proposing higher wages for new recruits, cadets, instructors and other non-wage proposals.
  - Capital expenditures revised up to address priorities for renovation and repair.
  - Other expenditure categories being reprioritized to make space for these increases.

### Reconstruction and recovery financing needs
- RDNA2 (World Bank) identifies expenditure priorities for 2023: US$14.1 billion.
  - Already budgeted: US$3.5 billion.
  - Remaining to be financed: US$10.6 billion.
- Mobilization requirements:
  - Additional financing for reconstruction and recovery must be on highly concessional terms to be consistent with the program goal of restoring debt sustainability.
  - Projects executed by SOEs requiring government guarantees would require appropriately concessional financing consistent with the QPC on government guarantees.

### Policies to meet fiscal targets and near-term measures
- Delivering commitments and avoiding ad hoc loosening is essential.
- Revenue-side measures and timetables:
  - Key near-term policy: restore pre-war taxation regimes and avoid measures that erode the revenue base.
  - Structural Benchmark timing reset requested: from end-June 2023 to end-July 2023 for passage of the package of revenue measures (submitted to Parliament as Law No. 8401; passed first reading on May 29).
  - When adopted, Law No. 8401 will reverse measures related to the single tax (Box 2) enacted under Martial law and contains provisions to improve tax compliance (cancelling moratorium on tax audits; restoring liability for failure to use cash registers in retail outlets).
  - Tax-eroding measures introduced during Martial Law should be cancelled or phased out; where measures are needed to support imports related to defense and security they should be targeted, timebound, controlled, and with oversight.
  - Consider replacing broad tax exemptions with targeted subsidies.
- Expenditure-side constraints:
  - Expenditure initiatives outside the current budget require offsetting fiscal measures or new financing consistent with debt sustainability.
  - Risks to expenditure projection include expansion of military compensation beyond current parliamentary proposal, additional gas purchases, compensation for heating tariff differentials, and support to displaced people.
- Other fiscal risks:
  - Tax and spending arrears (including pensions and social payments).
  - Pressures arising from the 5-7-9 affordable loan program (administered by the Business Development Fund) related to increasing costs of interest compensation and expanded scope of the program.

### Box 2. Simplified Taxation in Ukraine: Drawbacks and Risks (summary of diagnostics and risks)
- Purpose and evolution:
  - Simplified taxation regimes (ST) generally aim to ease tax compliance for small businesses or to formalize the informal sector; aim should be simplification rather than tax relief.
  - Ukraine’s ST (Single Tax or Unified Tax System) introduced in 1998—optional regime with simplified compliance and a lower tax burden not based on profit.
  - Over 2018–2022, the number of ST taxpayers grew 25 percent to about 2 million taxpayers and generated relatively stable tax revenues of approximately 0.9 percent of GDP during 2020–22.
- Shortcomings identified (including in Fund TA):
  - Multiple rates and variations in tax base enable arbitrage between ST tax groups.
  - Strategic switching between ST and general system to exploit loss carry-forward rules and low-rate regimes—can be repeated indefinitely.
  - Complex criteria for group membership leave room for discretion and complicate enforcement.
  - ST has become a tool for tax reduction rather than reducing compliance burden; attractive concessions granted to legal entities and professionals who would not be eligible elsewhere.
  - Martial Law measure granting a 2 percent turnover tax option effectively caps tax revenues and disproportionately favors wartime beneficiaries; VAT functioning under pressure due to massive ST participation, creating unfair competition with VAT taxpayers.
- Broader consistency challenges:
  - Business taxation: ST puts tax revenues at risk and biases business decisions; optional nature incentivizes profitable taxpayers to opt into ST, capping tax liabilities and encouraging underreporting.
  - Labor taxation and informality: widespread opting for self-employment under ST instead of standard labor contracts reduces tax contributions and distorts taxpayer status.
  - Unjustified self-employment is of prime importance: social security contributions levied on the minimum statutory annualized salary imply a lower effective rate for those who work longer hours.

### Fiscal Policies in 2024 and beyond
- 2024 budget preparation:
  - Ensuring expenditure remains within available revenue and financing envelope is critical.
  - Budget preparation calendar launched despite formal suspension under Martial Law.
  - 2024 budget to be aligned with authorities’ reform agenda under the EFF and deliver outcomes consistent with fiscal and debt sustainability.
  - Authorities will prepare a set of revenue measures building on priorities identified by the NRS to become effective from January 1, 2024; measures could include harmonizing taxes with EU directives.
  - Expenditure envelope will reflect wartime needs with reorientation to emerging priorities, including social safety net and recovery and reconstruction to the extent resources permit.
  - Critical to ensure key spending units adhere to expenditure envelope limits.

### Financing strategy (2023 and program period)
- External concessional financing as cornerstone:
  - Concessional financing from international partners and donors expected to form majority of net borrowing for financing the 2023 deficit.
  - Net external financing for 2023: US$29.7 billion out of total net general government financing of US$33.1 billion.
  - Domestic bond financing expected to meet smaller share: net bond financing of US$3.4 billion for 2023.
  - No monetary financing envisaged.
  - Timely disbursements with programmed degree of concessionality necessary to support fiscal and debt sustainability and reduce risk of monetary financing.
- Domestic financing mobilization:
  - Authorities intend to target full rollover of maturing domestic bonds until at least the fourth quarter.
  - As a backup, mobilize additional domestic market resources in last quarter if needed.
  - Support factors: recent reduction of the rate on NBU CDs, expanding bank balance sheets and substantial liquidity, shift to monetary easing cycle.
  - Bank-specific factors (structural liquidity and risk appetite) require careful consideration.
  - Joint Working Group established by the MoF and NBU in late-March to develop targeted strategies to mobilize bond financing.
  - Staff emphasized efforts to expand and diversify the investor base should continue.
- Treasury and liquidity management:
  - Improved treasury cash management, liquidity forecasting, and MOF–NBU coordination can help develop optimal borrowing plans and financing mix.
  - Due to war, government financing needs highly volatile—closer and more frequent coordination between MOF, NBU and key spending units recommended.
  - Analyze government local currency and FX deposit accounts and conditions on use of external flows to support liquidity forecasting and inform borrowing plans.
- Medium-Term Debt Management Strategy (MTDS) and capacity:
  - Authorities progressing toward updating MTDS (Structural Benchmark proposed reset for October 2023).
  - Updated MTDS to reflect recent developments and align with program objectives (meeting near-term financing needs under baseline and contingencies and restoring debt sustainability, and debt market development objectives).
  - Enactment of relevant Budget Code revisions expected end-September; structural benchmark proposed reset to end-October.
  - Enhancing capacity of the Debt Management Office (training, staffing) would support MTDS implementation.

*Italic: Source: 1ukrea2023002 - Box 1. The Costs of Disruptions to Ukraine’s Food Exports (concluded).*

### 29. The authorities remain committed to avoiding monetary financing of the budget. No

### The authorities remain committed to avoiding monetary financing of the budget. No

### Monetary financing
- No monetary financing is expected under the baseline (Indicative Target).
- As a contingency, such as due to a shortfall in external financing or unexpected financing needs, monetary financing is expected to be used only after all other options have been exhausted, and in limited amounts.
- In line with the recommendations of the 2023 Update Safeguards Assessment, the NBU and MoF are working on a framework for monetary financing, to be in place by end-July, that will specify the key triggers and terms for accessing monetary financing, as well as the conditions for using different types of such financing (e.g., bonds, short-term advances).
- Together with more frequent coordination on fiscal financing needs, this framework should help limit ad hoc requests and mitigate the risks of excessive monetary financing.

### Fiscal Structural Policies — Anchoring Revenue Mobilization
- The authorities are committed to launching the National Revenue Strategy (NRS) by end-December (structural benchmark).
- Prior action: a Cabinet of Ministers (CMU) decree in March presented key principles and objectives of the NRS including for tax policies and administration (2024–2030) putting MOF in charge of NRS preparation.
- MOF and the State Tax Service (STS) have finalized the NRS gap analysis with the help of IMF technical assistance covering core tax categories and diagnostics of the STS (in line with the CMU resolution and MEFP commitments (MEFP ¶21)).
- By end-July, MOF and STS will prepare a roadmap for the NRS (2024–2030) setting out clear revenue targets and policy options affecting a wide spectrum of tax categories to help broaden the tax base.
- The roadmap will build on recommendations to reform labor and personal income taxation, corporate income taxation and excises, and will incorporate recommendations and guidance for coordination among government agencies, donors, the private sector, and civil society led by MOF.
- STS diagnostic work identified critical reform areas including implementation of a compliance risk management framework, strengthening capacity for reform management, and improving governance (see ¶21).
- STS has issued a directive with an action plan to tackle shortcomings identified by taxpayer survey in November 2022, which will feed into the more comprehensive plan (Structural Benchmark, May 2023).
- Diagnostics will be carried at State Customs Service (SCS) with the help of IMF TA to maintain reforms of both administrative bodies at par.
- Three reform areas identified to reduce corruption risks within customs administration:
  - (i) reforms of HR and compensation policies;
  - (ii) improving operational management of customs from its headquarters, including the development of centers of excellence for different functional tasks;
  - (iii) moving the verification/checking of customs documents from border crossings to inland offices.
- STS and SCS will prepare a comprehensive action plan over the short- and medium term focusing on respective key reform areas (Proposed Structural Benchmark, end-October 2023).
- Authorities are working toward strengthening the Economic Security Bureau of Ukraine (ESBU), focusing on analytical support to identifying tax evasion.

### Expenditure Policies, Pension Reforms and Social Spending
- The authorities have reaffirmed their commitment to maintain the stability of the pension system.
- The potential introduction of a second pillar fully funded pension scheme is being debated; the authorities have committed to move in this direction only after Martial Law is lifted, and a careful review of all necessary preconditions is conducted (MEFP ¶23).
- Staff view: focus should be on enhancing the first pillar of the pension system, ensuring it remains rule-based and financially viable, especially once the war is over; introduction of a second pillar must not translate into a deficit for the pay-as-you-go system.
- Any changes to pension system should be accompanied by a medium-term fiscal and budgetary impact analysis, including the budget of the Pension Fund of Ukraine.
- Authorities are taking steps to strengthen mechanisms of assistance to internally displaced persons (IDPs), in line with the social policy concept note.
  - Revised framework for better means testing of support to IDPs is expected to become effective from October 2023 (work with the World Bank).
  - Goal: enhance governance of assistance framework while containing social spending within the 2023 budget envelope.
- Authorities intend to strengthen the analytical framework for expenditure analysis with IMF TA:
  - Work on strategic budgeting and costing of new public services.
  - Define mechanisms to strengthen the link between the budget and fiscal risk assessments.
  - Enhanced framework expected to inform formulation of the 2025 budget.

### Budget Credibility and Medium-term Budget Framework
- CMU submitted to Parliament a resolution with a package of legal amendments to the Budget Code (May 31, 2023) to enhance credibility and predictability of budget and reinstates articles covering medium-term budget framework, debt strategy and government guarantees (MEFP ¶19 and ¶23).
- Core areas covered:
  - Budget credibility and predictability:
    - Amendments to Article 52 of the Budget Code prepared in collaboration with the IMF (Structural Benchmark, end-May 2023).
    - Proposed amendments require that proposed budget amendments include financing sources and maintain consistency with the constitutional framework.
    - A two-layered protection: mandatory MOF opinion attached to any legislative initiative offering modifications to the annual budget law; designation of legal initiatives to modify deficit, debt and guarantees solely to CMU with an assessment by the MoF.
  - A medium-term budget framework:
    - Amendments effective from January 2024 (MEFP ¶23).
    - 2024 budget will cover projections for 2025–26, along with deficit financing sources, and fiscal risks statement including details on energy and critical infrastructure SOEs (Structural benchmark, end-September 2023).
    - Preparation of the 2025 budget will include a comprehensive MTBF for 2025–27.
  - Strengthening framework for debt management, provision, and risk assessment of guarantees:
    - Legal amendments propose reinstatement of articles establishing limits on issuance of state guarantees with clear criteria (Structural Benchmark, end-May 2023).
    - Proposal implies reinstatement of the 3 percent limit on guarantees that are issued directly by the decision of the CMU.
    - Issuance of guarantees to support projects financed by IFIs and foreign governments will be discussed annually in the State Budget Law approved by Parliament; limits on such guarantees are subject to authorities’ commitments and program modalities.
    - Additional layer of guarantees is subject to a sunset clause in the Budget Code, expiring in 2028.
- Overall: package of legal amendments to Budget Code will be enacted in time to be effective for preparation of the 2024 Budget (Proposed Structural Benchmark, end-September 2023).

### Fiscal Transparency and Risk Management
- Overdue account payables:
  - Level of overdue account payables for January-April 2023 was at UAH 1.757 billion (0.02 percent of GDP) well within the indicative target of UAH 6 billion for the same period.
  - Figures exclude local governments in zones of direct combat or Ukrainian territories currently occupied by Russian forces.
- SOE reporting and risk assessment:
  - Authorities are progressively restoring regular fiscal risk reporting by SOEs not located in temporarily occupied territories.
  - All line ministries and SOEs under their auspices instructed to continue quarterly reporting.
  - MOF introduced more stringent ad-hoc data requests for additional risk assessment if needed.
  - Ongoing stress testing exercise launched with IMF TA expected to be included in the fiscal risk statement for Budget 2024 and onwards.
  - MOF on track to prepare regulations to tighten risk assessments to avoid abuse and introduce risk-based fees for guarantees (September 2023) (see MEFP ¶23 and ¶35).
- Business Development Fund (BDF) and 5-7-9 affordable loan program:
  - Expanding BDF portfolio and weak governance/risk management may create substantial fiscal risks.
  - Authorities will take stock of BDF governance and risk management structure to identify shortcomings representing material risk to public finances.
  - Review will assess the 5-7-9 affordable loan program to develop a concept note (Proposed Structural Benchmark, end-September 2023) with proposals to enhance targeting for SMEs, phase out eligibility of large companies, enhance monitoring and maintain adequate safeguards.
  - Based on the concept note, authorities may identify further reforms, with potentially conditionality under the program.

### Box: “Affordable Loans 5-7-9” — Role and Emerging Risks (key facts)
- Program objective: support businesses via loans at reduced interest rates through state compensation; repurposed and expanded during COVID and the war.
- BDF part subsidizes interest payments so businesses pay interest rates of 5, 7 or 9 percent per annum for loans in local currency.
- Design and management: Ministry of Finance (MoF), Ministry of Economy and SME Development Office; implemented by BDF (state-owned non-banking non-profit institution controlled by MoF).
- Interest rate methodology takes into account banks’ operating costs, credit risk, profitability and cost of deposits.
- Overall lending rates, as of May 2023, are approximately 20.5 percent.
- Statistics:
  - Program share of net hryvnia corporate lending: 5 percent in 2020 to 26 percent by end-2022.
  - Outstanding loans under the program reached UAH 110 billion (2.1 percent of 2022 GDP) at end-May 2023.
  - Banks have received approval to issue up to UAH 201 billion in notional loans under the scheme.
  - Average loan amount is UAH 4 million (USD $109,000).
  - Sector distribution as of end-May: agricultural producers 54 percent, trade 23 percent, industry 14 percent.
  - Participation: 45 of the 65 banks operating in Ukraine participate; international banks account for 40 percent of total by loan amounts; state-owned banks issue 53 percent of the number of loans.
  - NPL ratio: under 1 percent during 2020–21; risen to 9 percent in April 2023.
  - Around 40 percent of loan applications have been rejected by participating banks since the start of the program.
- Government portfolio guarantees:
  - Total guarantees issued since 2020: UAH 73.81 billion (1.4 percent of 2022 GDP).
- Fiscal risk drivers:
  - No limit on state support during Martial Law.
  - No limits on amounts banks can lend under the program.
  - In case of defaults, state guarantees suffer loss first, followed by privately pledged collateral.
  - Payments to banks under the scheme have been slow, restricting some banks from further participation.

### Transparency in management and spending of budgetary funds and special accounts
- Special accounts:
  - Amendments to Budget Code (Structural Benchmark, end-April 2023) gave MOF control over commitment and appropriations executed by key spending units from special accounts.
  - Amendments consolidate special accounts within the general government as special funds of the state budget.
  - MoF will operationalize the legal framework by introducing Treasury reporting for usage of funds from these accounts (June 2023).
  - By end-July 2023, directives will be issued to include these special accounts in budget documentation and fiscal reports and publish aggregated data on these special accounts (MEFP ¶26).
- Fund for the Liquidation of the Consequences of the Armed Aggression:
  - Authorities committed to complement existing reporting with a regular consolidated report summarizing sources of financing and expenditure (according to economic classification).
  - Authorities committed to refrain from using NBU profit for earmarked spending in 2024 (MEFP ¶26).

### Strengthening Public Investment Management (PIM)
- Strengthening PIM ahead of post-war reconstruction is a priority (MEFP ¶27).
- Work will build on EU4PFM project and World Bank’s Public Investment Management Diagnostic Assessment Report 2022.
- With World Bank support, authorities are reviewing current PIM procedures and preparing 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 are provided to MoF, including a clear gatekeeping role during different stages of the investment project cycle.
- Authorities plan to adapt the national e-procurement system (ProZorro) to be compliant with international competitive bidding standards used by Multilateral Development Banks to avoid multiple procurement platforms and strengthen efficiency and transparency.

### Monetary and Exchange Rate Policies
- The NBU has signaled a shift toward an easing monetary policy cycle, given sustained favorable inflation outturns.
- In the April MPC, given continued disinflation and stability in the FX market, the NBU signaled an earlier easing in the key policy rate (KPR) than previously communicated (Q4 2023 vs. Q2 2024).
- With ex ante real rates now comfortably positive, and given sustained decline in inflation and FX market stability, the NBU could consider scope for an earlier reduction in the KPR while still maintaining positive real rates to support an overall tight monetary stance.

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

### 41. Efforts to strengthen monetary transmission, which continues to be impaired by high

### 41. Efforts to strengthen monetary transmission, which continues to be impaired by high liquidity, should continue

### Monetary transmission and liquidity
- Highly liquid conditions are expected to continue due to:
  - robust hryvnia deposit growth driven by large fiscal financing, deposit restrictions and limited lending, weakening transmission of the KPR economywide.
- Key facts and risks:
  - small share of hryvnia term deposits: "34 percent of hryvnia deposits at end-April".
  - low rate of return on hryvnia term deposits despite the June 2022 KPR rate hike, presenting a risk to the FX market should risk premia rise.

### NBU measures to address impaired transmission
- Reserve requirements:
  - The NBU has raised reserve requirements by a cumulative "20 pp since end-January".
  - Net effect on liquidity is diluted by using government bonds to meet up to half of obligatory reserves.
  - Future increases should consider: the source and timing of expected liquidity growth; banks’ responses; the need to minimize excessive changes to instrument design that complicate use and undermine the planned strategy (roadmap) to normalize monetary and exchange rate policy.
- Operational framework adjustments (early April):
  - Introduced 3-month CDs at the KPR, access conditional on volume growth in hryvnia term deposits.
  - Reduced the rate offered on NBU overnight CDs from "23 to 20 percent", reflecting a de facto easing in monetary conditions.
  - As of end-May, outcomes:
    - small increase in hryvnia term deposits: "UAH 17 billion, or about 9 percent relative to end-March".
    - weighted average rate on such new accounts rising by "0.7 pp since end-March".
    - real rates remaining broadly neutral (supported mainly by lower inflation).
    - most of the increase driven by private banks; state-owned banks have weaker incentives to compete on rates.
  - Policy guidance:
    - NBU should monitor and recalibrate the operational design to ensure effectiveness.
    - Normalize the operational framework as conditions permit (e.g., replace overnight CDs by a 1- or 2-week operation conducted at the KPR) to re-operationalize the KPR and prepare for transition to a more flexible exchange rate and return to inflation targeting.

### Conditions-based strategy to normalize monetary and exchange rate policy framework
- Progress:
  - NBU developing a strategy comprising three elements: easing FX controls, moving toward a more flexible exchange rate, and transitioning back to an inflation targeting regime (Structural Benchmark, end-June 2023).
  - Strategy will set out principles and prerequisites, plans for normalization of war-related measures and contingencies.
  - Being developed in close consultation with the IMF; IMF TA will support operationalization and communication (MEFP ¶37).

### Exchange rate peg and FX market developments
- Role of the peg:
  - The exchange rate peg continues to serve as a critical nominal anchor.
  - The spread between the official and cash rates declined sharply and stabilized in recent months, supported by large official financing inflows and seasonal factors.
  - On balance, the peg currently continues to play a crucial role in supporting macroeconomic stability; no significant misalignments in the exchange rate at present.
- Monitoring needs:
  - Carefully monitor FX market developments, including evolution of budget spending in the second half of the year and risks (e.g., the grain corridor, the security situation).

### Easing FX controls and government bond repatriation measures
- Selective easing of FX controls:
  - NBU intends to selectively ease FX controls to support economic activity, assessing adjustments case-by-case to ensure net impact is consistent with program parameters.
- Nonresident repatriation of government bond coupons:
  - Early April: NBU allowed nonresidents to repatriate coupons on domestic government bonds while extending restriction on repatriation of principal payments.
  - Observed market behavior: conversion of longer-maturity (2-year) bonds to short-term (1–3 month) bonds on the secondary market, allowing faster repatriation and potentially increasing FX outflows relative to the earlier estimate of "US$120 million for 2023".
  - Mid-May response: NBU tightened conditions, requiring a minimum continuous holding period of "90 days before the coupon payment is made".
  - NBU adopted an amendment to Resolution 18 and notified the Executive Board of this change under Decision 144.

### Safeguards, NBU-MoF payment arrangements, and monetary financing risks
- Safeguards and payment lags:
  - 2023 Safeguards Assessment found broadly strong safeguards, but monetary financing of the government needs a more robust framework (¶29).
  - NBU services Ukraine’s payments to the IMF on behalf of the MoF, but payment lags due to administrative issues resulted in short-term de facto monetary financing.
- Administrative reforms:
  - Authorities are streamlining administrative processes, including through digitalization, to eliminate internal payment lags.
  - NBU and MoF will introduce a Memorandum of Understanding (MEFP ¶45) describing respective responsibilities for IMF payments and covering all existing and future Fund arrangements.

### Financial sector: strategy, resilience, supervision, contingency planning
- Financial sector strategy:
  - NBU is finalizing the next iteration of its financial sector strategy (MEFP ¶48).
  - Financial Stability Council (FSC) approved its outline on May 4; final approval scheduled for late June; publication of non-market-sensitive parts in July.
  - Strategy is a living document, subject to annual review; the detailed roadmap reviewed every six months.
- Resilience assessment and AQR:
  - NBU launched a resilience assessment of banks in wartime in April and is preparing for a subsequent independent asset quality review (AQR) (MEFP ¶49).
  - Assessment scope: the 20 largest banks that account for "more than 90 percent of the banking system’s assets".
  - Results of the assessment will be published in "March 2024".
  - Bank rehabilitation framework being updated (Structural Benchmark, end-March 2024) to strengthen safety nets and minimize risks to the state.
  - Independent AQR will commence when conditions allow; methodology further detailed in consultation with IFIs.
- Supervision reforms:
  - Financial oversight functions reformed (MEFP ¶52), with two new functions created in April and organizational restructuring within supervision teams to transition to a risk-based supervisory approach.
  - Department of Integrated Banking Supervision to focus on oversight of banks and payment service providers; a new Director appointed.
  - Bank Related Parties Monitoring division to focus on related-party issues and prepare proposals for banking oversight committees.
  - Further reforms planned:
    - implement supervisory challenge panels to inform and promote consistency in Committee decisions;
    - resume scheduled onsite inspections suspended under martial law following legal changes (Structural Benchmark, end-September 2023);
    - implement a risk assessment model to optimize allocation of supervisory resources (Structural Benchmark, end-June 2024), first for banks then non-banks.
- Contingency planning:
  - Contingency plans for risks such as cyberattacks, sanctions, adverse court rulings and rapid deterioration of asset values continue to evolve.
  - NBU and Deposit Guarantee Fund (DGF) continue to assess and revise plans using a risk-based approach.
  - Financial Stability Council approved plans related to potential adverse rulings from constitutional challenges against the DGF Law and the Bank Resolution Law, and an updated contingency plan for litigation risks concerning past bank resolution decisions.
- Non-bank financial institutions (NBFIs) reform agenda (MEFP ¶53):
  - Amendments to the National Securities and Stock Market Commission (NSSMC) law (draft #5865) still being discussed in Parliament; adoption expected over the summer.
  - Credit Unions law (#5125) to be finalized by end-June; aims to enhance safety and soundness of credit unions ("0.05 percent of system assets") and pave way for deposit insurance after cleanup from NPLs.
- Bank intervention powers:
  - Law (#3111-X) adopted in late May to facilitate resolution of sanctioned and failing systemically important banks under martial law; authorities preparing detailed operational plans.
  - Intervention decisions should be grounded on financial stability considerations.
- Governance of State-owned banks (SOBs):
  - New independent supervisory board members appointed to SOBs in first half of 2023; NBU applied fit and proper assessment framework.
  - Selection process reviewed and enhanced following the second three-year recruitment cycle in consultation with IFI stakeholders.
  - Authorities committed to implementing annual business planning and performance assessment procedures for SOBs developed before the war.
  - 2020 general strategy for SOBs to be reviewed and updated to consider wartime needs and preserve financial stability if additional banks come under State control.
  - Amendments will focus on preserving financial stability, bank value, ringfencing potential losses, sound operational management, assessing viability and identifying the future of newly nationalized banks.
  - Decisions to be consistent with the overall strategy to reduce state ownership in the banking sector.
  - Following completion of the independent AQR, the roadmap for privatization of each SOB will be updated.

### Governance and growth-enhancing policies: recovery, anti-corruption, judicial reform, energy sector
- Recovery and reconstruction strategy:
  - Robust post-war growth and a comprehensive reform agenda needed to recover standards of living and pave path to EU accession.
  - Priorities: rebuilding human capital and attracting unprecedented investment, especially foreign private sources beyond donor support.
  - Essential enablers: entrenching the rule of law, independent and strong anti-corruption institutions, level playing field for businesses.
  - Staff welcomes recent positive anti-corruption developments (see ¶11) and accelerating inward migration since early 2023.
  - Authorities committed to an integrated strategy for critical spending for recovery and reconstruction (MEFP ¶56), taking into account debt sustainability, financing mix (grants and concessional financing), absorption capacity, and treatment of public guarantees.
  - Emphasis on transparency and accountability in post-war reconstruction with support from anti-corruption institutions, international partners, and civil society.
- Anti-corruption measures and rule of law:
  - Asset declarations (MEFP ¶60):
    - Over "60 percent of public officials have continued to submit asset declarations even after Martial Law suspended this obligation".
    - Targeted restoration of obligation for high risk and senior public officials (Structural Benchmark, end-July) to promote transparency.
    - Enhancements of the asset declaration system during Martial Law (Structural Benchmark, end-October) should preserve overall effectiveness and not derogate from obligation for truthful and complete disclosures.
  - Capacities of anti-corruption institutions:
    - Adoption of laws to improve institutional autonomy of the SAPO (Structural Benchmark, end-December).
    - Ensure NABU access to independent and competent forensic experts (MEFP ¶61).
  - AML/CFT controls over politically exposed persons (PEPs):
    - Amendments to the law on PEP requirements to align with FATF standards (Structural Benchmark, end-September).
    - NBU to amend regulations to clarify implementation of the risk-based approach regarding PEPs and conduct a thematic inspection of financial institutions’ compliance with enhanced customer due diligence on PEPs.
    - Authorities continue discussions on mechanisms to verify accuracy of beneficial ownership information in the registry given capacity constraints (MEFP ¶62).
- Judicial reforms:
  - Ongoing judicial reforms aim to enhance the rule of law culture and mitigate judicial corruption risks (MEFP ¶63).
  - Vetting procedures for judges (including Constitutional Court judges) are key to ensuring integrity, competence, and independence.
  - Robust disciplinary and accountability processes (including investigations by NABU and SAPO) will hold judges accountable.
  - A post-Martial Law Governance Diagnostic is committed to assess judicial corruption vulnerabilities and lay out future institutional reforms (MEFP ¶64).
- Energy sector reforms:
  - Short-term resilience and longer-term structural reforms:
    - Critical energy infrastructure repaired after attacks; country resumed electricity exports in April and is making steady progress refilling gas storage ahead of the next heating season.
    - Upside risk that "much less than 2 billion cubic of gas imports under the baseline" would be needed, supported by Naftogaz plans to increase gas production this year.
    - Ban on exports of domestic gas remains in place.
    - Near-term options include securing external financing, tariff increases to boost cost recovery, and transparent exceptional direct budget support subject to available financing.
    - Government committed to tackle structural challenges, ensure sustainability of the system and reduce quasi-fiscal liabilities.
  - Tariff actions:
    - Government increased household electricity prices as of June 1 from "UAH 1.44/kWh to UAH 2.64/kWh", the first increase since 2017, to restore energy system stability ahead of the next heating season.
    - Ukrenergo’s wholesale transmission tariffs increased in stages in 2023, enhancing cost recovery to some extent.
    - Key large SOEs operating under challenging environment; GTSO reducing operational costs, including investment, and updating corporate strategy.

*Source: IMF Country Report content unit 1ukrea2023002 (selected excerpts).*

### 59. The authorities continue to advance corporate governance reforms in the energy

### 1ukrea2023002 - 59. The authorities continue to advance corporate governance reforms in the energy sector

### Corporate governance reform in the energy sector (GTSO / MGU)
- Authorities on track to transfer the shareholding of the GTSO to the Ministry of Energy by end-July 2023 (Structural benchmark).
- CMU approved the relevant draft law on May 19, with Parliament adoption due by end-July.
- Authorities plan to adopt a new GTSO charter in agreement with the Energy Community (MEFP ¶67).
- After adoption of the draft law and charter, it is critical to institute a competitive, transparent, and merit-based nomination procedure for the new GTSO supervisory board so that:
  - the new board can be selected and appointed by end-October 2023 (proposed new Structural Benchmark);
  - the supervisory board of the holding company MGU, which will temporarily assume the supervisory board functions of the GTSO after the transfer of the GTSO shareholding, will be replaced by the new GTSO board in a timely manner (by end-October 2023) to avoid inconsistency with the objective of the corporate governance reform.

### Program modalities and assurances (LOI / MEFP commitments and QPCs)
- LOI and MEFP describe authorities’ progress and set out commitments.
- Quantitative targets:
  - Authorities request modification of the NIR QPC, increasing the targets for end-June and end-December 2023 by US$1 billion to US$16.5 billion.
  - Authorities request modification to fiscal QPC (non-defense cash primary balance excluding grants) to reflect: (i) a change in the definition that establishes the perimeter of defense spending; and (ii) the trajectory of expenditures within the year, while the end-2023 target remains unchanged.
  - Continuous performance criterion on issuance of state guarantees converted into a periodic QPC with effect from end-June.
- Definitions:
  - Revision proposed to the definition of the non-defense cash primary balance QPC that establishes the perimeter of defense spending as that of the state budget general fund; defense spending via the state budget special fund would therefore be excluded.
- Structural Benchmarks (four proposed):
  - Reinstate articles of the Budget Code to support preparation of the 2024 budget, notably allowing preparation of a medium-term budget framework, elaboration of a debt strategy, and ringfencing risks from state guarantees (end-September 2023).
  - Prepare a concept note with proposals for containing potential fiscal risks related to the 5-7-9 affordable loan program (end-September 2023).
  - Tax and customs administrations to develop comprehensive short- and medium-term action plans for inclusion in the overall NRS (end-October 2023).
  - Reinvigorate corporate governance reform at the GTSO through the selection and appointment of a supervisory board (end-October 2023).

### Debt sustainability assessment and restructuring strategy
- Forward-looking assessment: public debt continues to be assessed as sustainable conditional on implementation of a debt restructuring and receiving sufficiently concessional financing during and after the program period.
- Public debt projections:
  - Peak at 100.7 percent of GDP in 2025 under the baseline.
  - Peak at 135.8 percent of GDP in 2027 under the downside.
- Gross financing needs would remain very high in both scenarios.
- Targets consistent with sustainable debt (illustrative modeling):
  - Keep gross financing needs between 8-9 percent of GDP in the post program period (i.e., 2028–2033).
  - Reduce debt to 60–65 percent of GDP by 2033.
- Downside scenario would require deeper debt treatment and higher program-period grants; further exceptional financing over 2028–2033 would still be needed.
- Debt restructuring process includes:
  - Official bilateral debt: Group of Creditors for Ukraine announced on March 24, 2023 a debt service standstill during the EFF (2023–27) and a commitment to a final debt treatment before the final review of the program; committed to the level of relief necessary in the baseline and additional relief if downside emerges.
  - External commercial debt: Authorities and advisors taking early steps for a debt operation consistent with IMF DSA parameters and embedding comparability of treatment; aim to finalize the debt operation by mid-2024.

### Financing gaps, assurances, and capacity to repay
- Financing gaps (program period):
  - Baseline scenario financing gap: US$114.2 billion.
  - Downside scenario financing gap: US$139.5 billion.
  - These are almost unchanged relative to March 2023 gaps (US$115 billion and US$140 billion, respectively).
- Firm commitments provided for next 12-month period (July 2023 through June 2024); donor and creditor financing broadly consistent with expectations through May 2023.
- Capacity-to-repay assurance:
  - Significant group of creditors/donors at program approval reaffirmed support, comprising countries in the G7 plus Belgium, Lithuania, the Netherlands, Poland, Slovakia, and Spain.
  - Assurance understood to: (i) reaffirm recognition of the Fund’s preferred creditor status for amounts currently outstanding to Ukraine, plus any purchases under the proposed extended arrangement; and (ii) undertake to provide adequate financial support to secure Ukraine’s ability to service obligations to the Fund.
- Fund credit and debt service projections under baseline:
  - Stock of total Fund credit expected to peak at 5.3 percent of GDP and 29.9 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 1.0 percent of GDP and 5.7 percent of gross reserves in 2024.
- Ukraine does not have any external arrears.

### Financing tables (selected exact figures from baseline and downside scenarios)
- Baseline scenario (Table 1, aggregated rows shown; figures in US$ billions):
  - A. Financing gap: 42.2 38.5 23.6 14.4 4.8 114.2 24.7
  - Underlying BOP Gap 2/4: 0.2 35.7 20.7 11.1 -1.6 100.1 21.2
  - GIR accumulation (+ = increase): 2.0 2.7 2.9 3.2 6.4 14.1 3.4
  - B. Official financing (excl. IMF) 3/: 37.7 28.5 18.5 8.2 0.0 83.8 18.6
  - C. IMF (prospective): 4.5 5.4 1.8 2.6 1.3 15.6 3.1
  - D. Potential flow relief from debt operations: 4.6 3.2 3.6 3.5
  - E=A-B-C-D Residual financing gap: 0.0 0.0 0.0 0.0 0.0 0.0 0.0
  - Memorandum items:
    - IMF (net disbursements): 1.9 3.0 -0.5 0.6 0.1 3.2 1.0
    - Gross international reserves: 30.5 33.2 36.1 39.4 45.7 37.0
    - % of composite metric 4/: 82.3 78.3 80.0 81.4 91.2
  - Notes: Cumulative (prog. period) and Annual avg. (2023-27) calculations begin from Q2 2023 / calendar year basis.

- Downside scenario (Table 2, aggregated rows shown; figures in US$ billions):
  - A. Financing gap: 46.7 45.0 28.5 18.4 10.1 16.1 13.5 12.9 10.4 10.4 10.0 9.5 139.5 29.7 12.1
  - Underlying BOP Gap 2/4: 4.7 42.2 25.6 15.1 3.7 13.6 10.6 9.8 8.7 8.5 6.7 12.5 126.4 26.3 9.6
  - GIR accumulation (+ = increase): 2.0 2.7 2.9 3.2 6.4 2.5 3.0 3.1 1.7 1.6 2.9 14.1 3.4 2.5
  - B. Official financing (excl. IMF): 2/4: 2.2 35.0 23.5 12.2 4.9 0.0 0.0 0.0 0.0 0.0 0.0 108.6 23.6 0.0
  - C. IMF (prospective): 4.5 5.4 1.8 2.6 1.3 0.0 0.0 0.0 0.0 0.0 0.0 15.6 3.1 0.0
  - D. Potential flow relief from debt operations: 4.6 3.2 3.6 3.9 9.0 6.4 5.8 3.3 2.9 2.4 15.3 3.8 5.0
  - E=A-B-C-D Adjusted financing gap: 7.1 7.1 7.1 7.1 7.1 7.1
  - F. Exceptional financing 5/: 7.1 7.1 7.1 7.1 7.1 7.1
  - G=E-F Residual financing gap: 0.0 (all periods listed)
  - Memorandum items:
    - Capital market access: 0.0 ... 1.5 (select periods shown)
    - IMF (net disbursements): 1.9 3.0 -0.5 0.6 0.1 -1.0 -1.7 -2.1 -2.5 -2.6 -2.3 3.2 1.0 -2.1
    - Gross international reserves: 30.5 33.2 36.1 39.4 45.7 48.3 51.2 54.3 56.0 57.6 60.5 37.0 54.7
    - % of composite metric 6/: 84.9 80.8 82.5 84.2 94.6 97.3 99.7 104.4 105.2 107.2 110.5
  - Notes: Annual avg. (2028-33) and other period calculations specified in table notes.

### Capacity development, staff appraisal, and policy recommendations
- Capacity development (CD) needs:
  - Large CD needs across fiscal analysis and risks, tax revenue policy and administration, monetary and FX policy communications and operations, financial sector supervision and governance.
  - CD delivery to be coordinated and financed through the newly established Ukraine CD Subaccount.
- IMF CD approach:
  - Carefully prioritized and tailored reflecting war-related constraints and absorptive capacity.
  - Emphasis on well-targeted CD activities with short, focused in-person components and agility to respond to changing priorities.
- Staff appraisal highlights and policy recommendations:
  - Ukrainian economy staging a gradual recovery; growth upgraded to 1–3 percent in 2023.
  - Inflation decelerating, reserves buoyant, FX market stable.
  - Risks remain exceedingly high and uncertainty persists due to war, need for significant concessional financing, and possible policy slippages.
  - Program performance strong under First Review: all QPCs for end-April 2023 met; all five structural benchmarks through end-May 2023 met.
  - Fiscal policy: firm policy actions needed to achieve fiscal targets; create fiscal space via strong revenue measures, improve tax compliance, reverse measures on the simplified tax introduced during martial law; avoid measures that erode tax revenues; be ready to step up domestic debt issuance as needed.
  - 2024 budget should account for resource constraints and be based on a conservative macroframework.
  - Recovery and reconstruction projects feasible if additional financing raised on terms consistent with debt sustainability (grants or highly concessional loans).
  - NBU strategy: conditions-based strategy appropriate; transition from exchange rate peg to flexible exchange rate and return to inflation targeting once conditions permit; conditional scope for earlier easing in monetary policy.
  - Financial stability: heightened vigilance required; preserve comprehensive measures and prepare to respond to high-impact risks.
  - Governance and anti-corruption reforms: proceed without delay and sustainably; restore asset declarations for public officials not involved in the war effort; amend AML/CFT law to ensure due diligence for politically exposed people; adopt legislation on SAPO in December is crucial.
- Program safeguards:
  - EFF for Ukraine satisfies Fund policies governing financing assurances for UCT-financing under exceptionally high uncertainty.
  - Credible process to restructure private external commercial claims is underway; adequate financing assurances on debt relief and concessional financing received from official bilateral creditors and donors to support debt sustainability in baseline and downside.
  - Assurance provided by a significant group of Fund shareholders completes necessary safeguards for capacity to repay.

*Source: IMF staff report text excerpt (1ukrea2023002 - 59).*

### 76. Staff supports the authorities’ request to complete the First Review under the

### 1ukrea2023002 - 76. Staff supports the authorities’ request to complete the First Review under the Extended Arrangement

### Program endorsement and conditionality
- Staff supports the authorities’ request to complete the First Review under the Extended Arrangement, as well as their request for modifications of three QPCs.
- Rationale cited:
  - "The authorities’ strong performance so far under the program, their commitment to maintaining appropriate policies as well as commitments from donors provide confidence that the program will meet its objectives."
- Specific staff-supported QPC modifications:
  - Proposed modifications to the QPCs on the non-defense cash primary balance and net international reserves.
  - Conversion of the continuous QPC on guarantees into a periodic QPC.

### Structural benchmarks (Table 3) — selected entries, timing, and status
- 1. Enact the second supplementary Budget 2023 — Sector: Fiscal — Timing: End-April 2023 — Status: Met
- 2. 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 — Sector: Fiscal — Timing: End-May 2023 — Status: Met
- 3. Prepare an action plan, including to address the weaknesses identified in taxpayers’ perception survey, as an input into National Revenue Strategy roadmap — Sector: Fiscal — Timing: End-May 2023 — Status: Met
- 4. Submit to Parliament a draft law which will reinstate articles of Budget Code that establish limits on issuance of public guarantee with clear criteria for such provision (including for priority sectors) — Sector: Fiscal — Timing: End-May 2023 — Status: Met
- 5. 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 — Sector: Fiscal — Timing: End-May 2023 — Status: Met
- 6. Adopt the draft law on tax policy and administration prepared under the PMB — Sector: Fiscal — Timing: End-July 2023 — Status: Reset
- Additional benchmarks through end-June 2024 include actions on exchange rate strategy (End-June 2023), GTSO shareholding transfer (End-July 2023), restoration of asset declaration (End-July 2023), medium-term budget framework articles (End-September 2023), National Revenue Strategy inputs and adoption (End-October 2023; End-December 2023), AML/CFT amendments (End-September 2023), financial-sector governance and supervisory measures (End-September 2023; End-March 2024; End-June 2024), public investment management reforms (End-December 2023), and others as listed in Table 3 (timings and sectors preserved in the source).

### Macroeconomic outlook and key projections (selected)
- Real economy:
  - Real GDP (percent change): 2021 Act. 3.4; 2022 Act. -30.3; 2023 EFF Approval -29.1; 2024 Proj. [ -3 to +1 ] (range reported in source); 2025 Proj. [ 1 to 3 ] (range reported in source); 2026 Proj. 3.2; 2027 Proj. 6.5; 2028–2033 Projs. 5.0, 4.0, 4.0, 4.0, 4.0, 4.0, 4.0, 3.8, 3.8
  - Contributions to 2023 real GDP change (selected): Domestic demand -23.7; Private consumption -16.6; Investment -13.9; Net exports -5.4
- Prices and labor:
  - Consumer prices (period average): 2021 Act. 9.4; 2022 Act. 20.2; 2023 Act. 21.1; 2024 Proj. 17.7; 2025 Proj. 13.0; 2026 Proj. 8.6; 2027 Proj. 6.7; later years 5.5, 5.0, 5.0, 5.0, 5.0, 5.0, 5.0
  - Unemployment rate (ILO definition; period average, percent): 2021 Act. 9.8; 2022 Act. 24.5; 2023 Act. 24.5; 2024 Proj. 20.9; 2025 Proj. 19.4; 2026 Proj. 10.6; 2027 Proj. 9.2; 2028–2033 Projs. 8.7, 8.4, 8.5, 8.2, 8.1, 8.1, 8.0
- Fiscal sector (selected aggregates, percent of GDP) — Table 5b:
  - Revenue (percent of GDP): 2021 Act. 36.5; 2022 Act. 53.2; 2023 Act. 50.3; 2024 Proj. 47.3; 2025 Proj. 43.9; 2026 Proj. 41.5; 2027 Proj. 40.6; 2028–2033 Projs. 41.0, 41.4, 41.8, 41.5, 40.6, 40.5, 40.5
  - Expenditure (percent of GDP): 2021 Act. 40.5; 2022 Act. 69.9; 2023 Act. 66.0; 2024 Proj. 67.7; 2025 Proj. 63.0; 2026 Proj. 59.3; 2027 Proj. 50.2; 2028–2033 Projs. 46.3, 45.2, 43.8, 43.1, 42.4, 41.1, 41.0
  - General government overall balance (percent of GDP): 2021 Act. -4.0; 2022 Act. -16.7; 2023 Act. -15.7; 2024 Proj. -20.4; 2025 Proj. -19.1; 2026 Proj. -17.8; 2027 Proj. -9.6; 2028–2033 Projs. -5.3, -3.8, -2.0, -1.6, -1.2, -0.9, -0.7, -0.5 (Table 5b includes detailed yearly series)
  - General government overall balance, excluding grants (percent of GDP): 2021 Act. -4.0; 2022 Act. -26.5; 2023 Act. -25.0; 2024 Proj. -28.2; 2025 Proj. -25.8; 2026 Proj. -21.1; 2027 Proj. -11.6; 2028–2033 Projs. -6.4, -4.9, -3.0, -2.4, -1.9, -1.5, -1.3, -1.2
  - Public and publicly-guaranteed debt (percent of GDP): 2021 Act. 48.9; 2022 Act. 81.7; 2023 Act. 78.5; 2024 Proj. 98.3; 2025 Proj. 88.1; 2026 Proj. 98.6; 2027 Proj. 100.7; 2028–2033 Projs. 99.5, 98.4, 94.6, 90.9, 86.9, 82.9, 79.0, 75.2 (series from Table 5b)
- External sector and reserves:
  - Gross reserves (end of period, billions of U.S. dollars): 2021 Act. 30.9; 2022 Act. 28.5; 2023 Act. 28.5; 2024 Proj. 29.6; 2025 Proj. 30.5; 2026 Proj. 33.2; 2027 Proj. 36.1; 2028–2033 Projs. 39.4, 45.7, 48.3, 51.2, 54.3, 56.0, 57.6, 60.5 (Table 4 / Table 6a memoranda)
  - Months of next year's imports of goods and services: 2021 Act. 4.5; 2022 Act. 3.9; 2023 Act. 3.8; 2024 Proj. 4.0; 2025 Proj. 4.1; 2026 Proj. 4.4; 2027 Proj. 4.5; 2028–2033 Projs. 4.8, 5.2, 5.3, 5.3, 5.4, 5.3, 5.2, 5.3
  - Current account balance (percent of GDP, memorandum): 2021 Act. -1.6; 2022 Act. 4.4; 2023 Act. 5.0; 2024 Proj. -4.4; 2025 Proj. -5.7; 2026 Proj. -7.2; 2027 Proj. -7.1; 2028–2033 Projs. -6.1, -3.4, -3.8, -3.8, -3.5, -3.4, -3.3, -3.0
- Fund program financing and balance-of-payments support:
  - Table 11 schedule: Total cumulative access (Millions of SDR) and Millions of USD presented across review dates; total listed as "Total 11,608.25 15,636.89 577.0" (source table).
  - Table 9 (Indicators of Fund Credit): Stock of existing Fund credit (end of period) 2023 7,715; 2024 5,936; 2025 4,199; 2026 2,702; 2027 1,844; 2028 1,509; 2029 1,174; 2030 838; 2031 503; 2032 168; 2033 0 (values in millions of SDR as in source).

### Quantitative performance criteria and indicative targets (selected, Table 10)
- Quantitative Performance Criteria (QPC) — reported values and statuses for 2023:
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (program definition (CR 23/132)): March Actual 258,352; March Prgm. PC 353,024; Status: Met; June Proposed re-definition values and other program/test-date numbers are presented in the source table (including proposed re-definition floor values 213,000; 242,900; specific proposed IT/QPC numbers for 2024 and 2023 test dates are shown in Table 10).
  - Floor on net international reserves (in millions of U.S. dollars): March Prgm. PC 15,500; March Actual 23,762; Status: Met; June Prgm. PC 15,500; Proposed Rev. QPC 16,500; Program/Proposed series include repeated 15,500 and 16,500 test-date targets.
  - Floor on tax revenues (excluding Social Security Contributions): March Actual 451,700; March Prgm. PC 472,689; Status: Met; later program and proposed targets include 696,400; 1,094,700; 1,679,170 and indicative quarterly targets 420,000; 835,000 as reported in Table 10.
  - Ceiling on publicly guaranteed debt: Proposed conversion of continuous QPC into periodic QPC and proposed ceilings include 37,000 and 46,000 in specified test dates (Table 10).
- Indicative targets and continuous criteria include:
  - Floor on the overall cash balance of the general government, excluding budget support grants (values reported across test dates, e.g., March -356,500; June -364,580; Not met status at one test date)
  - Ceiling on general government borrowing from the NBU (values e.g., -2,551; Met at one test date)
  - Ceiling on general government arrears (target 6,000; Actual 1,757; Met)
  - Floor on social spending (e.g., March target 187,000; Actual 182,321; Not met)
- Memorandum items reported in Table 10 include external project financing, budget support grants, budget support loans, interest payments, NBU profit transfers, spending from confiscated Russian assets, and spending on gas purchases/PSO compensation with exact figures preserved in the source table.

### Financing needs and risks (selected)
- Gross external financing requirements (Table 7, A. Total financing requirements, Billions of U.S. dollars): 2021 Act. 37.2; 2022 Act. 57.6; 2023 Act. 56.8; 2024 Proj. 68.8; 2025 Proj. 69.6; 2026 Proj. 64.7; 2027 Proj. 55.6; 2028 Proj. 55.8; 2029–2033 Projs. 50.5, 52.8, 55.3, 58.9, 55.9, 54.8, 54.8 (full series in Table 7).
- Total exceptional financing needs (Panel D): 2023 value 33.2 (Billions of U.S. dollars) and a sequence of yearly values showing residual financing needs (Table 7).
- Official financing (Panel E, Table 7, Billions of U.S. dollars): 2021 Act. 1.7; 2022 Act. 30.6; 2023 Act. 30.6? (table lists "1.7 30.6 30.6 40.6..." formatting preserved in source) and further year-by-year components including IMF, official grants, and official creditors as detailed in Table 7.
- Risk assessment: Table notes that the Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path; qualitative risk likelihood categories are described in the source (low, medium, high) and the RAM reflects staff views "as of the time of discussions with the authorities."

*Source: Excerpts from the IMF staff report and appended tables and figures contained in the provided PDF content.*

### Annex I. Risk

### Annex I. Risk

### Assessment Matrix — Key External Risks and Implications
- Intensification of regional conflict(s)
  - Likelihood: High
  - Expected impact: High
  - Findings:
    - Escalation of the war in Ukraine or other regional conflicts and resulting economic sanctions disrupt trade (e.g., energy, food, tourism, and/or critical supply chain components), remittances, refugee flows, FDI and financial flows, and payment systems.
    - A longer and more intensive war would lead to further destruction of the capital stock, outward migration, and internal displacement.
    - The nascent recovery would stall, and growth would fall sharply amid lack of confidence and high uncertainty.
    - Further restrictions on seaport access and logistical challenges would curtail the recovery of exports, while import needs would rise (for defense, energy, and infrastructure repair), widening fiscal and external financing needs.
    - Financing constraints may force the authorities to resort to monetary financing, raising pressures on prices and the exchange rate.
    - High inflation would further erode purchasing power and increase poverty.
    - Weak activity could weigh on bank and SOE balance sheets.
  - Policy response:
    - Maintain appropriate macroeconomic policies to safeguard macroeconomic and financial stability and prepare contingency plans to prepare for the materialization of downside risks.
    - Mobilize domestic financing to help meet fiscal financing needs and seek additional external financing that is grant-based or on highly- concessional terms.
    - Enhance and update contingency plans, including for the financial sector.

- Abrupt global slowdown or recession
  - Likelihood: Medium
  - Expected impact: High
  - Findings:
    - Recessions in key donor countries could reduce or delay disbursement of committed external financing and shift the financing mix toward less advantageous and more expensive sources (monetary financing, other borrowing on non-concessional terms).
  - Policy response:
    - Prioritize spending and seek additional revenue measures.
    - Mobilize domestic financing to plug financing gaps.
    - Diversify external financing sources and obtain financing that is grant-based or on highly concessional terms.

- Commodity price volatility
  - Likelihood: Medium
  - Expected impact: High
  - Findings:
    - Successive supply disruptions and demand fluctuations cause recurrent commodity price volatility, external and fiscal pressures, and social and economic instability.
    - High energy prices could further strain consumption and business activity and widen fiscal and external financing needs.
    - Low and/or volatile prices for agriculture products amid logistical costs could alter sowing decisions for future agriculture seasons.
  - Policy response:
    - Continue rationing access to energy to priority areas.
    - Limit electricity exports.
    - Increase gas production.
    - Secure alternative sources and storage for gas through the heating season.
    - Targeted transfers to most vulnerable groups within the existing budget envelope.

- Monetary policy miscalibration
  - Likelihood: Medium
  - Expected impact: Low
  - Findings:
    - A premature loosening by major central banks could de-anchor inflation expectations and trigger a wage-price spiral in tight labor markets elsewhere, but Ukraine’s wartime context limits this channel.
    - Inflation in Ukraine is largely cost-based; demand remains weak; labor markets show widespread dislocation.
    - The domestic monetary policy stance is likely to remain tight to safeguard price and external stability; borrowing costs are unlikely to materially decline given persisting risk premia.
  - Policy response:
    - Maintain appropriate macroeconomic policies to anchor inflation expectations.
    - Diversify external financing sources.
    - Mobilize domestic financing.

### Domestic Risks
- Social unrest
  - Likelihood: Medium
  - Expected impact: High
  - Findings:
    - Rising inflation, declining real incomes, and worsening inequality could amplify social unrest and undermine national unity, resulting in counterproductive populist policies that widen fiscal and external imbalances, delay adjustment, and stall reform momentum.
  - Policy response:
    - Maintain appropriate macroeconomic policies to safeguard stability.
    - Targeted transfers to most vulnerable groups within the existing budget envelope.

- Loss of reform momentum
  - Likelihood: Medium
  - Expected impact: High
  - Findings:
    - Poor governance, corruption, retrenchment of oligarchic interests, and lack of oversight on the use of external funding could decrease incentives for reform.
    - Lack of progress on reforms exacerbates financing gaps, reduces future external financing inflows and could lead to donor fatigue.
  - Policy response:
    - Adhere to governance reforms while maintaining recent progress made in strengthening anti-corruption and judicial institutions.
    - Mobilize domestic financing and prioritize spending.

- Loss of transit corridors and EU restrictions for agricultural produce
  - Likelihood: High
  - Expected impact: High
  - Findings:
    - A non-renewal of the Black Sea Grain Initiative would have a severe impact on Ukraine’s balance of payments, exacerbating financing gaps and FX markets and undermining the nascent recovery.
    - A prolonged closure of transit routes through Eastern Europe would curtail exports and weigh on future farming decisions.
  - Policy response:
    - Urge partners for a quick resolution toward full implementation of the BSGI and facilitating transit routes.
    - Diversify supply chains.
    - Accelerate the reconstruction of Danube Deep Sea shipping lanes and repair of railroads with external financing.

- Nationalization of banks on political grounds
  - Likelihood: Medium
  - Expected impact: Medium
  - Findings:
    - Excessive interference on political grounds, including nationalization for reasons outside of financial stability, could pose risks to foreign-owned banks and the banking system overall.
  - Policy response:
    - Implement an updated strategy for SOBs, including a framework to preserve value, manage, and decide the future of freshly nationalized banks.

### Structural Risks
- Deepening geo-economic fragmentation
  - Likelihood: High
  - Expected impact: High
  - Findings:
    - Broader conflict(s) and weakened international cooperation could cause reconfiguration of trade and FDI, supply disruptions, technological and payments systems fragmentation, rising input costs, financial instability, and lower potential growth.
    - Ukraine, as a trade dependent economy at the fault line of geopolitical tensions, is exposed to supply chain issues.
  - Policy response:
    - Maintain appropriate macroeconomic policies to safeguard stability and ensure adequate resources for core functions of the state.
    - Diversify trade products, supply chains, and partners.
    - Continue with reforms to support competitiveness and increase productivity.

- Cyberthreats
  - Likelihood: High
  - Expected impact: High
  - Findings:
    - Cyberattacks on critical physical or digital infrastructure (including digital currency and crypto ecosystems) could trigger financial and economic instability.
    - Ukraine remains exposed to attacks on critical infrastructure (electricity, heat, and water) and digital infrastructure that could disrupt the banking system, energy sector and economic activity, particularly given reliance on non-cash payments during the war.
  - Policy response:
    - Strengthen digital infrastructure and cybersecurity.
    - Diversify electricity, energy, and water supplies.

### Cross-cutting Observations from the Assessment Matrix
- Many high-likelihood, high-impact risks are directly tied to the course of the war and international responses (e.g., sanctions, BSGI renewals, donor financing).
- Policy recommendations consistently emphasize:
  - Maintaining appropriate macroeconomic policies to safeguard macroeconomic and financial stability.
  - Mobilizing domestic financing and prioritizing spending.
  - Seeking and securing additional external financing that is grant-based or on highly-concessional terms.
  - Enhancing contingency and sector-specific (financial, energy, logistics, cybersecurity) preparedness.

*Source: IMF staff — Annex I. Risk*

### 2. Subsectors included in the chosen coverage in (1) above:

### 1ukrea2023002 - 2. Subsectors included in the chosen coverage in (1) above:

### Subsectors captured in the baseline
- Inclusion table (as presented):
  - 1 Budgetary central government — Ye s
  - 2 Extra budgetary funds (EBFs) — No
  - 3 Social security funds (SSFs) — Ye s
  - 4 State governments — Ye s
  - 5 Local governments — Ye s
  - 6 Public nonfinancial corporations — Ye s
  - 7 Central bank — Ye s
  - 8 Other public financial corporations — Ye s

- Coverage note:
  - The coverage of the DSA is based on end-2022 debt stock data.
  - Public debt includes: (i) central government direct debt; (ii) domestic and external government-guaranteed debt (loans and bonds) extended to state-owned enterprises (SOEs); (iii) debt of local governments; and (iv) Ukraine's liabilities to the IMF that are not included in central government direct debt.
  - It does not include non-guaranteed domestic and external liabilities of SOEs, nor does it include Ukraine's GDP warrants.
  - Data concerning debt consolidation across sectors are not available.

### Instrument coverage, accounting principles, and reporting bases
- Data availability statement:
  - Data unavailable for "Debt consolidation across sectors".
- Reporting and valuation indicators shown in source:
  - Non-consolidated / Consolidated labels across CPS, NFPS, GG: expected, CG.
  - Basis of recording indicators: Non-cash basis 4/; Cash basis.
  - Valuation of debt stock indicators: Nominal value 5/; Face value 6/; Market value 7/.
  - Notes on valuation definitions (verbatim from source):
    - 5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. It reflects the value of the instrument at creation and subsequent economic flows (such as transactions, exchange rate, and other valuation changes other than market price changes, and other volume changes).
    - 6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity.
    - 7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values.

### Public debt structure (end-2022 and projections)
- End-2022 highlights:
  - Externally held debt rose to 64 percent of total public and publicly guaranteed debt.
  - Multilateral debt accounted for the largest share (35 percent).
  - Domestic debt is mostly held by residents and denominated in hryvnia.
  - The share of FX debt in total debt is expected to continue to rise based on the preponderance of expected official financing during the program.

- Chart series and categories presented (percent of GDP unless indicated):
  - Debt by Currency: Foreign currency / Local currency / Local-linked (time series 2013–2033 projections)
  - Public Debt by Holder: External private creditors / External official creditors / Domestic other creditors / Domestic commercial banks (time series)
  - Public Debt by Governing Law, 2022: Domestic law / Foreign law ex. multilateral / Multilateral (2022 snapshot)
  - Debt by Instruments: Debt securities / Loans / IPSGSs 3/ / Currency & deposits
  - Public Debt by Maturity: ≤ 1 year / 1-5 years / > 5 years (time series)
  - Marketable vs Nonmarketable and guaranteed debt time series

### Pre-Restructuring Baseline Scenario: key projected figures (selected series)
- Public debt (percent of GDP) by year:
  - Actual 2022 — 78.5
  - 2023 — 88.1
  - 2024 — 98.6
  - 2025 — 100.7
  - 2026 — 99.5
  - 2027 — 98.4
  - 2028 — 94.6
  - 2029 — 90.9
  - 2030 — 86.9
  - 2031 — 82.9
  - 2032 — 79.0
  - 2033 — 75.2

- Change in public debt (percent of GDP):
  - 2022 — 29.5
  - 2023 — 9.7
  - 2024 — 10.4
  - 2025 — 2.1
  - 2026 — -1.2
  - 2027 — -1.1
  - 2028 — -3.8
  - 2029 — -3.8
  - 2030 — -3.9
  - 2031 — -4.1
  - 2032 — -3.9
  - 2033 — -3.8

- Contribution of identified flows (percent of GDP):
  - 2022 — 24.1
  - 2023 — 10.9
  - 2024 — 10.8
  - 2025 — 2.1
  - 2026 — -1.5
  - 2027 — -2.5
  - 2028 — -4.7
  - 2029 — -4.5
  - 2030 — -4.8
  - 2031 — -4.8
  - 2032 — -4.5
  - 2033 — -4.3

- Primary deficit (percent of GDP):
  - 2022 — 12.6
  - 2023 — 14.7
  - 2024 — 12.3
  - 2025 — 5.3
  - 2026 — 1.1
  - 2027 — 0.0
  - 2028 — -1.4
  - 2029 — -1.5
  - 2030 — -1.7
  - 2031 — -1.7
  - 2032 — -1.7
  - 2033 — -1.7

- Automatic debt dynamics (percent of GDP):
  - 2022 — 11.5
  - 2023 — -3.7
  - 2024 — -1.4
  - 2025 — -4.8
  - 2026 — -3.2
  - 2027 — -2.3
  - 2028 — -2.6
  - 2029 — -2.3
  - 2030 — -2.7
  - 2031 — -2.8
  - 2032 — -2.6
  - 2033 — -2.5

- Gross financing needs (percent of GDP):
  - 2022 — 25.0
  - 2023 — 26.0
  - 2024 — 26.3
  - 2025 — 19.9
  - 2026 — 16.1
  - 2027 — 12.9
  - 2028 — 11.3
  - 2029 — 10.7
  - 2030 — 9.3
  - 2031 — 9.9
  - 2032 — 7.8
  - 2033 — 7.6

- Debt service component of GFN (percent of GDP):
  - 2022 — 12.4
  - 2023 — 11.3
  - 2024 — 14.1
  - 2025 — 13.4
  - 2026 — 15.0
  - 2027 — 12.9
  - 2028 — 12.6
  - 2029 — 12.1
  - 2030 — 11.0
  - 2031 — 11.6
  - 2032 — 9.5
  - 2033 — 9.2

- Memo (selected macro assumptions):
  - Real GDP growth (percent):
    - 2022 — -29.1
    - 2023 — 2.0
    - 2024 — 3.2
    - 2025 — 6.5
    - 2026 — 5.0
    - 2027 — 4.0
    - 2028 — 4.0
    - 2029 — 4.0
    - 2030 — 4.0
    - 2031 — 4.0
    - 2032 — 3.8
    - 2033 — 3.8
  - Inflation (GDP deflator; percent):
    - 2022 — 34.3
    - 2023 — 22.8
    - 2024 — 15.0
    - 2025 — 9.9
    - 2026 — 6.5
    - 2027 — 5.0
    - 2028 — 5.0
    - 2029 — 5.0
    - 2030 — 5.0
    - 2031 — 5.0
    - 2032 — 5.0
    - 2033 — 5.0
  - Nominal GDP growth (percent):
    - 2022 — -4.8
    - 2023 — 25.2
    - 2024 — 18.6
    - 2025 — 17.1
    - 2026 — 11.8
    - 2027 — 9.2
    - 2028 — 9.2
    - 2029 — 9.2
    - 2030 — 9.2
    - 2031 — 9.2
    - 2032 — 9.0
    - 2033 — 9.0
  - Effective interest rate (percent):
    - 2022 — 5.8
    - 2023 — 7.1
    - 2024 — 7.6
    - 2025 — 5.2
    - 2026 — 4.6
    - 2027 — 4.2
    - 2028 — 3.8
    - 2029 — 3.6
    - 2030 — 3.5
    - 2031 — 3.2
    - 2032 — 3.1
    - 2033 — 3.0

- Narrative summary (verbatim highlights):
  - The dynamics of public debt are little changed from the EFF approval.
  - Debt is projected to rise further in 2023-25, largely reflecting the primary deficit.
  - A recovery expected to take hold in 2025 will lead to a slight downward trajectory over the rest of the forecast horizon.
  - Debt service assumptions incorporate the terms of the 2022 debt service standstill agreed with private bondholders and warrant holders, as well as the standstill with a group of official bilateral creditors.
  - Medium-term gross financing needs are slightly higher than in the program request, largely reflecting higher local currency debt service.

### Pre-Restructuring Downside Scenario: key projected figures (selected series)
- Public debt (percent of GDP) by year:
  - Actual 2022 — 78.5
  - 2023 — 105.4
  - 2024 — 116.7
  - 2025 — 125.7
  - 2026 — 135.7
  - 2027 — 135.8
  - 2028 — 132.8
  - 2029 — 129.2
  - 2030 — 124.9
  - 2031 — 120.1
  - 2032 — 115.1
  - 2033 — 109.9

- Change in public debt (percent of GDP):
  - 2022 — 29.5
  - 2023 — 27.0
  - 2024 — 11.3
  - 2025 — 9.0
  - 2026 — 10.0
  - 2027 — 0.2
  - 2028 — -3.0
  - 2029 — -3.6
  - 2030 — -4.3
  - 2031 — -4.8
  - 2032 — -4.9
  - 2033 — -5.3

- Contribution of identified flows (percent of GDP):
  - 2022 — 24.1
  - 2023 — 19.6
  - 2024 — 15.1
  - 2025 — 13.6
  - 2026 — 10.3
  - 2027 — -1.4
  - 2028 — -4.5
  - 2029 — -4.7
  - 2030 — -4.7
  - 2031 — -5.1
  - 2032 — -5.1
  - 2033 — -5.4

- Primary deficit (percent of GDP):
  - 2022 — 12.6
  - 2023 — 17.0
  - 2024 — 13.5
  - 2025 — 12.7
  - 2026 — 9.2
  - 2027 — 1.4
  - 2028 — -0.7
  - 2029 — -0.8
  - 2030 — -1.1
  - 2031 — -1.4
  - 2032 — -1.7
  - 2033 — -2.1

- Automatic debt dynamics (percent of GDP):
  - 2022 — 11.5
  - 2023 — 2.6
  - 2024 — 1.7
  - 2025 — 0.4
  - 2026 — 0.3
  - 2027 — -2.7
  - 2028 — -3.1
  - 2029 — -3.2
  - 2030 — -3.2
  - 2031 — -3.3
  - 2032 — -3.2
  - 2033 — -3.1

- Gross financing needs (percent of GDP):
  - 2022 — 25.0
  - 2023 — 29.1
  - 2024 — 30.1
  - 2025 — 27.2
  - 2026 — 30.3
  - 2027 — 23.7
  - 2028 — 22.2
  - 2029 — 21.3
  - 2030 — 18.9
  - 2031 — 20.3
  - 2032 — 15.1
  - 2033 — 14.8

- Debt service component of GFN (percent of GDP):
  - 2022 — 12.4
  - 2023 — 12.0
  - 2024 — 16.6
  - 2025 — 14.5
  - 2026 — 21.2
  - 2027 — 22.4
  - 2028 — 22.9
  - 2029 — 22.0
  - 2030 — 20.0
  - 2031 — 21.8
  - 2032 — 16.8
  - 2033 — 16.8

- Memo (selected macro assumptions — downside scenario):
  - Real GDP growth (percent):
    - 2022 — -29.1
    - 2023 — -7.0
    - 2024 — -1.5
    - 2025 — 0.0
    - 2026 — 2.0
    - 2027 — 4.0
    - 2028 — 3.8
    - 2029 — 3.8
    - 2030 — 3.8
    - 2031 — 3.8
    - 2032 — 3.8
    - 2033 — 3.8
  - Inflation (GDP deflator; percent):
    - 2022 — 34.3
    - 2023 — 26.7
    - 2024 — 24.9
    - 2025 — 18.3
    - 2026 — 7.3
    - 2027 — 5.2
    - 2028 — 5.0
    - 2029 — 5.0
    - 2030 — 5.0
    - 2031 — 5.0
    - 2032 — 5.0
    - 2033 — 5.0
  - Nominal GDP growth (percent):
    - 2022 — -4.8
    - 2023 — 17.8
    - 2024 — 23.1
    - 2025 — 18.3
    - 2026 — 9.5
    - 2027 — 9.4
    - 2028 — 9.0
    - 2029 — 9.0
    - 2030 — 9.0
    - 2031 — 9.0
    - 2032 — 9.0
    - 2033 — 9.0
  - Effective interest rate (percent):
    - 2022 — 5.8
    - 2023 — 6.8
    - 2024 — 7.7
    - 2025 — 5.3
    - 2026 — 5.5
    - 2027 — 4.8
    - 2028 — 4.2
    - 2029 — 4.1
    - 2030 — 4.0
    - 2031 — 3.9
    - 2032 — 3.9
    - 2033 — 3.9

- Narrative summary (verbatim highlights):
  - The features of the downside scenario presented in the Request for an Arrangement under the Extended Fund Facility have not changed, although debt levels have been revised down.
  - The contour of the debt trajectory in the adverse scenario is sharply upward over the next several years before it decreases to still-high levels.
  - Financing needs are substantially higher in the adverse scenario, particularly in the next five years.

### Medium-term Risk Analysis (Pre-Restructuring Baseline Scenario)
- Key indicators and values:
  - Debt fanchart module:
    - Fanchart width — 149.0 2.2 (percent of GDP)
    - Probability of debt non-stabilization (percent) — 10.0 0.1
    - Terminal debt-to-GDP x — 64.9 1.4
    - Debt fanchart index (DFI) — 3.7
    - Risk signal: High
  - Gross financing needs (GFN) module:
    - Average baseline GFN (percent of GDP) — 18.8 6.4
    - Banks' claims on the govt (pct bank assets) — 21.3 6.9
    - Chg. In banks' claims in stress (pct banks' assets) — 80.1 26.8
    - GFN financeability index (GFI) — 40.1
    - Risk signal: High
  - Medium-term index:
    - Debt fanchart index — 3.7
    - GFN financeability index — 40.1
    - Final assessment: High
    - Prob. of missed crisis, 2023-2028, if stress not predicted: 90.9 pct.
    - Prob. of false alarms, 2023-2028, if stress predicted: 0.0 pct.

- Narrative summary (verbatim highlights):
  - Both medium-term modules signal high sovereign stress risks in the baseline scenario, as in the EFF request.
  - Although the DFI has improved slightly since the last DSA, it remains deeply in high-risk territory.
  - The GFI has weakened a bit and still indicates high liquidity-related risks, reflecting a slightly higher average GFN-to-GDP ratio in the baseline and somewhat higher changes in bank claims on the government in a stress scenario, which are very high and would be difficult to manage if these shocks materialized.
  - The current level of bank exposures to the government is 21.3 percent--unchanged from the last DSA--but still somewhat elevated by cross-country comparison.
  - Overall, the medium-term index is little changed since the EFF request and is consistent with high risk in line with the mechanical signals from both tools.

### Realism of Baseline and Downside Scenario Assumptions (selected diagnostics)
- Forecast track record and realism assessment (baseline):
  - The forecast track record continues to point to persistent optimism for the debt-to-GDP, and stock-flow adjustment indicators flag upward surprises in the medium-term horizon.
  - The scale of the war shock and uncertainties about its duration still suggest caution in assessing the realism of baseline forecast based on backward-looking tools.
  - Key debt drivers: the primary deficit and a weak recovery.
  - Substantial long-term official financing drives the maturity structure and interest rate assumptions.
  - The realism of the three-year fiscal adjustment critically depends on the duration of the war and the speed at which deficits can be reversed.
  - Ukraine has previously achieved a relatively large fiscal adjustment, although this will face considerable headwinds from a slow recovery.
  - The assumptions on multipliers are uncertain amid a deep structural break.
  - The output gap is assumed to close gradually over 5 years.

- Forecast track record and realism assessment (downside):
  - The forecast track record provides the same results as in the baseline as it is anchored by past outturns.
  - The tools anchored on the downside scenario illustrate that:
    - (i) the pattern of debt drivers would be substantially different than in the past five years;
    - (ii) borrowing costs could rise in line with the medium-term upward trend in debt-to-GDP;
    - (iii) neither the debt reduction nor the fiscal adjustment would be outside in cross country comparison;
    - (iv) growth is broadly in line with the assumed fiscal adjustment.
  - The real GDP growth comparisons are distorted by the very large downside shocks in Ukraine's recent history.

*Source: 1ukrea2023002 - 2. Subsectors included in the chosen coverage in (1) above.*

### Annex II. Figure 10. Ukraine: Medium-Term Risk Analysis Under the Pre-Restructuring

### Annex II. Figure 10. Ukraine: Medium-Term Risk Analysis Under the Pre-Restructuring — Downside Scenario

### Medium-term risk assessment (figure summary)
- Debt fanchart module
  - Fanchart width: 202.02.9 (percent of GDP)
  - Probability of debt non-stabilization (percent): 15.90.1
  - Terminal debt-to-GDP x9 1.12.0
  - Debt fanchart index (DFI): 5.0
  - Risk signal: High
- Gross Financing Needs (Pct of GDP) — GFN module
  - Average baseline GFN: 27.19.2 (percent of GDP)
  - Banks' claims on the gen govt (pct bank assets): 21.36.9
  - Chg. in banks' claims in stress (pct banks' assets): 126.842.4
  - GFN financeability index (GFI): 58.6
  - Risk signal: High
- Medium-Term index (Index Number)
  - ValueWeight: Debt fanchart index 5.0; GFN financeability index 58.6
  - Medium-term index: Risk signal: 5/High
  - Final assessment: High
  - Prob. of missed crisis, 2023-2028, if stress not predicted: 100.0 pct.
  - Prob. of false alarms, 2023-2028, if stress predicted: 0.0 pct.
- Peer-group percentile reference: comparison group is emerging markets, non-commodity exporter, program.
- Signal thresholds (as presented)
  - DFI: low risk if below 1.13; high risk if above 2.08; otherwise moderate.
  - GFI: low risk if below 7.6; high risk if above 17.9; otherwise moderate.
  - (Another index thresholds noted: low risk if below 0.26; high risk if above 0.40; otherwise moderate.)

### Narrative on downside scenario (Annex III text)
- Scenario description and macro impact
  - Assumes a longer and more intense war vs the baseline; leads to a sharp real GDP decline of 7 percent in 2023 and a further contraction of 1.5 percent in 2024 (baseline: 1–3 percent growth in 2023).
  - Results: strong negative sentiment, more infrastructure damage, worsened export performance, higher nominal depreciation before converging to baseline trend, and a more subdued recovery leaving output well-below pre-war levels.
- Financing needs and debt implications
  - Updated cumulative financing gap at the EFF request: around US$140 billion (about a US$25 billion increase vs the baseline forecast for 2023–27).
  - Entirety of additional financing in this downside scenario would need to be in the form of highly concessional loans (close to grant terms).
  - Given exceptional financing in the 5-year post-program period (up to the US$7.1 billion per year described in the EFF request), the scenario requires a mix of additional grants in the program period, highly concessional financing consistent with assurances received, and a further debt treatment to ensure debt sustainability.
  - This package would decrease total public debt to around 60 percent of GDP by the end of the 10-year projection, and yield gross financing needs of 8–9 percent of GDP per year in the post-program period.
- Authorities’ response and contingency planning
  - Authorities have implemented streamlining of capital expenditure, identification of additional financing, capital controls, and measures to maintain financial stability and protect FX reserves.
  - Contingency measures re-confirmed: mix of increases in tax revenues, seeking further external financing, larger mobilization of domestic financing, and likely adjustments to FX policies and CFMs (temporary and justified).
  - Fiscal adjustment emphasis: with a very tight expenditure envelope in the 2023 budget, the bulk of adjustment would come from tax measures that can be effectively and rapidly implemented; some spending should be contingent on available financing.
  - Domestic financing measures to ensure near-term fiscal gaps are closed while preserving economic, financial, and monetary stability; temporary pressures on the exchange rate peg may require reintroduction of CFMs or FX controls used earlier in the war.
  - If shocks exceed the downside scenario: possible additional measures include solidarity taxes (supplement to the PIT), additional taxes on luxury goods or excise duties/fees, larger-scale domestic bond financing (including administrative measures on banks’ holdings), secondary purchases of government bonds by the NBU as a backstop, inflation- or exchange-rate-linked bonds, expanded CFMs and FX controls if reserves remain adequate, and making some spending categories contingent on concessional/grant-based external financing.
- Program robustness
  - Staff concludes that the program remains robust under this downside scenario given authorities’ commitments, track record, renewed financing assurances from partners, and expected debt relief; additional financial assurances would restore debt sustainability on a forward-looking basis.

### Selected macroeconomic projections (Downside Scenario, key series, 2021–2033)
- Nominal GDP (billions of Ukrainian hryvnias): 5,451 5,191 6,115 7,526 8,905 9,751 10,666 11,626 12,673 13,814 15,057 16,413 17,890
- Real GDP (percent change): 1/ 3.4 -29.1 -7.0 -1.5 0.0 2.0 4.0 3.8 3.8 3.8 3.8 3.8 3.8
- GDP deflator: 24.8 34.3 26.7 24.9 18.3 7.3 5.2 5.0 5.0 5.0 5.0 5.0 5.0
- Consumer prices (period average): 9.4 20.2 21.8 22.8 14.6 9.8 6.3 5.0 5.0 5.0 5.0 5.0 5.0
- Unemployment rate (ILO, period average, percent): 9.8 24.5 19.4 10.6 9.2 8.7 8.4 8.5 8.2 8.1 8.1 8.0 8.0
- Gross reserves (end of period, billions of U.S. dollars): 30.9 28.5 30.5 33.2 36.1 39.4 45.7 48.3 51.2 54.3 56.0 57.6 60.5
- Months of next year's imports of goods and services: 4.5 3.9 4.3 4.8 5.1 5.4 5.8 5.8 5.9 6.0 5.9 5.8 6.0
- Current account balance (percent of GDP): -1.6 5.0 -4.9 -6.0 -3.3 -1.4 -1.6 -2.8 -2.7 -2.8 -3.1 -3.2 -3.2
- Goods exports (annual volume change in percent): 34.3 -44.7 -25.7 8.7 12.5 10.1 9.7 8.9 8.3 7.7 7.4 7.3 7.2
- Goods imports (annual volume change in percent): 17.2 -24.4 8.1 4.1 9.2 11.3 9.0 7.8 4.8 4.3 4.4 4.5 4.5
- Memorandum: Real GDP as share of 2021 Real GDP: 100 71 66 65 66 69 72 74 77 80 83 86

### Fiscal projections and public debt (selected items, Downside Scenario)
- General government overall balance (percent of GDP): -4.0 -15.7 -21.5 -20.0 -17.9 -15.5 -7.3 -4.6 -4.2 -3.7 -3.0 -2.6 -2.1
- General government overall balance, excluding grants (percent of GDP): -4.0 -25.0 -32.1 -28.8 -23.9 -19.6 -8.7 -5.8 -5.2 -4.6 -4.0 -3.5 -2.9
- Public and publicly-guaranteed debt (billions of Ukrainian hryvnia): 2,667 4,072 6,446 8,781 11,193 13,227 14,488 15,444 16,374 17,250 18,080 18,899 19,658
- Public and publicly-guaranteed debt (percent of GDP): 48.9 78.5 105.4 116.7 125.7 135.7 135.8 132.8 129.2 124.9 120.1 115.1 109.9
- Nominal GDP (billions of Ukrainian hryvnia) for reference: 5,451 5,191 6,115 7,526 8,905 9,751 10,666 11,626 12,673 13,814 15,057 16,413 17,890
- Selected fiscal flows (2024–2033, billions of Ukrainian hryvnia)
  - Revenue (2024 onward): 1,990 2,609 2,848 3,237 3,587 3,933 4,105 4,482 4,859 5,276 5,756 6,270 6,866
  - Expenditure (2024 onward): 2,207 3,426 4,166 4,742 5,182 5,440 4,884 5,018 5,389 5,784 6,215 6,698 7,234
  - Grants (2024 onward): 148 164 76 66 53 14 0 14 5 12 7 14 5
  - External disbursements (2024 onward): 239 615 1,288 1,613 1,178 867 782 619 732 836 864 892 920
  - Amortizations (2024 onward): -107 -55 -93 -221 -251 -355 -332 -527 -404 -726 -881 -892 -904
  - Domestic bond financing (2024 onward): 662 951 171 1,066 629 893 244 381 963 924 704 223 346
- Primary balance (percent of GDP): -0.6 -6.5 -5.5 -1,041 -1,013 -1,132 -895 -145 789 815 321 827 8369 (note: primary balance figures appear in table as "Primary balance -62-655-1,041-1,013-1,132-895-1457898153218278369" — preserved exactly as presented in source table).

### Policy recommendations, contingency measures, and possible instruments
- Fiscal side
  - Rapidly implement tax measures to boost revenues (bulk of adjustment given constrained expenditure envelope).
  - Make some spending contingent on available financing; prioritize social considerations.
  - Contingency tax options if shocks exceed downside: solidarity tax (supplement to the PIT), additional tax on luxury goods, excise duties/fees.
- Domestic financing and market measures
  - Mobilize additional domestic bond financing; could include administrative measures requiring banks to hold stipulated amounts or minimum holding periods of government securities, differentiated by bank liquidity.
  - Consider secondary purchases of government bonds by the NBU as a backstop for the primary market.
  - Consider instruments such as inflation- or exchange-rate-linked bonds.
- Monetary and FX measures
  - Reintroduce CFMs or FX controls temporarily if exchange rate peg faces pressures.
  - If reserves remain adequate under renewed pressures, consider expanded CFMs and FX controls alongside proactive FX policies.
- External concessional support and debt treatment
  - Additional highly concessional loans (close to grant terms), additional grants in the program period, and further debt treatment are required to restore forward-looking debt sustainability.
- Program confidence and implementation
  - Authorities’ track record of decisive measures and renewed financing assurances from international partners support that program objectives remain achievable under the downside scenario.

*Source: IMF staff estimates and projections (Annex II, Figure 10 and Annex III tables and text).*

### Annex III. Table 3a. Ukraine: Balance of Payments (Downside Scenario), 2021–2033 1/ 2/

### Annex III. Table 3a. Ukraine: Balance of Payments (Downside Scenario), 2021–2033

### Current account and components (levels, Billions of U.S. dollars)
- Current account balance (2021–2033): -3.2, 8.0, -7.4, -8.8, -5.1, -2.2, -2.7, -4.8, -4.8, -5.3, -6.0, -6.6, -6.9
- Goods (net): -6.6, -15.3, -28.2, -27.7, -27.9, -29.9, -31.7, -33.5, -33.4, -33.0, -32.8, -32.6, -32.3
  - Exports: 63.1, 40.9, 30.4, 30.4, 33.0, 37.2, 40.9, 44.9, 48.9, 52.9, 57.0, 61.3, 65.7, 70.5
  - Imports: -69.8, -56.2, -58.6, -60.7, -65.1, -70.8, -76.5, -82.4, -86.3, -90.0, -94.0, -98.3, -102.7
  - Of which: gas: -, 3.4, -1.3, -1.6, -7.4, -6.6, -5.3, -4.9, -4.9, -4.9, -4.9, -4.9, -4.9, -4.9
- Services (net): 4.0, -10.7, -15.6, -8.7, -0.5, 6.5, 13.4, 14.7, 15.7, 16.1, 16.4, 16.8, 17.2
  - Receipts: 18.4, 16.1, 14.4, 15.0, 17.3, 20.7, 24.1, 26.5, 28.6, 29.7, 30.9, 32.2, 33.5
  - Payments: -14.4, -26.8, -30.0, -23.7, -17.8, -14.2, -10.7, -11.7, -12.9, -13.7, -14.5, -15.4, -16.3
- Primary income (net): -5.2, 8.7, 9.1, 7.6, 8.0, 8.7, 7.0, 6.4, 6.4, 6.0, 5.6, 5.4, 5.5
- Secondary income (net): 4.6, 25.3, 27.3, 20.0, 15.3, 12.5, 8.6, 7.6, 6.5, 5.6, 4.7, 3.7, 2.7

### Capital and financial accounts; overall balance (Billions of U.S. dollars)
- Capital account balance (2021–2033): 0.0, 0.2, 0.1, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Financial account balance: -5.7, 8.4, -10.5, -11.5, -7.8, -4.5, -8.5, -6.5, -6.2, -8.7, -8.0, -9.2, -10.2
  - Direct investment (net): -7.5, -, 0.5, -0.6, -0.7, -1.2, -3.5, -6.4, -8.2, -8.7, -9.2, -9.6, -10.2, -10.9
  - Portfolio investment (net): -1.0, 2.0, 0.5, 1.2, 1.3, 2.0, 1.0, 2.0, 0.3, -0.4, -0.2, -0.7, -0.5
    - Portfolio investment: assets: -0.1, 0.6, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
    - Portfolio investment: liabilities: 1.0, -, 1.4, -0.5, -1.2, -1.3, -2.0, -1.0, -2.0, -0.3, 0.4, 0.2, 0.7, 0.5
  - Financial derivatives (net): 0.0 (all years)
  - Other investment (net): 2.9, 6.9, -10.4, -11.9, -7.9, -2.9, -3.0, -0.3, 2.2, 0.9, 1.8, 1.7, 1.2
    - Other investment: assets: 7.7, 23.2, 24.4, 18.8, 11.7, 10.1, 5.8, 4.1, 4.0, 2.8, 2.3, 2.0, 1.8
    - Other investment: liabilities: 4.9, 16.3, 34.8, 30.7, 19.6, 13.0, 8.9, 4.4, 1.8, 1.9, 0.5, 0.2, 0.7
- Net use of IMF resources for budget support: 0.3, 2.3, 3.6, 4.0, -0.6, -0.4, -0.5, -1.0, -1.7, -1.0, -1.3, -1.3, -1.2
- Overall balance (2021–2033): 4.3, -0.2, 3.6, 2.7, 2.7, 2.3, 5.8, 1.7, 1.4, 3.4, 2.0, 2.6, 3.3

### Reserves, financing, and memorandum items (Billions of U.S. dollars; percent of GDP where indicated)
- Financing (2021–2033): -4.2, 0.2, -3.6, -3.8, -2.7, -2.3, -5.8, -2.5, -3.0, -4.2, -3.0, -2.9, -4.0
- Gross official reserves (increase: -): -3.3, 1.9, -2.0, -2.7, -2.9, -3.2, -6.4, -2.5, -3.0, -3.1, -1.7, -1.6, -2.9
- Net use of IMF resources for BOP support: -0.9, -1.6, -1.6, -1.0, 0.1, 1.0, 0.6, 0.0, 0.0, -1.0, -1.3, -1.3, -1.2
- Memorandum items (levels and ratios):
  - Current account balance (percent of GDP): -1.6, 5.0, -4.9, -6.0, -3.3, -1.4, -1.6, -2.8, -2.7, -2.8, -3.1, -3.2, -3.2
  - Goods and services trade balance (percent of GDP): -1.3, -16.2, -28.8, -24.9, -18.4, -14.8, -11.1, -11.0, -10.0, -9.1, -8.3, -7.6, -6.9
  - Gross international reserves (USD billions): 30.9, 28.5, 30.5, 33.2, 36.1, 39.4, 45.7, 48.3, 51.2, 54.3, 56.0, 57.6, 60.5
  - Months of next year's imports of goods and services: 4.5, 3.9, 4.3, 4.8, 5.1, 5.4, 5.8, 5.8, 5.9, 6.0, 5.9, 5.8, 6.0
  - Percent of the IMF composite metric (float): 98.8, 91.3, 84.9, 80.8, 82.5, 84.2, 94.6, 97.3, 99.7, 104.4, 105.2, 107.2, 110.5

*Sources: National Bank of Ukraine; and IMF staff estimates and projections.*

### Annex III. Table 3b. Selected percent-of-GDP series (Downside Scenario)
- Current account balance (percent of GDP, 2021–2033): -1.6, 5.0, -4.9, -6.0, -3.3, -1.4, -1.6, -2.8, -2.7, -2.8, -3.1, -3.2, -3.2
- Goods (net, percent of GDP): -3.3, -9.5, -18.5, -18.9, -18.1, -18.9, -19.3, -19.6, -18.8, -17.7, -16.7, -15.7, -14.7
  - Exports (percent of GDP): 31.6, 25.5, 20.0, 22.6, 24.0, 25.9, 27.3, 28.6, 29.8, 30.6, 31.2, 31.7, 32.2
  - Imports (percent of GDP): -34.9, -35.0, -38.5, -41.5, -42.1, -44.8, -46.5, -48.3, -48.6, -48.4, -47.9, -47.4, -46.9
  - Of which: gas (percent of GDP): 1.7, 0.8, -1.0, -5.0, -4.2, -3.4, -3.0, -2.9, -2.8, -2.6, -2.5, -2.4, -2.2
- Services (net, percent of GDP): -5.3, -6.6, -10.3, -6.0, -0.3, 4.1, 8.2, 8.6, 8.8, 8.6, 8.4, 8.1, 7.8
  - Receipts (percent of GDP): 9.2, 10.0, 9.5, 10.2, 11.2, 13.1, 14.6, 15.5, 16.1, 16.0, 15.8, 15.5, 15.3
  - Payments (percent of GDP): -7.2, -16.7, -19.7, -16.2, -11.5, -9.0, -6.5, -6.9, -7.3, -7.3, -7.4, -7.4, -7.4
- Primary income (percent of GDP): -2.6, 5.4, 6.0, 5.2, 5.2, 5.5, 4.3, 3.7, 3.6, 3.2, 2.9, 2.6, 2.5
- Secondary income (percent of GDP): 2.3, 15.7, 18.0, 13.7, 9.9, 7.9, 5.2, 4.5, 3.7, 3.0, 2.4, 1.8, 1.2
- Financial account balance (percent of GDP): -2.8, 5.2, -6.9, -7.9, -5.1, -2.8, -5.2, -3.8, -3.5, -4.7, -4.1, -4.4, -4.7
  - Direct investment (percent of GDP): -3.8, -0.3, -0.4, -0.5, -0.8, -2.2, -3.9, -4.8, -4.9, -4.9, -4.9, -4.9, -5.0
  - Other investment (percent of GDP): 1.4, 4.3, -6.8, -8.1, -5.1, -1.8, -1.8, -0.2, 1.2, 0.5, 0.9, 0.8, 0.5
- Overall balance (percent of GDP): 2.1, -0.1, 2.4, 1.9, 1.8, 1.4, 3.5, 1.0, 0.8, 1.8, 1.0, 1.2, 1.5
- Gross international reserves (USD billions, memorandum): 30.9, 28.5, 30.5, 33.2, 36.1, 39.4, 45.7, 48.3, 51.2, 54.3, 56.0, 57.6, 60.5
- Months of next year's imports of goods and services (memorandum): 4.5, 3.9, 4.3, 4.8, 5.1, 5.4, 5.8, 5.8, 5.9, 6.0, 5.9, 5.8, 6.0
- Percent of the IMF composite metric (float, memorandum): 98.8, 91.3, 84.9, 80.8, 82.5, 84.2, 94.6, 97.3, 99.7, 104.4, 105.2, 107.2, 110.5

*Sources: National Bank of Ukraine; and IMF staff estimates and projections.*

### Annex III. Table 4. Gross External Financing Requirements (Downside Scenario), 2021–2033 (Billions of U.S. dollars)
- A. Total financing requirements (2021–2033): 37.2, 56.8, 74.1, 71.4, 56.9, 53.4, 46.2, 48.4, 51.7, 50.6, 53.6, 53.0, 53.3
  - Current account deficit (excluding grants): 3.2, 6.0, 23.5, 20.9, 13.9, 8.5, 4.9, 6.8, 6.5, 7.0, 7.7, 8.3, 8.7
  - Portfolio investment: 4.9, 2.7, 1.3, 4.1, 2.3, 4.3, 1.5, 2.5, 4.3, 2.6, 4.1, 1.8, 2.0
  - Medium and long-term debt: 3.9, 2.1, 2.2, 2.8, 2.4, 3.1, 4.9, 5.8, 7.8, 8.5, 9.6, 9.8, 9.6
  - Short-term debt (including deposits): 0.8, 4.2, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6
  - Other net capital outflows: 8.6, 22.8, 23.3, 17.8, 11.7, 10.1, 5.8, 3.3, 4.0, 2.8, 2.3, 2.0, 1.8
  - Trade credit: 15.7, 19.0, 18.3, 20.1, 20.9, 21.7, 23.5, 24.5, 23.4, 24.1, 24.2, 25.5, 25.6
- B. Total financing sources (2021–2033): 37.0, 24.4, 30.1, 33.0, 31.9, 37.0, 38.9, 40.9, 45.4, 48.4, 46.9, 46.2, 47.5
  - Direct investment, net: 7.5, 0.5, 0.6, 0.7, 1.2, 3.5, 6.4, 8.2, 8.7, 9.2, 9.6, 10.2, 10.9
  - Portfolio investment: 6.0, 0.5, 0.8, 3.0, 1.0, 2.3, 0.5, 0.5, 4.0, 3.0, 4.3, 2.5, 2.5
  - Medium and long-term debt: 5.4, 0.4, 3.0, 2.8, 2.4, 2.1, 1.9, 1.6, 1.6, 1.6, 1.6, 1.6, 1.6
  - Short-term debt (including deposits): 0.9, 4.4, 5.6, 5.6, 5.9, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6, 5.6
  - Trade credit: 17.2, 18.3, 20.1, 20.9, 21.4, 23.5, 24.4, 24.9, 25.5, 25.4, 25.7, 26.3, 26.9
- C. Financing needs (A - B): 0.2, 32.4, 44.0, 38.4, 25.0, 16.4, 7.3, 7.5, 6.3, 5.8, 6.8, 6.8, 5.8
- D. Total exceptional financing needs (same as C): 0.2, 32.4, 44.0, 38.4, 25.0, 16.4, 7.3, 7.5, 6.3, 5.8, 6.8, 6.8, 5.8
- E. Official financing (2021–2033): 1.7, 30.6, 45.5, 41.1, 27.9, 19.7, 13.6, 10.1, 9.3, 8.9, 8.5, 8.4, 8.7
  - IMF (net, purchases/repurchases and related flows): IMF line items indicate negative and positive annual flows (detailed disbursements and repurchases shown in table)
  - Official grants: 0.0, 14.0, 16.1, 12.2, 8.8, 6.3, 2.2, 2.0, 1.7, 1.7, 1.7, 1.7, 1.7
  - Official creditors: 2.3, 15.9, 27.5, 26.0, 19.5, 12.7, 11.4, 9.1, 9.3, 9.3, 9.3, 9.3, 9.3
- F. Increase in reserves (2021–2033): 3.3, -1.9, 2.0, 2.7, 2.9, 3.2, 6.4, 2.5, 3.0, 3.1, 1.7, 1.6, 2.9
- Memorandum items (selected):
  - Gross international reserves (USD billions): 30.9, 28.5, 30.5, 33.2, 36.1, 39.4, 45.7, 48.3, 51.2, 54.3, 56.0, 57.6, 60.5
  - Months of next year's imports: 4.5, 3.9, 4.3, 4.8, 5.1, 5.4, 5.8, 5.8, 5.9, 6.0, 5.9, 5.8, 6.0
  - Percent of short-term debt (remaining maturity): 67.5, 65.2, 62.6, 73.9, 74.3, 82.0, 90.3, 85.7, 94.2, 95.0, 100.9, 102.8, 99.3
  - Percent of the IMF composite (float): 98.8, 91.3, 84.9, 80.8, 82.5, 84.2, 94.6, 97.3, 99.7, 104.4, 105.2, 107.2, 110.5
  - Loan rollover rate (percent) — Total: 91.4, 98.0, 100.0, 100.0, 101.6, 101.6, 101.8, 101.5, 101.3, 101.3, 101.3, 101.3, 101.3

*Sources: National Bank of Ukraine; and IMF staff estimates and projections.*

### Annex III. Table 5. Monetary Accounts (Downside Scenario) — selected levels (Billions of Ukrainian Hryvnia)
- Monetary survey (2021–2033)
  - Net foreign assets: 1,002, 1,326, 1,791, 2,138, 2,511, 2,763, 3,275, 3,645, 4,134, 4,661, 5,140, 5,636, 6,237
  - Net domestic assets: 1,070, 1,176, 1,260, 1,518, 1,708, 1,993, 2,066, 2,177, 2,213, 2,257, 2,401, 2,583, 2,723
  - Domestic credit: 1,925, 2,212, 2,229, 2,431, 3,175, 4,400, 4,778, 5,279, 5,563, 6,055, 6,649, 7,231, 7,752
  - Broad money: 2,071, 2,501, 3,051, 3,656, 4,218, 4,756, 5,342, 5,822, 6,347, 6,918, 7,541, 8,219, 8,959
  - Currency in circulation: 581, 666, 833, 977, 1,070, 1,121, 1,176, 1,217, 1,266, 1,317, 1,370, 1,424, 1,480
  - Total deposits: 1,489, 1,834, 2,217, 2,677, 3,147, 3,633, 4,163, 4,603, 5,077, 5,598, 6,167, 6,792, 7,475
- Accounts of the NBU (selected)
  - Net foreign assets: 852, 981, 1,274, 1,449, 1,793, 2,047, 2,562, 2,936, 3,400, 3,907, 4,366, 4,842, 5,424
  - Net international reserves: 838, 978, 1,269, 1,444, 1,787, 2,041, 2,556, 2,930, 3,394, 3,900, 4,359, 4,835, 5,416
  - Base money: 662, 793, 993, 1,164, 1,284, 1,356, 1,441, 1,513, 1,589, 1,668, 1,752, 1,839, 1,931
- Deposit money banks (selected)
  - Net domestic assets: 1,339, 1,489, 1,699, 1,988, 2,429, 2,917, 3,450, 3,893, 4,343, 4,843, 5,393, 5,997, 6,662
  - Domestic credit: 1,875, 2,064, 2,237, 2,584, 3,083, 3,639, 4,247, 4,786, 5,348, 5,945, 6,602, 7,323, 8,115
  - Banks' liabilities: 1,488, 1,834, 2,217, 2,677, 3,146, 3,633, 4,163, 4,603, 5,077, 5,597, 6,167, 6,791, 7,475
- Memorandum items (percent changes and ratios)
  - Base money (end-of-period percent change): 11.2, 19.6, 25.3, 17.3, 10.3, 5.6, 6.3, 5.0, 5.0, 5.0, 5.0, 5.0, 5.0
  - Broad money (percent change): 12.0, 20.8, 22.0, 19.8, 15.4, 12.7, 12.3, 9.0, 9.0, 9.0, 9.0, 9.0, 9.0
  - Credit to the economy (percent change): 8.4, -3.1, -12.5, 12.1, 8.6, 8.0, 5.0, 5.5, 7.1, 7.6, 8.7, 10.2, 10.2
  - Real credit to the economy (CPI-deflated): -1.5, -23.5, -30.0, -5.0, -3.0, 0.0, 0.0, 0.5, 2.0, 2.5, 3.5, 5.0, 5.0
  - Credit-to-GDP ratio (percent): 18.8, 11.2, 14.2, 12.9, 11.9, 11.7, 11.2, 10.9, 10.7, 10.5, 10.5, 10.6, 10.8

*Sources: National Bank of Ukraine; and IMF staff estimates and projections.*

### Annex III. Table 6. Indicators of Fund Credit (Downside Scenario), 2023–2033 (In millions of SDR)
- Existing Fund credit — Stock (end of period, 2023–2033): 7,715, 5,936, 4,199, 2,702, 1,844, 1,509, 1,174, 838, 503, 168, 0
- Existing Fund credit — Obligations (2023–2033): 1,648, 2,166, 1,998, 1,686, 987, 448, 448, 448, 448, 280
  - Principal (repurchases): 1,265, 1,780, 1,736, 1,498, 858, 335, 335, 335, 335, 168
  - Interest charges: 383, 386, 262, 189, 129, 112, 112, 112, 112, 112, 112
- Prospective purchases — Disbursements (2023–2033): 3,340, 4,003, 1,368, 1,931, 966, 0, 0, 0, 0, 0, 0
- Stock of existing and prospective Fund credit (end of period, 2023–2033): 11,055, 13,279, 12,910, 13,344, 13,397, 12,646, 11,365, 9,833, 7,979, 6,044, 4,332
- Selected ratios (2023–2033):
  - Stock in percent of quota: 550, 660, 642, 663, 666, 628, 564, 488, 396, 300, 215
  - Stock in percent of GDP: 5.5, 6.8, 6.2, 6.3, 6.0, 5.5, 4.7, 3.9, 3.0, 2.2, 1.5
  - Stock in percent of exports of goods and nonfactor services: 18.5, 20.7, 17.7, 16.1, 14.4, 12.4, 10.3, 8.4, 6.4, 4.6, 4.3, 3.1
  - Stock in percent of gross reserves: 27.2, 29.9, 26.6, 25.2, 21.7, 19.3, 16.4, 13.4, 10.5, 7.7, 5.5, 5.3
  - Obligations to the Fund (2023–2033): 1,776, 2,532, 2,581, 2,354, 1,797, 1,600, 2,059, 2,207, 2,402, 2,325, 1,983
  - Obligations to the Fund in percent of quota: 88.3, 125.8, 128.3, 117.0, 89.3, 79.5, 102.2, 109.5, 119.1, 115.2, 98.2

*Source: Fund staff estimates and projections.*

### Policy context (excerpt from Appendix I: Letter of Intent, June 19, 2023)
- Program goals and framing:
  - Restore fiscal and achieve debt sustainability on a forward-looking basis, and medium-term external viability, while promoting long-term growth in post-war reconstruction and EU accession.
  - Program designed to resolve balance of payments problems and restore medium-term external viability in baseline and downside scenarios.
  - Two-phased approach: first phase to preserve macroeconomic and financial stability and prepare for post-war recovery; second phase to deepen structural reforms, restore medium-term external viability, support reconstruction, and accelerate EU accession progress.
- Financing envelope and risks:
  - IMF-supported arrangement and official financing assurances provide a financing envelope of US$115 billion over four years.
  - Acknowledges exceptional uncertainty due to the war; stresses continuing major risks.

*International Monetary Fund staff and Ukrainian authorities text reproduced as presented in source.*

*Sources: National Bank of Ukraine; and IMF staff estimates and projections.*

### 4. For this first review under the EFF, we met all continuous and end-April 2023 quantitative

### 4. For this first review under the EFF, we met all continuous and end-April 2023 quantitative performance criteria

### Review outcomes and program implementation
- Met all continuous and end-April 2023 quantitative performance criteria (QPCs).
- Implemented all five structural benchmarks set for the period from early-April 2023 through end-May 2023.
- Missed the indicative targets (ITs):
  - Overall balance excluding grants: missed due to higher-than-expected defense expenditures.
  - Social spending: missed due to changes in methods for effecting social payments.

### Requested modifications and new measures
- Requested modifications:
  - Modify end-June 2023 non-defense cash primary balance QPC, reflecting new information on the trajectory of expenditures during 2023.
  - Increase the QPC target on net international reserves (NIR) for end-June and end-December.
  - Convert the continuous QPC on issuance of state guarantees into a periodic QPC effective end-June.
- Structural benchmark adjustments:
  - Propose four new structural benchmarks to preserve macroeconomic and financial stability amid the ongoing war (explained in Table 2 of the MEFP).
  - Request to reset the deadline for adoption of the draft law on tax policy and administration prepared under the PMB (Law #8401) from end-June 2023 to end-July 2023.

### Financing, debt treatment, and program financing
- International partners have assured continued support to restore debt sustainability and fully finance the program.
- Public announcement on March 24, 2023: intention to undertake a debt treatment of external public debt to restore public debt sustainability on a forward-looking basis.
- Plan: start negotiations with bond holders in early 2024 with objective of completing operations no later than mid-2024.
- A group of official creditors committed to a two-step process for a debt treatment.
- Request completion of the first review and a disbursement of SDR 663.90 million (33 percent of quota).
- A memorandum of understanding between the National Bank of Ukraine (NBU) and the Ministry of Finance (MoF) will be introduced relating to the mechanism of servicing the government’s obligations to the Fund by the NBU on behalf of the MoF.

### Retained measures and exchange restrictions
- Retain a number of measures for national or international security reasons; these have been notified to the Fund under Decision 144.
- Retain two multiple currency practices (MCPs) subject to Fund approval under Article VIII, Section 3.
- Commit to gradually remove exchange restrictions and MCPs as circumstances normalize, in consultation with IMF staff.

### Commitment to program monitoring and transparency
- Will provide IMF staff with data and information needed to monitor program implementation, including adherence to the data provision requirements in the Technical Memorandum of Understanding (TMU).
- Consent to IMF publication of the letter, the MEFP, the TMU, and accompanying Executive Board documents.

*Signed: Volodymyr Zelenskyy (President of Ukraine); Denys Shmyhal (Prime Minister of Ukraine); Sergii Marchenko (Minister of Finance of Ukraine); Andriy Pyshnyy (Governor, National Bank of Ukraine).*

### Context: war impact, program anchor, and reconstruction needs
- Russia’s invasion continues to cause large human, social, and economic costs: over a third of the population displaced; infrastructure damage massive; critical energy infrastructure attacked.
- Assessment: destruction of the Kakhovka hydroelectric power plant (HPP) will have serious long-lasting consequences.
- The Extended Fund Facility (EFF) arrangement:
  - Approved in March; helped mobilize an external financing package of US$115 billion over four years from international partners and donors.
- Reconstruction needs:
  - World Bank estimate as of February 24, 2023: US$411 billion in long-term reconstruction needs.

### Economic outlook and key macro projections
- 2022 output decline: about 29 percent (revised due to a stronger Q4).
- 2023 growth projection: annual growth for 2023 in the 1 to 3 percent range, contingent on continuation of the grain corridor and transit corridor and no further escalation of the war.
- April and early-2023 developments:
  - Economic activity rebounded strongly; energy system rapidly restored; FX markets stabilized; inflation started to decline decisively.
  - Labor market stabilization amid lower net migrant outflows.
- Inflation:
  - Peak: 26.6 percent y/y in end-2022.
  - May: 15.3 percent y/y.
  - Expectation: moderate to around 15 percent y/y by end-2023.
- Current account:
  - Expected deficit of around US$10 billion in 2023, following an estimated surplus of US$8 billion in 2022.
  - Baseline gross international reserves: adequate US$30.5 billion by end-2023, equivalent to 4.1 months of imports.
  - Improvement: more than US$1 billion relative to the EFF request on account of lower FX interventions and better Q1 outturns.
- FX market conditions:
  - Improved sharply due to continued external inflows and seasonal factors.
  - Spread between official and cash rates declined to between 2-4 percent in March-April 2023.

### Risks and upside potential
- Upside: quicker rebound if security situation improves, enabling faster recovery in sentiment, revitalization of activity, resolution of supply disruptions, increased access to seaports, quicker return of migrants, and resources for recovery projects.
- Downside risks:
  - Prolonged security risks, insufficient or delayed donor support, interruption of the grain corridor and transit routes, further damage to energy infrastructure, worsening war-related supply chain disruptions.
  - Prolonged war could widen fiscal and external financing gaps and put pressure on fiscal position.

### Fiscal policy framework and priorities for 2023–27
- Two-phased program approach:
  - Phase 1: maintain macroeconomic, external, and financial stability; robust budget 2023 and medium-term fiscal framework; prepare ground for post-war growth (fiscal structural measures, financial sector, monetary and exchange rate policies, governance, anti-corruption, energy sector). Safeguard social spending to the extent possible.
  - Phase 2: once war tapers, shift to expansive reforms to entrench macro stability, support recovery and reconstruction, and restore medium-term external viability; revert to pre-war policy frameworks, including flexible exchange rate underpinning inflation targeting regime; advance reforms to enhance productivity and competitiveness and progress toward EU accession.
- Commitment to respond decisively to downside scenarios with feasible fiscal measures, identification of tax policy measures or deferred spending pending grants, and additional domestic financing as needed.

### Fiscal performance and April 2023 fiscal outcomes
- Non-defense cash primary balance excluding grants:
  - Actual: UAH 353.0 billion.
  - Program floor (QPC): UAH 258.3 billion.
  - Outcome: substantially exceeding the program floor.
- Overall balance excluding grants (Indicative Target):
  - Actual: UAH -364.6 billion.
  - Floor: UAH -356.5 billion.
  - Outcome: missed the floor; divergence reflects higher defense expenditure.
- Tax revenues (excluding social security contributions):
  - Actual: UAH 472.7 billion.
  - Outcome: comfortably exceeding the end-April target (QPC); strong performance across personal income, corporate income, and excises; faster-than-envisaged clearing of VAT refunds and refund arrears.
- Accumulation of overdue accounts payable (domestic arrears) (Indicative Target):
  - Actual: UAH 1.76 billion.
  - Ceiling: UAH 6 billion.
  - Outcome: below the ceiling.
- Continuous performance criterion on ceiling of publicly guaranteed debt:
  - No issuance through April; consistent with continuous ceiling of UAH 20 billion.
- Social spending:
  - Actual: UAH 182.3 billion.
  - Indicative Target: UAH 187 billion.
  - Outcome: missed by UAH 4.7 billion due to changes in methods for effecting social payments.

### Expenditure policy stance and controls
- Expenditure policies for 2023:
  - Aim to accommodate core priorities, contain additional spending pressures, and provide room for recovery and reconstruction.
  - Commit to resist expenditure pressures on non-core spending categories.
  - Any new initiatives that increase current expenditures will be financed fully through identified new resources or compensating fiscal measures.
  - Continue strong commitment controls and maintain strict oversight of budget execution by key spending units.

*Memorandum of Economic and Financial Policies, June 19, 2023 (Attachment I).*

### 13.       We remain committed to achieving much needed revenue mobilization. Specifically:

### 13.       We remain committed to achieving much needed revenue mobilization. Specifically:

### Revenue mobilization measures and tax law changes
- Adopt draft law (#8401) prepared under the PMB by end-July 2023 (originally expected by June 30, 2023), so that the proposed law becomes effective on August 1, 2023 (proposed reset Structural Benchmark).
  - Restores the pre-war setup for taxpayers who moved from the universal tax regime (e.g., paying PIT, CIT, VAT) to the single tax.
  - Restores the pre-war brackets of single tax eligible groups and closes loopholes in the application of the single tax rate of 2 percent.
  - Other components: strengthen tax compliance and limit scope for tax evasion by canceling moratoria on tax audits and restoring liability for failure to use cash registers in retail outlets.
- Cancel or phase out most tax deferrals introduced during Martial Law:
  - Cancelled deferrals for customs duties starting from March 1, 2023.
  - Cancelled the remaining deferrals on import duties as of June 1, 2023.
  - Exemptions for special equipment for electricity generation and distribution and heating supply expired as scheduled on May 1, 2023.
  - Will not extend Tax Code provisions introduced during Martial Law that relaxed tax and fee administration.
  - Will refrain from introducing tax amnesties for the duration of the program or any tax measures that would jeopardize the tax base.
  - Measures needed to support imports related to national defense and security will be targeted, timebound, controlled, and with oversight.

### 2023 fiscal outlook and program monitoring
- Expect the 2023 general government fiscal deficit excluding external grants to reach UAH 1,674.5 billion, or about 25.8 percent of GDP.
  - This updated estimate is lower than expectations at the program request by about UAH 34 billion (2.5 percentage points of GDP).
  - Reflects fiscal outturns so far in 2023 and revisions to the macroeconomic framework.
- Revenues excluding external grants: projections remain broadly as anticipated.
- Expenditures: expected to remain close to levels envisaged at program approval, with some composition changes.
- Monitoring instruments:
  - Floor on the non-defense cash primary balance of the general government excluding grants (Quantitative Performance Criterion).
  - Floor on the overall cash primary balance of the general government excluding grants (Indicative Target).
  - Floor on state budget spending on social programs (Indicative Target) to safeguard social spending.
- Request modification to the QPC on the non-defense cash primary balance for end-June 2023 to be set at UAH 213 billion, reflecting revised definition and new information on expenditure trajectory during 2023.

### Budget 2024 preparation
- Will adhere to the budget preparation calendar despite war-related challenges and consult with the Fund.
- Revenues: prepare a set of measures building on priorities identified by the National Revenue Strategy (NRS), to become effective from January 1, 2024.
  - Measures could include reforms aimed at harmonizing taxes with EU directives.
- Expenditures: envelope will continue to reflect wartime needs with reorientation to emerging priorities including the social safety net and recovery and reconstruction.
- Ensure key spending units adhere to expenditure envelope limits consistent with fiscal and debt sustainability.

### Recovery and reconstruction financing
- World Bank RDNA2 identified US$14.1 billion of priorities for 2023.
  - Around US$3.3 billion is already identified in the Budget.
  - Seeking additional donor commitments, on highly concessional terms, for the remaining US$10.8 billion.
- Aim to develop an integrated public investment management strategy to ensure reconstruction projects fit into the medium-term budget framework while maintaining fiscal stability and debt sustainability.

### Fiscal structural reforms and objectives
- Reform objectives:
  - Anchor the medium-term fiscal path, maintain fiscal and debt sustainability, and lay foundations for long-term growth.
  - Channel declining defense spending to recovery, reconstruction, and the social safety net post-war.
  - Undertake substantial changes to pension and social safety nets after comprehensive social policy reforms, including improved targeting and means-testing.
- Structural reform focus areas:
  - (i) Raising adequate revenues for reconstruction and social spending via efficiency, fairness and simplicity of the tax system and a multi-year NRS.
  - (ii) Preparing public investment and public financial management by strengthening public investment processes, project management cycle, and commitment controls.
  - (iii) Enhancing fiscal transparency and management of fiscal risks.
  - (iv) Ensuring fiscal sustainability and predictability by restoring and strengthening Budget Code provisions on budget amendments.

### Steps taken on reform implementation and Budget Code restoration
- Submitted draft law to reinstate several articles of the Budget Code suspended under Martial Law, restoring and strengthening Article 52 (Structural Benchmark, end-May 2023).
  - Requires MoF opinion and identified financing sources for legislative initiatives that modify the annual budget law.
  - Legislative initiatives that modify deficit, debt and guarantees may be submitted to Parliament only by the Cabinet of Ministers of Ukraine and with MoF assessment.
- CMU submitted draft law (#9346) to reinstate articles allowing preparation of the medium-term budget framework, debt strategy, and ringfencing of guarantee risks (Structural Benchmark, end-May 2023).
  - These articles to be enacted in time to be effective for 2024 Budget preparation (Proposed Structural Benchmark, end-September 2023).

### National Revenue Strategy (NRS) and revenue policy
- NRS to remain anchor for tax policy and administration reforms; steps taken toward adoption:
  - CMU adopted a decree in late March (Prior Action, Program Request) tasking MoF to start preparation of the NRS (2024-2030).
  - Finalized NRS gap analysis with IMF TA; identified priority reforms for the NRS (2024-2030) roadmap to be prepared by end-July 2023.
    - Focus on labor taxation/personal income taxation, corporate income taxation and excises to broaden the tax base.
    - Roadmap to include clear revenue and other policy targets and guidance for coordination among government agencies, donors, private sector and civil society led by MoF.
  - On track to adopt the NRS by end 2023 (Structural Benchmark, end-December 2023). NRS will include:
    - (i) measures to strengthen tax and customs services;
    - (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 EU accession, environmental reforms, and post-war reconstruction and recovery.

### Strengthening tax and customs administration
- State Tax Service (STS):
  - Launched preparatory work and adopted an action plan based on STS survey from November 2022 (Structural Benchmark, end-May 2023).
  - Analyzing tax arrears (overdue accounts payable) and means to reduce them; review will distinguish arrears related to Russian military aggression/occupation and those not impacted by the war.
  - STS to prepare detailed action plan to progressively reduce arrears by end-August 2023.
  - NRS gap analysis identified critical STS reforms: compliance risk management framework, strengthening capacity for reform management, and improving governance.
- State Customs Service (SCS):
  - Plan SCS diagnostics with IMF TA in June 2023.
  - Identify three reform areas to reduce corruption risks: (i) HR and compensation reforms; (ii) improve operational management from headquarters, including centers of excellence; (iii) move verification/checking of customs documents from border crossings to inland offices.
- Taxpayer perception survey:
  - Institutionalize and strengthen survey with World Bank and IMF support; enhance scope and representation and make it annual covering STS and SCS.
- Action plans:
  - SCS and STS to each prepare comprehensive short- and medium-term action plans addressing diagnostic and NRS gap analysis findings (Proposed Structural Benchmark, end-October 2023).
  - Action plan from tax perception survey will feed into overall NRS.
- Economic Security Bureau of Ukraine (ESBU):
  - Preparing amendments and reorganization to define functions, strengthen analytical capacity, and subordinate ESBU to MoF.
  - Established working group to revise legal basis to: (i) develop transparent competitive process for selection of management and staff; (ii) strengthen requirements for selection commission; (iii) introduce contract system for employees; (iv) develop staff attestation mechanism.

### Medium-Term Budget Framework (MTBF) restoration
- Submitted draft law repealing suspension of medium-term budget preparation (Budget Declaration) and medium-term debt strategy ahead of 2024 budget cycle, with effect from January 2024.
  - Will present 2024 budget projections with key revenue and expenditure categories and deficit financing sources for general government for 2025–26.
  - As part of 2024 budget preparation, will prepare a fiscal risks statement including details on energy and critical infrastructure SOEs (Structural Benchmark, end-September 2023).
  - IMF TA mission in May supported groundwork.
  - For 2025 budget cycle, prepare comprehensive MTBF (2025–27) as prescribed by budgetary legislation.
  - With IMF TA, improve strategic budgeting, costing of new public services, and mechanisms linking budget and fiscal risk assessments to inform 2025 budget formulation.

### Pensions and social spending policies
- Ensure financial stability of pension system; reforms begun in 2017 aimed at:
  - Protecting elderly against poverty, incentivizing longer labor force participation, applying uniform benefit rules, and incentivizing participation and contribution compliance.
- Commitments:
  - Refrain from (i) introducing new special pensions or privileges; (ii) providing further discretionary benefit increases; (iii) adopting changes that would lead to a lowering the effective retirement age.
  - Ensure any proposed legal amendments increasing pension expenditures are accompanied by medium-term fiscal and budgetary impact analysis and clear identification of necessary resources in amendments to the Pension Fund of Ukraine budget.
  - Continue collaboration with development partners to establish well-regulated and fully funded obligatory pension saving schemes when preconditions are met after removal of Martial Law and mitigation of medium-term fiscal risks.
  - In MTBF context, identify appropriate funding for the second pillar and ensure resources reallocated from first to second pillar will be replaced by other revenue sources.

- Support for vulnerable populations:
  - Improve mechanisms to support vulnerable categories, including internally displaced persons, strengthening targeting and encouraging economic independence and employment.
  - Working with World Bank to strengthen means testing for benefits to internally displaced persons; expect to introduce a resolution by September 2023.

### Fiscal transparency, commitment controls, and risk management
- Overdue account payables:
  - Reinstating reporting of key spending units to MoF under PMB improved control over commitments at all government levels.
  - Ability to keep overdue account payables well below the indicative target ceiling gives confidence in maintaining strong commitment control and comprehensive oversight, excluding local governments in direct combat zones and occupied territories.
- SOE reporting and risk assessment:
  - Restored regular fiscal risk reporting by SOEs not located in temporarily occupied territories; requested quarterly reporting with possibility of more frequent ad hoc updates for risk assessment and stress testing.
  - Expect to include SOE stress testing outcomes in fiscal risk statements starting with Budget 2024.
- Guarantees framework:
  - With IMF TA, strengthening risk assessment of guarantees; prepare rules and regulations to tighten risk assessments and introduce risk-based fees for guarantees by September 2023.
  - Submitted draft law reinstating Budget Code articles establishing limits on issuance of state guarantees (Structural Benchmark, end-May 2023).
    - Proposal implies reinstating 3 percent limit on guarantees issued directly by decision of Cabinet of Ministers.
    - Issuance of guarantees for IFI and foreign government financed projects to be discussed annually in State Budget Law context and within IMF program to contain guarantee risks while allowing reconstruction financing.
- Monitoring 5-7-9 loan program:
  - Take stock of program performance and assess potential risks and contingent liabilities to public sector.
  - Develop a concept note (Proposed Structural Benchmark, end-September 2023) with proposals to target program on small and medium enterprises by phasing out eligibility of large companies, enhance monitoring and maintain safeguards.
  - Reinstate MoF control over the program to mitigate fiscal risks.
- Business Development Fund:
  - Take stock of governance and risk management structure to identify shortcomings posing material risk to public finances in 2023 and medium term.
  - Secure existing MoF shareholding over the Business Development Fund.

*Source: 1ukrea2023002 - 13.       We remain committed to achieving much needed revenue mobilization. Specifically:*

### 26.      We will continue to enhance transparency in the management and spending of

### 1ukrea2023002 - 26.      We will continue to enhance transparency in the management and spending of

### Transparency in management and spending of budgetary funds and special accounts
- Fund for the Liquidation of the Consequences of the Armed Aggression:
  - Rules and regulations for the “Fund for the Liquidation of the Consequences of the Armed Aggression” have been prepared.
  - The MoF retains control over commitments and appropriations as prescribed by the budgetary legislation despite the administrative role of the new government agency managing the Fund.
  - The Fund finances a budgetary program through a special fund and is subject to relevant articles of the Budget Code.
  - Commitment: complement existing reporting with a regular consolidated report summarizing sources of financing and expenditure (according to their economic classification) in one report.
  - Commitment: 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:
  - Structural benchmark met: establishing a legal framework to regulate commitment controls and appropriations related to special accounts opened at NBU.
  - Amendments to the Budget Code enacted on April 11, 2023 to bring commitment controls and appropriations under MoF supervision and to consolidate special accounts within general government as special funds of the state budget.
  - Operationalization steps underway, including:
    - Issuance of an MoF order by end June 2023 for key spending units.
    - Creation of Treasury reporting for usage of funds from these accounts.
  - Key reporting and transparency steps:
    - (i) Creation of reporting so that Treasury’s and spending units’ reports include both the initial balance as of the beginning of the year and remaining balance of funds for each reporting period.
    - (ii) Including these special accounts in budget documentation and fiscal reports, consistent with best practices of fiscal transparency.
    - (iii) Publishing aggregated data on these special accounts starting from end-July 2023.

### Strengthening Public Investment Management (PIM)
- Objective: enhance efficiency of public investment consistent with medium term budget and debt sustainability objectives to channel resources to projects providing greatest value for money while supporting recovery and growth.
- Basis: build on EU4PFM and the World Bank’s Public Investment Management Diagnostic Assessment Report 2022.
- With World Bank TA, on track to develop a roadmap of measures (Structural Benchmark, end-December 2023) 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 the MoF, including a clear gatekeeping role during the different stages of the investment project cycle.
- Additional measure: adapt the national e-procurement system compliant with international competitive bidding standards used by Multilateral Development Banks to avoid multiple procurement platforms and strengthen transparency.

### Financing Strategy — overview and 2023 context
- External financing:
  - As of May 15, 2023, external disbursements received total US$16.6 billion.
  - Continued support from the EU, IFIs, and bilateral donors is central to the 2023 financing strategy.
  - Firm financing assurances in place for the next 12 months of the IMF-supported program (June 2023–June 2024).
  - Key partners have assured continued support beyond June 2024 to help ensure the program remains fully financed over the program period.

- Domestic financing strategy:
  - Aim to mobilize domestic financing in a mix that supports macroeconomic stability.
  - Strategy includes maximizing issuance of domestic government securities in the primary market with an objective of at least covering the expected redemptions to eliminate monetary financing.

### Net domestic bond financing progress and plans
- Progress as of May 1, 2023:
  - Raised UAH173 billion in the primary market in 2023.
  - Achieved a year-to-date rollover rate of 137 percent.
  - Provided net financing to the budget of about US$1.3 billion.
  - About 80 percent of gross hryvnia issuance raised through designated benchmark bonds that banks have been allowed to use to meet reserve requirements.
- Ongoing and planned actions:
  - Continue issuing government securities with objective of at least covering redemptions expected in 2023.
  - Study flow of liquidity into the banking system, including on a bank-by-bank basis, to develop targeted strategies to encourage increased uptake of government bonds.
  - Established a joint Working Group under the auspices of the Financial Stability Council (FSC) in April 2023 to consult regularly on strategies to mobilize domestic financing.
  - Strengthen effectiveness of the FSC as the major platform for discussions to achieve the program’s objectives.

### Debt management and guarantees
- Medium-Term State Debt Management Strategy:
  - Will be updated and published (Structural Benchmark, reset for end-October 2023) to reflect war developments and priorities including reconstruction and recovery.
  - Timing shifted from end-September to end-October 2023 to align with the proposed Structural Benchmark on enactment of Budget Code amendments (¶19).
- Domestic debt market development:
  - Support development of the domestic debt market, including benchmark securities outside the reserve requirement mechanism.
  - Undertake efforts to expand and diversify investors, encourage return of non-residents to domestic bond markets, and restore international capital market access to support reconstruction.
- Guarantees:
  - Commitment to strictly limit issuance of guarantees (Quantitative Performance Criterion).
  - Proposal to convert the continuous QPC agreed at program approval into a periodic QPC, consistent with reinstatement of the articles of the Budget Code.
  - Adequate space will be provided to facilitate guarantees on loans from IFIs and foreign governments for projects, including recovery and reconstruction (consistent with ¶25 third bullet).

### Monetary and Exchange Rate Policies — strategy and objectives
- Overall objective: safeguard price and exchange rate stability and protect international reserves while adjusting policies to serve households, firms, and support recovery.
- Historical measures: introduced a fixed exchange rate regime and FX controls solely for reasons of national security following the start of the full-scale war.
- Conditions-based strategy on monetary and exchange rate policy framework:
  - Progress made toward Structural Benchmark, end-June 2023.
  - Intend, once conditions permit, to:
    - Gradually move to a more flexible exchange rate;
    - Ease FX controls;
    - Transition back to an inflation targeting framework.
  - Strategy is being developed in consultation with IMF staff and with IMF TA support; will establish and assess principles and prerequisites for transition and guide required policy measures.
  - Emphasis on careful consideration and clear communication of adjustments given exceptionally high uncertainty.

### Monetary Policy — stance and instruments
- Stance: maintain an appropriate monetary policy stance to support steady disinflation, manage inflation expectations, and support exchange rate stability.
- Inflation outlook and recent decisions:
  - Headline inflation expected to further slow through 2023 to around 15 percent.
  - April MPC maintained the key policy rate (KPR) at 25 percent.
  - Rationale: declining but still high inflation and inflation expectations, supply-side headwinds, restrained consumer demand, and incomplete transmission of the June 2022 hike.
  - Envisage shifting to an easing cycle sooner than previously anticipated given steady deceleration in inflation, continued FX market stability, and positive real interest rates.
  - Note: upside risks to inflation outlook remain, most notably from the security situation.
- Liquidity and deposit measures:
  - Structural surplus of liquidity about UAH 235 billion as of end-April 2023 and expected to continue given large fiscal deficit in 2023 and structural factors.
  - Strategy: prudently manage liquidity while preserving space for banks to participate in government bond auctions to prevent monetary financing.
  - Continue monitoring liquidity conditions, timing and size of flows, and studying measures to stimulate increase of hryvnia term deposits to strengthen attractiveness of hryvnia assets.
- Reserve requirements:
  - Tightening in reserve requirements by a cumulative 20 pp since December 2022 and adjustment for maturity and currency have helped reduce liquidity and induce banks to compete for term deposits.
  - Part of obligatory reserves can be met through use of benchmark government bonds.
  - Will continue monitoring impact and adjust as needed.
- Operational design adjustments:
  - Effective April 7, introduced three-month certificates of deposit at the KPR, with volume conditional on the stock of banks’ term-deposits with maturity longer than 3 months.
  - Reduced the rate of remuneration on overnight CDs by 3 percentage points.
  - Observed a small increase in the remuneration on and total size of hryvnia term deposits over the last month.
  - Commitment to further study incentives to strengthen banks’ action and parameters on standing facilities to remain consistent with an appropriate monetary policy stance in line with inflationary and economic developments.
  - Goal: restore the KPR as the main policy instrument, revive the interbank money market, and improve monetary transmission.

### Exchange Rate Policies — peg, reserves, and FX controls
- Exchange rate peg and FX market:
  - The exchange rate peg, supported by FX controls introduced solely for reasons of national security, has served as an important nominal anchor during the war.
  - NBU net FX sales total US$31.4 billion between February 24, 2022, and end-April 2023.
  - FX reserves remain strong, supported by sizable official inflows, FX controls, and measures to ease pressure on the cash FX market.
  - The spread between the official and cash FX market segments has narrowed sharply, stabilizing at around 3 percent.
  - Conditional on these measures and FX inflows, maintaining exchange rate stability can continue to help ensure price and financial stability.

- FX reserves and QPC modification request:
  - FX reserves reached an all-time high in end-April 2023, allowing meeting the end-April Quantitative Performance Criteria on net international reserves.
  - Requesting modification to increase the NIR QPC for end-June and end-December 2023 by US$1 billion to US$16.5 billion.

- Adjustment of FX controls:
  - Plan to carefully adjust FX controls to support economic recovery while maintaining exchange rate stability and national and international security.
  - Intend to selectively ease FX controls to meet needs of the economy, ease pressure on FX cash market, and anchor exchange rate expectations.
  - Over time, easing should help eliminate two multiple currency practices, reduce incentives for circumvention, and support exchange rate stability.

*Source: 1ukrea2023002 - 26. We will continue to enhance transparency in the management and spending of (PDF chapter/section).*

### 43.      We have amended the recent relaxation measure on the repatriation of interest

### 1ukrea2023002 - 43.      We have amended the recent relaxation measure on the repatriation of interest

### Repatriation of interest payments to non-resident holders
- Amended relaxation measure on the repatriation of interest payments to non-residents holders of domestic government securities after April 1, 2023 for national and international security reasons.
- New requirement: a minimum holding period of 90 days for the underlying security earning the interest payment.
- Objectives:
  - Help preserve FX reserves in the face of still elevated risks to the economic outlook.
  - Support demand for longer-term instruments on the primary market and thereby support fiscal financing needs.

### NBU independence, governance, and limits on monetary financing
- No monetary financing of the budget deficit in 2023.
- Framework development:
  - NBU and the MoF are progressing on developing by end-July 2023, 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.
- Commitments to limit indirect monetary financing:
  - Strive to limit indirect forms of monetary financing outside core NBU functions, such as directed provision of liquidity to banks or SOEs for the purchase of government securities on the primary market.
  - Refrain from using the NBU profit for earmarked spending in 2024 and direct this revenue category to General Fund of the State Budget.
  - Direct financing of off-budget programs by the NBU will be avoided altogether.
- Governance measures:
  - Introduce an MoU between the NBU and the MoF relating to the mechanism of servicing the government’s obligations to the Fund by the NBU on behalf of the MoF; the MoU will describe respective responsibilities and ensure timely fulfillment of obligations related to Fund arrangements.
  - Continue adhering to profit retention rules and ensure distribution of NBU profits to the state budget in line with procedures established by the NBU Law.
- Medium-term intent:
  - Carefully unwind unconventional wartime measures that supported price and external stability when conditions permit.
  - Ensure such measures are well-targeted, clearly communicated, and time bound to support return to an inflation targeting framework.

### Financial sector: emergency measures, stability, and transition plans
- Emergency measures have preserved financial stability; banks entered the war well-capitalized and liquid.
- Operational continuity:
  - Majority of bank branches remained operational.
  - Online banking services available to clients with internet connectivity.
  - Non-cash payment system functioning normally.
  - Liquidity has recovered for most banks.
  - “Power Banking” network introduced in late 2022: over 2,000 bank branches capable of providing services during prolonged blackouts.
- Bank licensing actions:
  - Licenses of six small banks (around 3 percent of system net assets as of end-2021) have been revoked under Martial Law.
- Financial sector strategy update:
  - 2021 strategy updated in consultation with IMF staff as a living document with periodic review, modification, and action plans.
  - Key elements include:
    - (i) coordinated steps to safely unwind exceptional measures (aim to unwind emergency prudential measures by end-March 2024 if conditions allow);
    - (ii) diagnostics to quantify bank asset values and NPL resolution priorities;
    - (iii) a framework to safely address potential vulnerabilities;
    - (iv) a prioritized action plan to monitor and tackle high NPL levels;
    - (v) well-developed contingency plans to respond to potential further shocks;
    - (vi) prioritized transposition of EU banking norms;
    - (vii) coordination arrangements among key stakeholders, including consideration of new initiatives related to strategy policies.
  - Will publish non-market-sensitive parts of the strategy.
- Bank diagnostics and assessments:
  - NBU to: (i) complete an independent asset quality review (AQR) once conditions stabilize; (ii) carry out a subsequent bank viability assessment; (iii) prepare a prioritized interagency NPL resolution action plan by end-June 2024.
  - Current prohibition on bank capital distributions remains until independent AQR findings are fully reflected in banks’ regulatory ratios and financial statements.
  - NBU, with World Bank technical support, initiated a resilience assessment including asset valuation and solvency assessment of banks comprising 90 percent of banking system assets to be completed by end-December 2023.
- Contingency planning and fiscal risk mitigation:
  - NBU and Deposit Guarantee Fund (DGF) prepared contingency plans in consultation with stakeholders and IMF staff.
  - Financial Stability Council approved 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.
  - Prepare a bank rehabilitation framework in consultation with the DGF and IMF staff (Structural Benchmark, end-March 2024) to include: (i) financial backstops; (ii) regularly updated bank recovery and resolution plans; (iii) improving the DGF’s financial position; (iv) aligning NBU frameworks for counterparty eligibility in monetary policy operations and lender-of-last-resort operations with international best practice.
- Ongoing priorities:
  - (i) reducing historical non-performing loans (NPLs) while maximizing recovery of economic value;
  - (ii) recovering value from assets of resolved banks;
  - (iii) developing the regulatory framework for the non-bank financial sector and financial markets.
- State ownership stance:
  - All decisions consistent with strategy to reduce state ownership in the banking sector.
  - Any decision potentially increasing state ownership will be taken in consultation with IMF staff and strictly limited to national security matters during Martial Law and preserving financial stability.
  - By the time of the second review of the EFF, will consider including vision for state-owned banks and financial institutions in the Financial Sector Strategy.
- Immediate steps regarding state-controlled banks:
  - Framework prepared and being implemented to inform decisions on additional banks coming under State control to preserve value, ensure effective operational management, and reach decisions on the future of such banks.
  - Analyze solvency and viability findings of the NBU resilience assessment considering changing economic needs.
  - Use independent AQR results to update general SOB strategy and strategies for individual SOBs, including privatization.

### Regulation and supervision strengthening
- EU alignment and timelines:
  - Undertook a gap analysis relative to the EU Capital Requirements Directive.
  - Aim to close identified gaps in the regulatory capital structure by end-September 2023, and other gaps by end-September 2024.
- Governance and oversight actions (Structural Benchmark, end-September 2023):
  - (i) separate the related-parties-unit from banking supervision;
  - (ii) strengthen Supervisory Committee decision-making by implementing “supervisory panels” as a consulting body to provide independent review and challenge, promote horizontal communications, consistency in decision making, and highlight issues needing special attention;
  - (iii) resume scheduled onsite inspections for both banking and non-banking institutions, ensuring NBU discretion on staff safety matters.
- Transition to 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 improve professional capacity, including developing professional profiles and a multi-year training program for new hires.

### Non-bank financial institutions (NBFIs) and market regulation
- Ownership transparency and supervision:
  - NBU required all NBFIs (apart from credit unions) to disclose owners and for those with non-transparent ownership structures to change ownership by October 2021; will continue monitoring and supervisory actions against non-compliant NBFIs.
  - Prepare supervisory risk assessment methodology distinguishing types of NBFIs by end-September 2024.
- Legislative actions:
  - Passed legislation on Financial Services and Financial Companies (#1953) and Insurance (#1909).
  - Committed to enacting amendments to Law (#5865) on the National Securities and Stock Market Commission (NSSMC) to enhance NSSMC’s powers, independence, institutional capacity, and cross-border and domestic cooperation mandate.
  - Aim to align with IOSCO principles to allow Ukraine to become a signatory of IOSCO’s multilateral MoU by end-December 2024 with full implementation of other provisions of the law by end-December 2025.
  - Adopt the Credit Unions Law (#5125) by end-June 2023.
  - Exclude NBU regulations for NBFIs from scope of Law of Ukraine “On principles of state regulatory policy in the field of economic activity”.

### Asset recovery and non-interference commitments
- Reconfirm commitment to recover value from assets of failed banks.
- Abstain from interference with current asset recovery strategies of the largest bank nationalized in 2016 and of the DGF.

### Governance and growth: reconstruction strategy and transparency
- Reconstruction financing needs:
  - Total cost of reconstruction and recovery from a recent joint analysis: US$411 billion.
  - RDNA2 estimates US$14.1 billion needed for critical and priority reconstruction and recovery investments in 2023.
- Near-term sectoral priorities: housing, utilities, social infrastructure, demining, transport, energy infrastructure, and the private sector.
- Integrated strategy principles:
  - Include reconstruction and recovery spending in program design while considering debt sustainability concerns, financing mix (i.e., grants and concessional financing), absorption capacity, and treatment of public guarantees.
- Transparency, accountability, and anti-corruption measures:
  - Use digital technologies and a platform to provide timely information to transparently track and analyze reconstruction-related procurement and expenditures.
  - Conduct comprehensive audits of reconstruction funds and performance audits of selected projects, with timely publication of audit reports.
  - Integrate mechanisms to prevent and identify corruption risks and refer cases to anti-corruption institutions.
  - NABU and the State Agency for Restoration and Development entered a memorandum of understanding (MOU) to facilitate cooperation and information exchange to promote transparent and effective management and improve internal control mechanisms to combat corruption.

### Competition policy and Anti-Monopoly Committee (AMCU) reform
- By end-September (year not explicitly restated in this section), adopt amendments to strengthen AMCU legal framework to promote market competition and combat monopolistic practices while ensuring reconstruction projects are not inappropriately discouraged from public investment or state aid.
- By end-December, submit a new draft law to Parliament to ensure AMCU’s institutional independence, enhance appointment procedures for key officials, and strengthen enforcement powers.

### Anti-corruption and rule of law
- Commitment to preserve independent, competent, and trustworthy institutions to combat high-level corruption and prevent backtracking on progress.
- Asset declaration restoration and related actions:
  - Enact law to restore obligation of public officials (but 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 asset declarations (Structural Benchmark, end-July 2023).
  - Enhance the asset declaration system to allow automatic population of information from linked databases while maintaining obligation for truthful and timely submission of simplified asset declarations during Martial Law (Structural Benchmark, end-October 2023).
  - Undertake consultations on publishing during Martial Law summary information about assets and liabilities of officials holding positions of high and especially high responsibility under the Law on Prevention of Corruption, balancing transparency and personal security.
  - NABU and SAPO to be provided full, direct, and confidential access to submitted asset declarations to facilitate investigation and prosecution of corruption, bribery, and illicit enrichment.
  - Any enhancements during Martial Law must not reduce overall system effectiveness nor derogate from public officials' obligation to submit truthful, complete and accurate asset declarations.
  - Once Martial Law is lifted, the asset declarations system will be fully restored, including disclosure requirements for all covered public officials, risk-based verification of declarations, and public access to asset declarations.

_Source: Excerpt from program documentation._

### 61.      We remain committed to strengthening the effectiveness of anti-corruption

### 1ukrea2023002 - 61.      We remain committed to strengthening the effectiveness of anti-corruption

### Anti‑corruption institutions: commitments and benchmarks
- Legislation to strengthen institutional autonomy and capacities of the SAPO will be adopted to:
  - improve the selection procedures of the SAPO head and key officials;
  - strengthen SAPO capacity to regulate its organizational activities;
  - establish mechanisms for discipline and accountability of SAPO leadership (including performance evaluation and a periodic external audit conducted by external experts with international experience).
  - Timing: Structural Benchmark, end-December 2023.
- NABU access to competent, independent and speedy forensic examinations will be pursued as part of broader reforms to the forensic expert system for criminal law enforcement.
- Commitment to conduct a new Governance and Corruption Diagnostic with IMF technical assistance after Martial Law is lifted; the published report will assess corruption vulnerabilities and governance weaknesses and lay out future reforms in a post-war scenario.
- Table 2 structural benchmark entries relevant to anti‑corruption:
  - 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 — 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 — 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 — End-October 2023.
  - Adopt legislation to enhance the institutional autonomy of the SAPO, specifically, on the selection procedures, capacity to regulate organizational activities, and mechanisms for discipline and accountability — End-December 2023.

### AML/CFT regime and beneficial ownership reforms
- Objective: ensure an effective risk-based AML/CFT regime to prevent, detect and deter laundering of proceeds of corruption through AML/CFT supervision.
- Actions and sequencing:
  - With IMF capacity development, the NBU will develop guidelines for financial institutions and other covered non-bank institutions consistent with FATF standards for applying a risk-based approach regarding politically exposed persons (PEPs).
  - Amend the AML/CFT law to re-establish obligations of financial institutions to implement enhanced due diligence measures on politically exposed persons on a risk-based approach consistent with FATF standards. Timing: Structural Benchmark, end-September 2023.
  - A draft law (#9269) has been registered with Parliament in May.
  - The NBU will amend respective regulation to clarify penalties for improper or unjustified implementation of the risk-based approach regarding PEPs.
  - After resuming scheduled inspections and adopting AML/CFT amendments regarding PEPs, the NBU will plan and conduct a thematic inspection of financial institutions’ compliance with enhanced customer due diligence on PEPs and publish subsequent guidance if needed.
- Beneficial ownership:
  - Improve effectiveness of the beneficial ownership regime to enhance transparency in public procurement, detect conflicts of interest, and prevent misuse of companies.
  - Timing: By end-September 2023, adopt amendments to relevant legislation to align the definition of beneficial owner with FATF standards and implement verification measures to ensure accuracy, adequacy and up-to -date beneficial ownership information submitted.

### Rule of law and judicial reforms
- Complete appointment for remaining vacancies of the High Council of Justice through open and transparent proceedings by the Ethics Council.
- As part of commitments toward EU accession:
  - Adopt a law by end-June 2023 providing an effective solution to break ties in voting within the six-member Advisory Group of Experts when vetting candidates to the Constitutional Court.
- Following dissolution of the Kyiv District Administrative Court in December 2022:
  - Establish a new court by end-December 2023 to hear administrative cases against national state agencies (e.g., NBU, NABU, NACP) staffed by judges properly vetted for independence, competence, and integrity.

### Corporate governance: state-owned banks (SOBs) and SOEs
- State-owned banks (SOBs):
  - Continue strengthening governance to ensure operation on a professional and commercial basis without political interference.
  - Appointed a fresh slate of independent supervisory board members to SOBs in the first half of 2023; NBU applied its fit and proper assessment framework.
  - Assess effectiveness of new procedures after completion of the selection cycle and make minor adjustments in consultation with IFI stakeholders.
  - Implement procedure for conducting annual business planning and performance assessments for all SOBs.
    - First performance assessment will be conducted for each bank 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 the findings.
- SOEs:
  - Draft law (#5593-D) to align SOE corporate governance with OECD Guidelines on Corporate Governance of SOEs, including strengthening supervisory boards’ accountability and powers (ultimate authority to appoint and dismiss CEOs).
  - Timing: to be adopted by October 2023.

### Energy sector corporate governance and immediate priorities
- GTSO corporate governance reform steps committed:
  - (i) Transfer the GTSO shareholding from MGU to the Ministry of Energy and adoption of the new charter, developed and agreed with the NEURC in consultation with the Secretariat of the Energy Community — Structural Benchmark, end-July 2023.
  - (ii) Selection and appointment of a supervisory board for the GTSO — Proposed Structural Benchmark, end-October 2023.
  - Ensure competitive, transparent, merit-based nomination procedure for the GTSO supervisory board under CMU Resolutions Nos. 142 and 777.
  - Ensure supervisory board of MGU (temporarily assuming GTSO supervisory functions) will be substituted by the newly appointed GTSO supervisory board no later than end-October 2023.
- Immediate energy sector priorities to contain war impact:
  - Options to channel resources to key large SOEs include tariff increases, securing external financing, and transparent and exceptional direct budget support.
  - Ukrenergo:
    - Has secured significant external financing support sufficient to cope with urgent repair of the electricity grid.
    - Increase in TSO tariffs for 2023 is helping, but operator costs remain under pressure (additional ancillary costs from increased use of gas for electricity generation; need for full payment of electric power generated from renewable energy sources).
    - Will increase household electricity prices as of June 1 to help restore energy system stability ahead of next heating season.
  - Gas supply considerations:
    - For next heating season, up to 2 bcm of additional gas imports could be required under the baseline.
    - Expect amount to be lower due to recent trends of refilling gas storage and expanded production by Naftogaz.
    - Naftogaz has secured additional financing for gas imports through the EBRD and bilateral donors.
    - If Naftogaz faces a liquidity shortfall, the amount of PSO compensation in 2023 will be assessed based on actual documentary proven expenditures of Naftogaz verified by the State Audit Service and other stakeholders; 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 liquidity and strategy:
    - GTSO revenues impacted by low tariffs, large unauthorized gas offtakes, payments to Naftogaz, and a drop in transit revenues since May 2022.
    - GTSO reducing expenditures (including on investment) to maintain liquidity; current liquidity crisis could require budget support.
    - Once corporate governance reforms are finalized (see ¶67), the company’s strategy should be adjusted to rightsizing the system and identifying alternative sources of supply.

### Program monitoring, conditionality, and structural benchmarks
- Program monitoring tools:
  - Reviews (initially at higher frequency, then semi-annual), quantitative performance criteria, indicative targets, and structural benchmarks.
  - Commitment to provide IMF staff all data needed for monitoring, including data detailed in the attached TMU.
  - Continuous performance criterion (PC) on the non-accumulation of external payments arrears and standard continuous PCs.
- Review schedule:
  - Second and third reviews tentatively planned for October 2023 and March 2024, based on quantitative performance criteria for end-June 2023 and end-December 2023, respectively, and corresponding structural benchmarks.
- Selected quantitative figures and timelines from Table 1 and Table 2 (preserved exactly as in source):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (Program definition (CR 23/132)): 258,352; 353,024 Met; 318,502...337,998...96,737.........
  - Proposed re-definition: 213,000...242,900...96,737100,000150,000.
  - Floor on net international reserves (in millions of U.S. dollars): 15,50023,762Met15,50016,50015,50016,50015,50016,50016,50016,500.
  - Floor on tax revenues (excluding Social Security Contributions): 451,700472,689Met696,400696,4001,094,7001,094,7001,679,1701,679,170420,000835,000.
  - Ceiling on publicly guaranteed debt: 37,00037,00037,00037,00037,00046,00046,000.
  - Ceiling on general government borrowing from the NBU: -2,551-2,551Met-2,573-2,573-1,153-1,153-704-704-9,500-2,884.
  - Ceiling on general government arrears: 6,0001,757Met4,5004,5003,0003,0001,6001,6001,6001,600.
  - Floor on social spending: 187,000182,321Not met258,100249,000372,600359,600499,600499,600172,000270,000.
  - Memorandum items (selected): External project financing 23,718951...28,45311,19042,66034,04556,85256,82832,70065,400; Budget support grants 178,363179,407...268,871270,823404,632404,847422,916423,13279,040158,080; Spending on gas purchases, PSO compensation and transfer to GTSO 10,0000...30,00030,00045,00045,00060,00060,000030,000.
- Selected structural benchmarks and timings from Table 2 (preserved exactly):
  - 1 Enact the second supplementary Budget 2023 — Fiscal — End-April 2023 — Met.
  - 2 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 — Fiscal — End-May 2023 — Met.
  - 4 Submit to Parliament a draft law which will reinstate articles of Budget Code that establish limits on issuance of public guarantee with clear criteria for such provision (including for priority sectors) — Fiscal — End-May 2023 — Met.
  - 6 Adopt the draft law on tax policy and administration prepared under the PMB — Fiscal — End-July 2023 — Reset.
  - 7 Prepare a conditions-based strategy to move to a more flexible exchange rate, ease FX controls and transition to inflation targeting — Monetary and Exchange Rate — End-June 2023.
  - 8 Transfer the GTSO shareholding directly to the Ministry of Energy and adopt the new charter — Energy/Corporate Governance — End-July 2023.
  - 9 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 — Governance/Anti-Corruption — End-July 2023.
  - 11 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 — Fiscal — End-September 2023.
  - 14 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 — Governance/Anti-Corruption — End-September 2023.
  - 15 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 — Financial Sector — End-September 2023.
  - 17 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 — Governance/Anti-Corruption — End-October 2023.
  - 18 Select and appoint a supervisory board for the GTSO — Energy/Corporate Governance — End-October 2023.
  - 19 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 — Fiscal — End-December 2023.
  - 20 Adopt National Revenue Strategy by the end of 2023 — Fiscal — End-December 2023.
  - 21 Adopt legislation to enhance the institutional autonomy of the SAPO, specifically, on the selection procedures, capacity to regulate organizational activities, and mechanisms for discipline and accountability — Governance/Anti-Corruption — End-December 2023.
  - 22 Prepare a bank rehabilitation framework in consultation with the DGF and IMF staff — Financial Sector — End-March 2024.
  - 23 Implement a supervisory risk assessment methodology to inform supervisory engagement priorities — Financial Sector — End-June 2024.

*Source: 1ukrea2023002 - 61.      We remain committed to strengthening the effectiveness of anti-corruption*

### 1. This Technical Memorandum of Understanding (TMU) sets out the understandings between

### 1ukrea2023002 - Technical Memorandum of Understanding (TMU) between the Ukrainian authorities and IMF staff

### Purpose, scope, and program monitoring
- Sets out understandings between the Ukrainian authorities and IMF staff regarding definitions of variables subject to targets (quantitative performance criteria and indicative targets) for the Extended arrangement under the Extended Fund Facility (EFF).
- Describes methods for assessing program performance and information requirements for monitoring targets.
- Quantitative performance criteria and indicative targets are shown in Table 1 of the MEFP; definitions and adjustors are described in Section I of the TMU. Reporting requirements are specified in Section III.

### Exchange rates and valuation (program accounting conventions)
- 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
  - Norwegian Krone: 10.565 per 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 the actual exchange rate set by NBU Ukraine during Martial Law. Setting a program exchange rate for computing monetary aggregates does not imply any target exchange rate for policy purposes.

### Definitions of institutional boundaries and key aggregates
- General government comprises:
  - central (state) government, including the road fund;
  - all local governments;
  - all extra budgetary funds, including the Pension and Unemployment Funds of Ukraine;
  - special accounts which provide resources to key spending units.
- Budget of the general government comprises:
  - (i) the state budget;
  - (ii) all local government budgets;
  - (iii) if not already included in (i), budgets of the extra budgetary funds listed above, any other extra budgetary funds included in monetary statistics compiled by the NBU, and special accounts.
- Authorities will inform IMF staff immediately of creation or pending reclassification of new funds, programs, or entities.

### Definition of debt (consistent with Guidelines on Public Debt Conditionality)
- Debt: a current (not contingent) liability created under a contractual arrangement through provision of value (assets or services) requiring future payments of assets or services that discharge principal and/or interest.
- Primary forms of debt include:
  - i. loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements);
  - ii. suppliers’ credits (deferred payments for goods/services);
  - iii. leases (debt is the present value at inception of all lease payments expected during agreement, excluding operation/repair/maintenance payments).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligations that constitute debt are debt. Failure to make payment on obligations not considered debt under this definition does not give rise to debt.

### GDP and territorial exclusions
- Gross Domestic Product is compiled 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 definitions
- External financing (Table B) comprises:
  - a. Budget support loans and grants: unearmarked financial support for general government financing, including financing from official multilateral creditors (e.g, World Bank, European Commission) and official bilateral creditors.
  - b. Project support loans and grants: earmarked financial support for specific projects and appear as part of government financing, including financing from official multilateral creditors (e.g., European Investment Bank, World Bank Group and European Bank for Reconstruction and Development) and official bilateral creditors.

### Defense expenditures and other specific items
- Defense expenditures: expenditures of the defense and security sector pursuant to the Law of Ukraine “On National Security of Ukraine”, including total amounts of all current (goods and services, wage bill, social payments, etc.) and capital expenditures through the general and special funds of the consolidated budget.
- Own revenues of budgetary institutions: defined in Item 15, Part 1, Article 2 of the Budget Code — revenues received by budgetary institutions as payment for services, performance of works, targeted activities, grants, gifts, charitable contributions, proceeds from sale of products or property, and other activities in the prescribed manner.
- Proceeds of sales of confiscated Russian assets or bank account balances (including those directed toward the Fund for the Liquidation of the Consequences of the Armed Aggression) are recorded below the line as a deficit financing source with counter-entry into deposits of the Treasury Single Account.

### Definition and treatment of arrears (domestic)
- Overdue accounts payables (domestic arrears) per Order of the Ministry of Finance No. 372 dated April 2, 2014:
  - Arrears defined as amount of payments due on the 30th day after the deadline for mandatory payment under the legal contract. If no payment deadline specified, the 30th day after confirmation of goods received/works done/services rendered.
- Specifics:
  - a. Budgetary arrears on social payments and wages: all arrears of the consolidated budget on wages, pensions, and social benefits of 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 given martial law specifics.
  - b. Wages: all forms of remuneration for work performed for standard and overtime work in all subcategories, including defense and security service.
  - c. Arrears of social funds (Pension and Unemployment Fund of Ukraine): all insurance benefits of these funds unpaid at 30th day after payment deadline. Excludes unpaid pensions to individuals who continue to reside in territories that are or were in direct combat zones and temporarily occupied by Russia.

### I. Quantitative performance criteria and indicative targets — selected aggregates and definitions

A. Floor on Net International Reserves (NIR) — Quantitative Performance Criterion
- Definition:
  - NIR of the NBU: dollar value of difference between usable gross international reserve assets and reserve-related liabilities to nonresidents, evaluated at program exchange rates.
- Usable gross international reserves: readily available claims on nonresidents denominated in convertible foreign currencies, consistent with the Balance of Payments Manual (Sixth Edition) and the SDDS (Table 6.1, item A).
  - Excluded from usable reserves include, inter alia:
    - a. assets denominated in foreign currencies held at, or claims on, domestic institutions; foreign currency claims of the NBU on domestic banks; NBU deposits held at the Interbank Foreign Currency Exchange Market and domestic banks for trading purposes;
    - b. any precious metals or metal deposits, other than monetary gold and gold deposits, held by the NBU;
    - c. assets corresponding to claims of commercial banks in foreign currency on the NBU and any reserve assets that are encumbered, pledged as collateral (if not already included in foreign liabilities or excluded from reserve assets), or frozen;
    - d. any reserve assets not readily available for intervention in the foreign exchange market because not fully under NBU control or lacking quality/liquidity limiting marketability at book price.
- Reserve-related liabilities comprise:
  - all short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign currencies with remaining maturity of one year or less;
  - the stock of IMF credit outstanding;
  - the nominal value of all derivative positions (including swaps, options, forwards, and futures) of the NBU and general government implying the sale of foreign currency or other reserve assets (refers to notional value of commitments, not 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 adjustment by full amount of cumulative shortfall in external financing disbursements (defined in paragraph 7) relative to the baseline projection (Table B).
  - downward adjustment by full amount of cumulative shortfall in net issuance (gross issuance minus debt service) of central government’s domestic foreign exchange securities relative to baseline.
  - symmetric adjustors for central bank swap agreements:
    - if NBU converts any non-reserve currency provided under a central bank swap into a reserve currency through an outright sale, NIR targets adjusted upward by the amount converted at time of conversion; adjusted downward when NBU repays the non-reserve currency provided under a swap (principal and interest).
    - if NBU draws any reserve currency provided under a central bank swap with maturity over 1 year, NIR targets adjusted upward by amount used with maturity over 1 year; adjusted downward when NBU repays these amounts.

- Table A: Components of Net International Reserves — lists types of foreign reserve assets or liabilities and corresponding NBU balance sheet and memorandum accounts. (Table entries and account numbers appear in the TMU text.)

B. Ceiling on General Government Direct Borrowing from the NBU — Indicative Target
- Definition:
  - 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 measured at face value as reported on the NBU’s balance sheet.
  - Change in stock excludes securities acquired as collateral under loans provided by the NBU during the measurement period; loans exclude those to the Deposit Guarantee Fund.
  - Change measured relative to stock as of end March 2023 and adjusted for exchange rate valuation effects using program exchange rates.
  - Detailed breakdown of accounts to be provided in a format agreed with IMF experts.
- Preconditions and additional rules:
  - An additional precondition for activating monetary financing is the drawing down of government deposits (consistent with ¶31 of MEFP), with criteria determined in discussion between NBU and Ministry of Finance.
- Adjustors:
  - If there is a shortfall in external financing (any shortfall of financing listed in Table B), and primary issuances on government bonds exceed 120 percent of redemptions, 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 (June 30, September 30, December 31 for 2023, and March 31, 2024) and is not carried over between quarters.
  - The amount of shortfall in external financing is assessed as total cumulative shortfall from end-March 31, 2023 for 2023 targets and end-December 2023 for 2024 targets; shortfall measured on last day of previous month.
  - The amount of primary issuances of government bonds assessed as total cumulative issuance from end-March 31, 2023 for test dates in 2023 and end-December 31, 2023 for test dates in 2024.
  - For test dates of Indicative Target shown in Table C, if cumulative amount of primary issuances of government bonds maturing after the test date (measured at face value) is higher than amounts shown in line (i.), then ceiling will be adjusted upward by the smaller of either the shortfall in external financing as defined in Table B for that test date or the amount shown in line (ii.) of Table C.
- Table C (as presented in the TMU) contains numeric entries (preserved verbatim here):
  - Jun 30, 2023   Sep 30, 2023   Dec 31, 2023Mar 31, 2024   Jun 30, 2024
  - (i.) 16826535190136
  - (ii.) 30.76048.84749.29640.50047.116
  - 1/ Measured at face value.
  - "An adjustment is triggered if the cumulative amount of primary issuances of government bonds maturing after the test date exceeds: borrowing from the NBU, net of redemptions is the smaller of external financing as defined in Table B (if any) or this amount (in UAH billion) For the test date of:"

C. Floor on Overall Cash Balance of the General Government excluding Budget Support Grants — Indicative Target
- Definition:
  - Overall cash balance of general government excluding budget support grants: balance measured in paragraph 19 below, adjusted by amount of budget support grants (Table B) recorded above the line in non-tax revenues.
  - Balance measured on cumulative basis starting from January 1st of a calendar year. For program computational purposes, a positive number is a surplus and negative number is a deficit.
- Measurement of the overall cash balance (net financing flows, excluding valuation changes):
  - Total net treasury bill sales (in hryvnias and foreign currency) as measured by NBU registry of treasury bill sales (net treasury bill sales defined as cumulative total funds realized from primary auction sales and government securities issued for recapitalization of banks and SOEs, less cumulative total redemption of principal on treasury bills), 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 (consists of all non-treasury bill financing in domestic or foreign currency extended to general government by banks less change in all government deposits in banking system) and any other financing extended by entities not reflected in monetary statistics provided by the NBU.
  - 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 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 Agency for the Restoration and Development of the Infrastructure of Ukraine per paragraph 93 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.

*Source: 1ukrea2023002 - Technical Memorandum of Understanding (TMU) between the Ukrainian authorities and IMF staff*

### 20. For the purposes of measuring the balance of the general government, all flows to/from the

### 20. For the purposes of measuring the balance of the general government, all flows to/from the budget in foreign currency (including from the issuance of foreign currency denominated domestic financial instruments) will be accounted for based on paragraph 3 of this TMU.

### D. Floor on Non-Defense Cash Primary Balance of the General Government excluding Budget Support Grants (Quantitative Performance Criterion)
- Definition:
  - The non-Defense Cash primary Balance of the General Government excluding budget support grants = Overall Balance of the General Government excluding budget grants (defined in section C) less interest payments (total interest paid on domestic and external debt) less defense spending of the state budget general fund as defined in paragraph 8 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 adjustor: full amount of any increase above the projected stock of budgetary arrears (overdue account payables) in state budget and social funds; excludes domestic arrears in territories that are or were in direct combat zones and temporarily occupied by Russia.
  - External budget support loans adjustor: if cumulative proceeds from external budget support loans (in hryvnia evaluated at program exchange rates) fall short of program projections, the floor on the consolidated general government balance will be adjusted downward by the full amount of the shortfall.
  - Downward adjustor for government bonds issued for banks recapitalization and DGF financing: full amount up to a cumulative maximum amount to be set in future reviews; the amount included in the targets is zero.
  - Upward adjustor for NBU profit transfers: full amount of profits transferred by the NBU in excess of UAH 71.6 billions in 2023.
  - Downward adjustor 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.
  - Downward adjustor for receipts from sales of confiscated Russian assets and transfers of bank accounts: up to a cumulative maximum amount of UAH 25.8 billion corresponding to the full amount of such receipts. This amount reflects the balance of the Fund for the Liquidation of the Consequences of the Armed Aggression, which stood at UAH 61.7 billion, net of one-half of the annual profit transfer of the National Bank of Ukraine (UAH 35.9 billion). For the period of the Martial law, data from territories that are or were in direct combat zones and temporarily occupied by Russia are excluded from the adjustor.

### E. Floor on Tax Revenues (excluding SSC) (Quantitative Performance Criterion)
- Measurement:
  - 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, excluding Social Security Contributions tax.
  - Cumulative targets defined in this manner are set in Table 1 of MEFP.

### F. Floor on the General Government Social Spending (Indicative Target)
- Definition and coverage:
  - Social spending of general government = spending on social programs through General Fund and Special Funds; covers 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 January 1st of each calendar year.

### G. Ceiling on the General Government Domestic Arrears (Indicative Target)
- Definition and measurement:
  - Ceiling derived based on definition provided in paragraph 11 of this TMU and reporting format set in paragraph 78 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 11).
  - 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 as of the applicable test date.

### H. 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 the relevant contractual terms (taking into account any contractual grace periods).
  - Excludes arrears on external financial obligations of the government subject to rescheduling.
  - “External” is defined as debt payments to non-residents.

### I. Ceiling on Publicly Guaranteed Debt (Quantitative Performance Criterion)
- Definition and ceilings:
  - Applies to the amount of guarantees issued by the central (state) government once the underlying debt is disbursed.
  - For test dates between June 30, 2023, and December 31, 2023, ceiling = UAH 37 billion, consistent with 3 percent of current year revenues of the state budget general fund.
  - Applies to cumulative amount of guarantees issued by the central (state) government from January 1st of 2023 including guarantees to priority sectors.
  - For 2024, ceiling = UAH 46 billion for end-March and end-June.
  - Program exchange rates 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., loans to UGV, UkrEnergo, Ukrainian Railways, GTSO, Boryspil International Airport).
  - Adjustor capped at UAH 45 billion and to be discussed in program reviews; consistent with debt sustainability objectives.

### J. 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;
  - (iv) impose or intensify import restrictions for balance of payments reasons.

### II. Official Exchange Rate
- Determination:
  - Official exchange rate of the hryvnia against U.S. dollar = UAH/USD 36.5686 as set by the NBU, effective 9 a.m. 21 July 2022, but remains subject to change.
  - Cross rates determined by the NBU on the basis of this official exchange rate.
  - 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.

### III. Reporting Requirements — A. National Bank of Ukraine
- Regular reporting and data items (timing preserved as specified):
  - Monthly sectoral balance sheets for the NBU and other depository corporations (banks) according to SRFs, no later than the 25th day of the following month (SRFs for end of reporting year no later than the 41st day after the reporting year).
  - Weekly provision to the IMF of daily operational data: 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 developments in net and gross international 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 the 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 information on official foreign exchange interventions and intervention quotations and results of any foreign exchange auctions.
  - Quarterly information on indicators of FX interventions approved by the NBU Board (in case of any changes); immediate notification of any updates to FX interventions methodology documentation and decisions defining indicators.
  - Daily information on 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; provision to IMF of daily holdings broken down by type of holders at primary market prices at rate fixed on day of auction; sales from beginning of year at official rate as of date of placement; domestic government securities in circulation by principal debt outstanding at 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; and monthly report on government securities holdings broken down by currencies and by holders—non-resident investors, resident non-bank, and resident banks (further by bank group: State Participation, Foreign Banking, and Private Capital).
  - Daily transactions (volumes and yields) on the secondary market treasury bills including OTC transactions with breakout for any NBU transactions.
  - NBU financial statements (income and expenses, balances on the general reserves and the calculations of the profit distribution to the budget) for the current and, if available, projections for the following two years, as approved by the NBU’s Board; immediate notification of any update.
  - Daily and monthly data on NBU financing operations (including swaps or refinancing) of the banks of Ukraine, and on mopping up (absorption) operations (including through 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 settlement and maturity dates), and collateral pools broken down by asset types and securities (values before and after haircuts). Monthly reporting of NBU loans and collateral to separately identify banks under temporary administration or liquidation.
  - Monthly core FSIs for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group, provided no later than 30 days after expiration of reporting month (except end-of-year data no later than 41st day after reporting year).
  - Daily and monthly depository corporations surveys, including domestic claims, NBU loans and liabilities with banks, detailed information on banking sector loans provided to the general government (by indebtedness of central government, local budgets and the DGF), including national and foreign currency, by loan and by security, and balances of government funds held at the NBU (Single Treasury Account account 3240 L and Treasury foreign currency account 3513 L) and DGF.
  - Monthly projections for external payments falling due in the next 12 months; actual settlement data (principal and interest, public and private) on a quarterly basis within 80 days following the end of the quarter.
  - Quarterly stock of short- and long-term external debt for both public and private sectors; continuous reporting of stock of external arrears.
  - Daily data on foreign exchange export proceeds and foreign exchange sales; import transactions for goods and services; amounts of foreign exchange transferred from abroad to benefit of physical persons to be paid in cash without opening an account; foreign exchange wires from Ukraine abroad for current foreign exchange nontrade transactions on basis of orders of physical persons; sales and purchases of foreign exchange cash by individuals (incl. through banks, exchange offices, and UkrPoshta).
  - Weekly data on volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons; monthly data on certain transfers of non-cash FX from Ukraine to benefit of non-residents.
  - Monthly aggregated data on 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); banks’ open foreign exchange positions by main groups of banks; aggregated deposits broken down by households and legal entities, maturity, and by national and foreign currency; aggregated loans broken down by households and legal entities and by national and foreign currency.
  - Daily data on deposits and credits aggregated for the overall banking system (excl. the NBU) without deposits and credits of banks in liquidation starting from the beginning of 2014, broken down by households and legal entities and by national and foreign currency.
  - Weekly data on foreign assets and foreign liabilities (broken down by domestic and foreign currency) for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group.
  - Monthly 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 data for the largest 35 banks on liquidity ratio and amounts of cash and cash equivalents, available funds in NBU accounts (excl. reserve requirements), correspondent accounts with well-known international banks (excl. encumbered accounts), and deposits from customers.
  - Daily bank-by-bank data for State Participation Group, Foreign Banking Group, and Private Capital Group banks on total assets and liabilities; loans and claims (by households, legal entities, and banks); and foreign exchange net open position, reported by domestic and foreign currency. Deposits reported by households and legal entities and by maturity (current accounts, saving accounts, and time deposits).
  - Aggregate banking sector and bank-group data on deposits and credits excluding banks in liquidation since 2014.
  - Monthly bank-by-bank data on liquidity coverage ratio in all currencies and in foreign currency.

*Source: TMU provisions excerpt (content unit: 1ukrea2023002).*

### 45. Th

### 1ukrea2023002 - 45. Th

### National Bank of Ukraine (NBU) — reporting and data provision
- The NBU will provide to the IMF on a daily basis aggregated data on main currency flows, including government foreign receipts and payments by currencies as well as interbank market operations by currencies.
- The NBU will continue to provide daily information on exchange market transactions including the exchange rate.
- The NBU will provide the IMF, on a monthly basis, with information on reserve requirements at the individual bank level, including the breakdown between the reserve requirements fulfilled by reserves and that by government securities.
- The NBU will provide the IMF, on a monthly basis, 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).
- The NBU will provide the IMF, on a weekly basis (after Martial Law is cancelled), the average interest rate on interbank borrowings (by domestic and foreign currency, and by maturity—overnight, 1–7 days, and over one week).
- The NBU will provide the IMF, on a monthly basis, in an agreed format, data for the entire banking sector, and on an aggregated and bank-by-bank basis for State Participation Group, Foreign Banking Group and Private Capital Group banks:
  - risk weighted assets and other risk exposures (for ratio H2 and H3 calculation), including for the excess of long-term asset to funding and foreign exchange open position;
  - total regulatory (Tier 1 and Tier 2) and core (Tier 1) capital;
  - capital adequacy ratio for total regulatory (H2) capital and core capital (H3);
  - loans and claims by maturity buckets for households, legal entities, and banks in domestic and foreign currencies;
  - deposits by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; and
  - 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.
- The NBU will provide the IMF, on a monthly basis, in an agreed format, data for the entire banking sector and on a bank-by-bank basis for State Participation Group, Foreign Banking Group and Private Capital Group banks:
  - the amount 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 of collateral, legal entities in domestic and foreign currency, households in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories;
  - provisions on loans and claims (by households in domestic and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories);
  - large exposures (loans equal to or greater than 10 percent of equity), refinanced loans, and restructured loans (by households, legal entities, and banks) (after Martial Law is cancelled);
  - the 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).
- The NBU will provide the IMF, on a monthly basis, in an agreed format, bank-by-bank for the State Participation Group, Foreign Banking Group and Private Capital Group banks:
  - the amount of deposits of related parties (by domestic and foreign currencies, and households and legal entities);
  - deposits of related parties pledged as (cash cover) 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 of collateral, legal entities, households, and banks in domestic and foreign currencies, as well as by borrower classification categories);
  - provisions on loans and claims on related parties (by households, legal entities, and banks in domestic and foreign currencies, as well as by borrower classification categories).
- The NBU will provide to the IMF, on a monthly basis, aggregate and bank-by-bank and by region data on loans and provisions (by households and legal entities, domestic and foreign currencies, and by debtor classification categories), 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).
- NBU will report to the IMF, on a monthly basis, data for the entire banking sector as well as on a bank-by-bank basis for each of the banks in the State Participation Group, Foreign Banking Group and Private Capital Group showing nonperforming loans (NPLs), including migration from NPLs to performing loans (PLs); migration from PLs to NPLs; the form of NPL repayments (cash, loan sales, collateral sales, etc.); write-offs; and other factors (e.g., exchange differences and revaluations) (and compared with banks’ respective timebound plans for reducing NPLs once these are approved).
- The NBU will report to the IMF, on a monthly basis, data for the entire banking sector as well as on a bank-by-bank basis by bank groups for State Participation Group, Foreign Banking Group and Private Capital Group data 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, the NBU will provide to the IMF banks’ net expected outflow of cash for a 30-day period.
- The NBU will report to the IMF on a monthly basis and bank-by-bank the amount by which the State Participation Group, Foreign Banking Group and identified Private Capital Group banks' regulatory capital has been increased. The report will disclose the instrument or transactions by which the regulatory capital has been increased (e.g., capital injection, conversion of subordinated debt to equity, etc.).
- The NBU will, once a month, inform the IMF of any regulatory and supervisory measures against banks violating the NBU regulations on capital adequacy, liquidity ratio, large exposures, and related or connected lending, as well as about decisions on declaring a bank as problem or insolvent, including banks whose license has been revoked without declaring the bank insolvent.
- The NBU will continue to provide detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter.
- The NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, banks, or nonbank entities and individuals. In such case, the NBU will provide information on outstanding interest and principal payments.
- The NBU will inform IMF staff of any changes to reserve requirements for other depository corporations.
- The NBU will communicate (electronically) to the IMF staff any changes in the accounting and valuation principles applicable to the balance sheet data and will notify the staff before introducing any changes to the Charts of Accounts and reporting forms of both the NBU and the commercial banks.
- The NBU Internal Audit Department will continue 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.
- The NBU will continue to provide the IMF with a copy of the annual management letter from the external auditor within six weeks of completion of each audit. As required under the Fund's safeguard policy, this will remain in effect for the duration of the arrangement and for as long as credit remains outstanding.
- Monthly, the NBU will provide to the IMF and the Ministry of Finance data on the monthly coupons and principal to be paid for the period till the end of 2023 (in hryvnia and foreign currency, separately) on the outstanding stock of government securities held by NBU and the public (broken down by resident banks, resident non-bank; and non-resident investors). The data on resident banks will be further broken down by bank group (State Participation, Foreign Banking, and Private Capital) and include ISIN-level.
- Annually, the NBU will provide information on hryvnia-denominated securities that are indexed (i.e., to inflation; USD), broken down by the type of the owner.

### Deposit Guarantee Fund (DGF) — reporting requirements
- The DGF will provide, on a monthly basis, data on the total number and volume of household deposits broken down in groups by deposit size. The data will be reported bank-by-bank for the largest 35 banks and on aggregate for the remaining banks.
- The DGF will report to the IMF on a monthly basis and bank-by-bank for all banks in the banking system the amount of insured deposits and total household deposits. The data will be reported according to an agreed format, by domestic and foreign currency.
- The DGF will report to the IMF on a monthly basis and bank-by-bank the total insured deposits and remaining insured deposits to be paid by the DGF for the banks under liquidation and under provisional administration. The data will be reported according to an agreed format, by domestic and foreign currency.
- The DGF will report to the IMF on a monthly basis the financial position of the DGF, including information about the cash balance, bond holdings, credit lines, and loans. The data will be reported according to an agreed format.
- The DGF will report to the IMF on a monthly basis the financing arrangements of the DGF, including information about contracted financing from MoF. The data will be reported according to an agreed format.
- The DGF will report to the IMF on a monthly basis a one-year forecast of the amount and type of financial resources that the DGF expects to receive from MoF, NBU and other entities, the amount that DGF expects to pay out to insured depositors in banks in liquidation, and the amount of asset recoveries expected by DGF. The data will be reported according to an agreed format.

### Ministry of Finance — reporting and fiscal datasets
- The Ministry of Finance will provide the IMF with the monthly consolidated balances (end-month) of other non-general government entities, including SOEs, holding accounts at the Treasury no later than 25 days after the end of the month.
- The Treasury will continue to provide to the IMF reports on daily operational budget execution indicators, daily inflow of borrowed funds (by currency of issuance) to the state budget and expenditures related to debt service (interest payments and principals) including data on government foreign exchange deposits, in a format agreed with IMF staff, 10-day and monthly basis data on the execution of the state, local, and consolidated budgets on the revenue side and data on revenues from the social security contributions, including by oblast breakdown, monthly data on funds, deposited with the Single Treasury Account, on the registration accounts of the entities which are not included in the state sector, information on balance of funds as of the 1st day of the month on the account #3712 “accounts of other clients of the Treasury of Ukraine,” on inflow to the State budget from placing Treasury or any other liabilities to households in foreign and domestic currency and their redemption.
- The Ministry of Finance will continue to provide to the IMF in electronic form monthly and quarterly treasury reports, including on accounts payable by budget institutions no later than 25 and 35 days after the end of the period respectively.
- The Ministry of Finance will continue to provide to the IMF in electronic form the final fiscal accounts at the end of each fiscal year, no later than March of the following year. Inter alia, these reports will provide expenditure data by programs and key spending units, as well as based on standard functional and economic classifications. In addition, quarterly reports will contain standard information on budget expenses to cover called government guarantees.
- The Ministry of Finance will report data on the public wage bill (excluding SOEs) in line with the template agreed with the IMF staff, including all payment categories, including defense wages.
- The Ministry of Finance will provide quarterly Treasury reports on expenditure under the medical guarantee program by economic classification.
- The Ministry of Finance will report to the IMF on a quarterly information on municipal borrowing and amortization of debt in format agreed with IMF staff.
- The Ministry of Finance, together with NBU, on monthly basis, will provide information about redemptions of domestic bonds and bills in favor of residents (banks, non-banks) and non-residents.
- The Ministry of Finance, together with NBU, on weekly basis, will provide information on face value of government bonds redeemed and face value of government bonds placed during the week.
- The Ministry of Finance will report to the IMF on a monthly basis, no later than 15 days after the end of the month, the 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.
- The Ministry of Finance will provide in electronic form on a quarterly basis, no later than 25 days after the end of the quarter, an 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.
- The Ministry of Finance will provide data on the stock of all budgetary arrears on a monthly basis, no later than on the 1st day of the second subsequent month, including separate line items for wages, pensions, social benefits accrued by social funds, energy, communal services, and all other arrears on goods and services and capital expenditures.
- The Treasury will report monthly data on accounts payable for state and local budgets (economic classification of expenditures).
- The Pension Fund will provide monthly reports on net unpaid pensions to the individuals who resided or continue to reside in the territories that are or were in direct combat zones and temporarily occupied by Russia. The provided information will include defense and law-enforcement.
- The Ministry of Finance will provide a decomposition of own revenues of budgetary institutions (budget treasury code 25000000) into proceeds from fees for services provided by budget institutions in accordance with the law (budget treasury code 25010000) and other sources of own revenues of budgetary institutions (budget treasury code 25020000) no later than 25 days after the end of the quarter.
- The Ministry of Finance will provide monthly information, no later than 25 days after the end of each month, on the 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 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).
- The Ministry of Finance will provide to the IMF in electronic form on a quarterly basis, no later than 25 days after the end of the quarter, (a) data on the outstanding stock of domestic and external debt of the state and local budgets (including general and special funds); (b) the monthly forecasts of planned and actual external debt disbursement, amortization, and interest payments (including general and special funds), broken down in detail by creditor categories and currency as agreed with Fund staff. The Ministry of Finance will also report the accumulation of any budgetary arrears on external and domestic debt service.
- The Ministry of Finance will provide to the IMF in electronic form on a semi-annual basis, no later than 25 days after the end of Q2 and Q4, disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements.
- The Ministry of Finance will 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) on a monthly basis no later than 25 days after the end of the month.
- The Ministry of Finance will provide data on the approved budgets and quarterly operational data (daily for the Pension Fund only) on the revenue, expenditures, and arrears, and balance sheets of the Pension Fund (detailed data on the breakdown of revenues and expenditure by main categories are expected for this Fund), Employment Fund (detailed data on the breakdown of revenues and expenditure by main categories are expected for this Fund), and any other extra budgetary funds managed at the state level no later than 50 days after the end of each quarter (each month in case of the Pension Fund). Any within-year amendments to the budgets of these funds will be reported within a week after their approval. The Ministry of Finance will also report the annual financial statement including the final fiscal accounts of those funds at the end of each fiscal year, no later than April of the following year.
- The Ministry of Finance will provide, no later than 15 days after the end of each month, monthly data on the budgetary costs associated with the recapitalization of banks and SOEs. This cost includes the upfront impact on the cash balance of the general government of the recapitalization of banks and SOEs as well as the costs associated with the payment of interests, including the respective changes as a result of supplementary budgets.
- The Ministry of Finance will provide quarterly performance reports for the Fund for Entrepreneurship Development.
- The registry of fiscal risks would become available to the IMF staff on semi-annual or if available sooner basis.

*Source: 1ukrea2023002 - 45. Th*

### 86. The STS and State Customs Service (SCS) will continue to provide on a quarterly basis, no

### 1ukrea2023002 - 86. The STS and State Customs Service (SCS) will continue to provide on a quarterly basis, no

### Tax reporting, VAT, and fiscal transparency (paragraphs 86–95)
- STS and State Customs Service (SCS) obligations:
  - Provide quarterly, no later than two months after the end of the quarter, a listing of all tax exemptions granted specifying the beneficiary, the exemption provided, the duration, and the estimated subsequent revenue loss for the current fiscal year.
  - Revenues foregone include losses from the simplified tax regime by groups of beneficiaries. (¶86)
- VAT refund reporting (STS):
  - Monthly, no later than 25 days after the end of the month, provide VAT refund data 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; and (vii) stock of VAT refund arrears (unsettled VAT refund claims submitted to the STS more than 74 days before the end of period). (¶87)
- Tax revenue and arrears reporting (STS):
  - 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. (¶88)
- Quarterly tax appeals reporting (STS):
  - Quarterly, but no later than 25 days after the end of each quarter, information on number of tax appeals and associated disputed amounts received; number of internally resolved appeals indicating appeals resolved in favor of the controlling body, in favor of taxpayer, and partial satisfaction. (¶89)
- Ministry of Finance:
  - Monthly information about the number and amount of loans under the 5-7-9 program and a breakdown by sectors of loans. (¶90)
- State Statistics Service:
  - If any revisions of gross domestic product occur, provide revised quarterly data on GDP (nominal, real, deflator) and components (economic activities, expenditure, income) no later than 10 days after revisions. (¶94)
- Ministry of Social Policy:
  - Quarterly data (agreed excel format) on social assistance programs, including IDPs, showing for each program: (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. (¶95)

### Energy sector and SOE reporting (paragraphs 91–93)
- Naftogaz Group and GTSO monthly reporting:
  - Each month, no later than the 25th of the following month, provide IMF staff electronic information (agreed format) on cash flows.
  - 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), and main revenue, expenditure, and financing items.
  - Monthly updated information on Naftogaz financial liabilities, with a schedule of loan-by-loan interest and principal payments. (¶91)
- Ministry of Economy:
  - Quarterly, but no later than 80 days after the end of each quarter, consolidated information from the financial statements of the 10 largest SOEs including: (a) gross profit/losses; (b) net financial results; (c) subsidies received from the budget; (d) guarantees granted from the budget; (e) stock of debt, broken down by domestic and foreign; (f) taxes and dividends paid; (g) wage arrears; and (h) other payment arrears. (¶92)
- Agency for the Restoration and development of the infrastructure of Ukraine:
  - Monthly reports on execution of budgetary programs associated with road construction and maintenance, including borrowing (disbursements, interests, and amortization) in agreed format. (¶93)

### Monetary policy, exchange rate, and FX measures (Statement by Staff Representative)
- NBU policy rate and guidance:
  - NBU maintained the key policy rate (KPR) at 25 percent at the monetary policy committee meeting on June 15 while strengthening forward guidance on the easing cycle. (¶2)
  - NBU noted destruction of the Kakhovka dam and restoration of some electricity tariffs would each add +0.3 pp to inflation this year. (¶2)
- Targeted easing of FX controls:
  - Easing includes payments on outstanding external loans contracted by Ukrainian private-sector entities to export credit agencies and to creditors with a majority foreign government share, and payments on new external private-sector loans (under certain conditions on maturity and cost). Intended to support economic activity and reconstruction while limiting excessive capital outflows. (¶3)

### Subsidized loan program and fiscal risks (¶4)
- Government decree (June 20) introduced a subsidized loan program for businesses generating electricity at thermal power stations, channelled through the Business Development Fund (BDF).
- Staff view:
  - May increase risks from contingent liabilities and put additional pressure on already constrained fiscal resources.
  - Importance of strengthening governance of the BDF to mitigate fiscal risks, in line with commitments under the MEFP (¶25). (¶4)

### Energy market reforms (¶5)
- Legislative and regulatory changes:
  - Parliament adopted draft law #5322 on June 10 to strengthen market monitoring, surveillance, and competition requirements for wholesale electricity markets, aligning with EU REMIT regulation.
  - NEURC cancelled wholesale electricity price restrictions to reduce a price gap during peak and night hours and improve market stability. (¶5)

### Macroeconomic and war-impact overview (Statement by Authorities and Staff)
- GDP and growth:
  - GDP was down 10.5 percent y/y in Q1 2023. In seasonally adjusted terms, GDP was up 2.4 percent q/q in Q1 2023 after falling in Q4 2022. (War economy section)
  - Staff revised baseline real GDP growth to a range of 1 to 3 percent for 2023; external forecasts noted: World Bank revised 2023 growth forecast to 2 percent (from 0.5 percent), central bank predicted 2 percent growth, EBRD forecasted 1 percent growth. (Concluding remarks)
- Agriculture and grain harvest:
  - About 46 million tons of grains should be harvested this year, which is 5 percent-7 percent less than in 2022.
  - Last year, grain harvest fell to 53.1mn tons from 84mn tons in 2021.
  - Domestic consumption forecast is 18mn tons of grain in 2023.
  - Regions affected by Kakhovka reservoir accounted for about 10-11 percent of wheat and sunflower, 4 percent of corn, and 10-14 percent of vegetable harvests. (War economy; Kakhovka Dam)
- Consumer inflation and NBU stance:
  - Consumer inflation decelerated to 15.3 percent yoy in May.
  - NBU remains committed to appropriate monetary policy to support steady disinflation, manage inflation expectations, safeguard exchange rate stability, and protect international reserves. (War economy)
- Fiscal and current account:
  - Significant budget deficit for January–May financed by international aid and domestic debt borrowing.
  - Current account deficit amounted to USD 1.8 billion corresponding to 6.0 percent of GDP in Q1 2023 (a year earlier Ukraine posted a surplus of USD 2.0 billion). (War economy)
- Migration and displacement:
  - End of May number of Ukrainian migrants reached 8.9 million people (increased by 919 thousand people since the beginning of 2023 – UN estimations), of which 5.1 million have temporary protection status in the EU.
  - Registered IDPs reached 3.6 million as of April 30; total IDPs estimated at 5.1 million.
  - Estimated number of those who returned to previous place of residence after 02/24/2022 is around 4.8 million people.
  - CEDOS research: 76 percent of young people who migrated want to return to Ukraine, 11 percent would like to remain where they are. Main obstacles to return: security and economic factors. (War economy)
- Financial sector resilience:
  - Profits of solvent banks amounted to UAH 53.6 billion (USD 1.5 billion) in 5 months of 2023; a year earlier the system posted losses of UAH 1.3 billion.
  - Deposit growth accelerated to 36.6 percent yoy in May.
  - Outstanding bank loans to the real sector were down 9.6 percent yoy in May; credit negative for seventh month in a row.
  - Deposit and credit dollarization were down. (War economy)
- Financial sector strategy:
  - NBU with partners developed a Strategy for the Development of the Financial Sector of Ukraine covering coordinated regulator actions, unwinding extraordinary prudential measures, diagnosing banking assets, monitoring and resolving non-performing loans, easing currency restrictions, transitioning to a more flexible exchange rate regime, returning to inflation targeting, Medium-Term Debt Management Strategy, and National Income Strategy for 2024-2030.
  - Approval of the strategy is expected in July 2023; it will be a public document with non-public roadmaps. (War economy)

### Kakhovka Dam destruction: impacts and estimates (Impact of the destruction of the Kakhovka Dam)
- Event and immediate impacts:
  - Dam and hydroelectric power plant destroyed on Jun 6, 2023 causing massive flooding below the riverbed, drainage above it, and lowering of groundwater levels and neighboring river basins.
  - Kakhovka reservoir previously supplied irrigation: 94 percent of Kherson province, 74 percent of Zaporizhya region, and 30 percent in Dnipropetrovsk region. (Impact section)
- Agricultural and food security risks:
  - Irrigation systems supported areas where 4mn tons of grains and oilseeds worth some USD 1.5 billion were harvested in pre-war 2021.
  - At current stage, risks for this year's wheat harvest are minimal; in following years Ukraine may not be able to harvest about 2 million tons of grain needed to support global food security. (Impact section)
- Environmental and sectoral consequences:
  - Risks to Zaporizhya nuclear plant due to potential shortage of cooling water.
  - Slowdown in recovery affecting metallurgy, energy, and food industry.
  - Temporary inflationary pressure for certain vegetables up to +0.3 percentage point. (Impact section)
- Direct loss estimate:
  - Direct losses from the Kakhovka hydroelectric power plant destruction to irrigation systems in southern Ukraine estimated at UAH 150 billion-160 billion (USD 4.1 billion-4.4 billion). Exact figure to be calculated once area is liberated. (Impact section)
- Broader environmental damage:
  - Characterized as ecocide: destruction of ecosystem, epidemiological risks, climatic consequences (waterlogging and dust storms), desalination of the Black Sea, contamination with agrochemicals and hazardous substances, and death of plants and animals over a large area. (Impact section)

### Donor support and reserves (Donors’ support)
- Recent official financing:
  - April inflow: $5.6 billion (record since the beginning of full-scale war).
  - May official financing: $3.3 billion, primarily EU macro-financial program, USA grants, and support from other countries, IFIs, and DFIs.
  - Since the beginning of the year, $19.8 billion received in grants and loans. (Donors’ support)
- Reserves and monetary financing:
  - No monetary financing of the budget deficit in 2023.
  - NBU reserves at end-May reached $37.3 billion, maintaining a record level since 2011. (Donors’ support)
- EU and multilateral support:
  - Authorities welcome EUR 50 billion in grants and loans program announced by the European Commission.
  - OECD launched a four-year country program to support Ukraine's reform agenda. (Donors’ support)

### Policy commitments and reform priorities (Concluding remarks and Statements)
- Authorities’ commitments:
  - Continue full and timely implementation of policies under the EFF to restore fiscal and debt sustainability, restore medium-term external viability, and promote long-term growth for post-war reconstruction and EU accession.
  - Achieved all quantitative performance criteria for end-April and all structural benchmarks through end-May.
  - Commit to revenue mobilization, fiscal policies to support sustainability and core spending priorities, enhanced transparency in management and spending of budgetary funds and special accounts, and restoring the Medium-Term Budget Framework and public investment management ahead of reconstruction.
- Structural reforms emphasized:
  - Strengthen governance, anti-corruption and rule of law reforms, restore asset declaration obligations, strengthen effectiveness of anti-corruption institutions, advance effective risk-based AML regime, rule of law and judicial reforms.
  - Reforms aim to underpin post-war growth and EU accession trajectory.

*Statement by the Staff Representative on Ukraine and accompanying authorities’ statement, Executive Board Meeting June 29, 2023*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ukrea2023002.pdf_