## UKRAINE — STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE EXTENDED ARRANGEMENT (content unit: 1ukrea2023003)

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### Program design, access, and implementation
- 48-month EFF arrangement: access of SDR 11.6 billion (equivalent to US$15.6 billion, or about 577 percent of quota); approved on March 31, 2023; part of a US$122 billion support package.
- EFF objective: anchor policies to sustain fiscal, external, price and financial stability; support economic recovery; enhance governance and institutions for long-term growth in the context of reconstruction and EU accession.
- Implementation status:
  - All quantitative performance criteria for end-June and indicative targets for end-September were met.
  - 7 of 12 structural benchmarks for June–October 2023 were met on time; 4 implemented with delay; some SBs reset.
  - Staff supports completion of the second review, enabling a purchase of SDR 663.9 million (33 percent of quota).

### Recent macroeconomic outturns and staff projections
- Upgraded baseline and resilience:
  - Baseline real GDP growth for 2023 revised up to 4.5 percent.
  - Growth expected to soften in 2024 to 3–4 percent as the war continues.
- Selected headline projections and outturns (exact figures preserved):
  - Nominal GDP (billions of Ukrainian hryvnias): 2021 5,451; 2022 5,191; 2023 6,434; 2024 7,640; 2025 8,858; 2026 9,818; 2027 10,773.
  - Real GDP (percent change): 2021 3.4; 2022 -29.1; 2023 4.5; 2024 [3 to 4]; 2025 6.5; 2026 5.0; 2027 4.5.
  - Consumer prices (period average): 2021 9.4; 2022 20.2; 2023 13.0; 2024 7.7; 2025 7.8; 2026 6.0; 2027 5.2.
  - Consumer prices (end of period): 2021 10.0; 2022 26.6; 2023 6.0; 2024 9.5; 2025 6.5; 2026 5.5; 2027 5.0.
  - Unemployment rate (period average, percent): 2021 9.8; 2022 24.5; 2023 19.1; 2024 13.9; 2025 13.1; 2026 11.4; 2027 10.4.
  - Fiscal balance (percent of GDP): 2021 -4.0; 2022 -15.7; 2023 -18.6; 2024 -15.7; 2025 -8.1; 2026 -5.1; 2027 -3.8.
  - Fiscal balance, excl. grants (percent of GDP): 2021 -4.0; 2022 -25.0; 2023 -27.1; 2024 -20.4; 2025 -10.2; 2026 -6.1; 2027 -4.8.
  - Public and publicly-guaranteed debt (percent of GDP): 2021 50.5; 2022 78.5; 2023 87.1; 2024 96.7; 2025 98.5; 2026 98.2; 2027 97.0.
  - Gross reserves (end of period, billions of U.S. dollars): 2021 30.9; 2022 28.5; 2023 39.5; 2024 40.9; 2025 41.0; 2026 41.6; 2027 45.9.
  - Months of next year's imports of goods and services: 2021 4.5; 2022 3.8; 2023 5.1; 2024 5.3; 2025 5.1; 2026 5.0; 2027 5.2.
- Recent quarterly activity:
  - Q2 2023 GDP expanded by 19.5 percent y/y (staff estimated 2.8 percent q/q sa).
  - Q3 2023 GDP estimated to have grown by over 8 percent y/y (2.3 percent q/q sa).
- Inflation and monetary policy:
  - Headline inflation: October 2023 5.3 percent y/y (down from 7.1 percent y/y in September and 26.6 percent at end-2022).
  - End-2023 headline inflation forecast lowered to 6 percent y/y.
  - KPR cut cumulatively by 900 bps to 16 percent since July; overnight CD rate down 700 bps since April 2023.
- External accounts and reserves:
  - 2023Q3 trade deficit: US$8.8 billion.
  - NBU estimates forgone exports of US$1.3 billion between May and September 2023 due to import bans and termination of the BSGI.
  - Gross external budget grant and loan financing totaled US$35.4 billion as of end-October 2023.
  - Gross international reserves reached US$39 billion (5.1 months of imports) as of end-October 2023.
  - NBU transitioned on October 3 from an exchange rate peg to a managed exchange rate regime; cash-official spread averaged 3–5 percent through the year.

### Executive Board assessment and priority policy messages
- Directors praised authorities’ policymaking and external support; welcomed resilience, higher growth, disinflation, FX stability, and sizable external financing.
- Directors emphasized exceptionally high war-related uncertainty and the need for timely, predictable concessional external financing and avoidance of policy slippages.
- Fiscal priorities emphasized:
  - Decisive actions to achieve fiscal targets and lay foundations for a robust medium-term fiscal path to preserve fiscal and debt sustainability.
  - Mobilize tax revenues and avoid erosion of the tax base; timely launch and implementation of the National Revenue Strategy (NRS).
  - Strengthen MTBF, budget credibility, fiscal risk management, fiscal transparency, and public investment management.
  - Directors highlighted examining higher bank profit tax considerations.
- Debt and financing:
  - Planned commercial debt operation consistent with program parameters is essential to restoring debt sustainability and providing flow relief.
  - Preserve debt sustainability via new borrowing on highly concessional terms and a revenue-based medium-term fiscal adjustment.
  - Directors noted credible process to restructure private external commercial claims and financing assurances from official bilateral creditors and donors under baseline and downside scenarios.
- Monetary and financial sector:
  - Welcomed NBU’s transition to managed exchange rate flexibility.
  - Evidence of sustained disinflation and FX cash market stability could support further easing in monetary policy.
  - Financial stability preserved via emergency measures; need for vigilance, diagnostics, oversight, governance in SOBs, and contingency planning.
- Structural reforms and governance:
  - Steadfast implementation of governance, anti-corruption, and public investment management reforms crucial for sustained growth and EU accession.
  - Welcomed progress on asset declarations and AML/CFT alignment with FATF; emphasized adoption of legislation to strengthen SAPO autonomy.

### Program modifications, structural benchmarks, and conditionality
- Authorities requested:
  - Modification of end-December QPC on tax revenues excluding Social Security Contributions due to deviations and tax collection blockages.
  - Tightening of end-December floor on the non-defense primary balance excluding grants and end-December floor on net international reserves to reflect better-than-expected outturns.
  - Modify/reset SBs: strengthen SAPO autonomy (end-December 2023); reset 5-7-9 program SB from end-September 2023 to end-March 2024; reset bank rehabilitation framework from March 2024 to December 2024.
  - 11 new proposed SBs for 2024 on fiscal, financial, and governance reforms and one continuous SB.
  - Request approval of multiple currency practices (MCPs) under Article VIII Section 3 and waiver of non-observance of continuous PC against modification/introduction of MCPs.
- SB performance:
  - 7 of the 12 SBs for June–October 2023 met on time; 4 implemented with delay; missed tax audit SB addressed by additional legislation.
  - Continuous PC against modification/introduction of MCPs not observed due to exchange rate regime change.

### Risks, scenarios, and program resilience
- Principal risks:
  - Exceptionally high uncertainty from ongoing war; potential reversal of recovery and fiscal deterioration if war worsens.
  - Shortfalls or delays in external financing could force suboptimal policy choices and derail the program.
  - Limited room to maneuver to absorb shocks despite policy capacity.
- Program design:
  - Program designed across baseline and downside scenarios reflecting large-scale war assumptions.
  - Continued sizable and timely donor support with specific financing assurances mitigates but does not eliminate risks.
  - Assurance from a significant group of Fund shareholders regarding Ukraine’s capacity to repay supports safeguards for Fund lending.
- Upside potential:
  - Major upside potential once the war tapers off, contingent on policy/reform choices and financing availability.
  - Well-managed post-war reconstruction with decisive reforms and EU accession progress could stimulate migrant return and investment flows.

### Policy priorities and recommendations (staff and Directors)
- Fiscal:
  - Ensure adequate resources for priority spending; maintain strong tax revenue base; refrain from measures that would erode the tax base.
  - Timely adoption and implementation of the NRS to anchor revenue mobilization for reconstruction and social spending.
  - Enhance expenditure planning, MTBF, PIM, budget unity, coherence, predictability, fiscal transparency, and fiscal risks management.
- Financing and debt:
  - Deliver debt sustainability via credible restructuring of external commercial debt by mid-2024 and revenue-based medium-term fiscal adjustment.
  - Seek new borrowing on appropriately concessional terms; preserve concessional external financing.
- Monetary and exchange rate:
  - Support price stability and external sustainability; maintain adequate FX reserves; prudently manage wartime liquidity surplus.
  - Restore pre-war monetary and exchange rate policy frameworks, including return to inflation targeting as conditions permit.
- Financial sector:
  - Continue diagnostics, strengthen banking oversight, improve governance of SOBs, finalize and implement next iteration of the financial sector strategy, and maintain contingency planning.
- Governance and growth:
  - Implement structural reforms in governance and anti-corruption; complete legislation strengthening SAPO autonomy; maintain progress on asset declarations and AML/CFT alignment.
  - Integrate donor funding into budget processes; pursue an integrated strategy for critical recovery and reconstruction spending, including energy and procurement reforms.

### Medium-term outlook, upside, and downside scenarios
- Medium-term baseline:
  - Upgraded reflecting expansive reform agenda tied to donor support and EU accession path.
  - Real GDP expected to rebound strongly in 2025–26 (post-war) with investment, modest reconstruction, and migrant returns.
  - Fiscal deficit assumed to narrow in 2025 as defense spending falls after the war.
  - Inflation expected to decline from 2025 and return toward 5±1 percent by end of program period.
  - FX reserves accumulate through medium-term and be close to parity of IMF’s composite reserve adequacy metric at program end.
  - Key medium-run feature: structural reforms for EU accession and the €50 billion Ukraine Plan.
- Downside scenario:
  - Assumes more intense war running into 2025; output contraction reaches 5 percent in 2024.
  - Inflation notably higher in 2024 partly due to depreciation.
  - Some deployment of reserves to maintain macro-financial stability assumed.
  - Anticipates added donor financing relative to baseline for duration of war.
  - Near-term risks: winter attacks on energy infrastructure; attacks on Danube ports/sea corridor.
  - Longer risk: war extending beyond end-2024 could widen fiscal deficit, reverse disinflation, intensify FX imbalances, mobilization difficulties, stronger sovereign-bank links, external financing shortfalls, larger financing gaps, and possible resort to financial repression or monetary financing as last resort.

### Debt sustainability and financing aggregates
- Debt outlook and targets:
  - Public debt expected to peak at 98.5 percent of GDP in 2025 under baseline and 138.2 percent of GDP in 2026 under downside.
  - Staff targets: public debt 82 percent of GDP by 2028 and 65 percent of GDP by 2033; average gross financing needs of 8 percent of GDP over 2028–33.
  - Authorities should seek flow relief from debt operations of 1.0–1.7 percent of GDP annually during 2024–27.
- Program financing status:
  - EFF-supported program remains fully financed with firm financing commitments for next 12 months.
  - Baseline financing gap estimate over program period increased from around US$114 billion to US$122 billion; downside financing gap US$140 billion.
- Table 1 snapshot (selected exact figures):
  - A. Financing gap (cumulative program period): 45.7; 41.8; 23.9; 14.7; 4.8; 121.7
  - B. Official financing (excl. IMF): 41.2; 31.9; 18.9; 8.5; 0.0; 91.3
  - C. IMF (prospective): 4.5; 5.4; 1.8; 2.6; 1.3; 15.6
  - D. Potential flow relief from debt operations: 0.0; 4.6; 3.2; 3.6; 3.5; 14.8
  - Residual financing gap (A-B-C-D): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
  - Gross international reserves: 39.5; 40.9; 41.0; 41.6; 45.9

### Financial sector, infrastructure, and supervisory actions
- Banking sector (selected facts):
  - From Feb 2022 to Aug 2023, total banking system assets increased by 36 percent and client deposits by 51 percent.
  - Total lending fell by 7 percent on aggregate since the start of the war.
  - 5-7-9 affordable loans scheme accounts for 13 percent of total lending.
  - Net profit of banks (Jan–Aug 2023) grew more than 11-fold y/y to UAH 95 billion.
  - NPLs nearly 40 percent at end-September 2023 (11½ pp increase since Feb 2022) with relatively high provisioning coverage.
  - Short-term liquidity ratios three times higher than minimum requirements on average at end-September 2023.
  - Banks’ core and total capital ratios rose to 14.8 percent and 25.0 percent, respectively.
- NBU actions and monetary operational design:
  - Introduced 3-month CDs linked to hryvnia term deposit growth; effective in increasing share of term deposits to 38 percent since end-October.
  - Shifted from a corridor system to a floor system on October 26 to align KPR with overnight CD operations given abundant liquidity.
  - Excess liquidity: stock of overnight CDs nearly UAH 500 billion (US$13.7 billion as of end-October).
  - NBU preparing comprehensive strategy to support resumption of lending by end-May 2024.
- Financial sector strategy and supervision:
  - Updated Ukraine Financial Sector Strategy approved July 19, 2023 (five goals).
  - Resilience assessment launched Q2 2023 covering 20 banks (over 90 percent of assets); findings to be published in March 2024.
  - Roadmap for financial safety nets and resolution tools proposed with reset of SB to end-December 2024.

### National Revenue Strategy (NRS) and fiscal structural reforms
- Authorities remain committed to launching the NRS by end-December (Structural Benchmark).
- NRS roadmap and reform action plans for STS and SCS prepared (Structural Benchmark, end-October 2023).
- NRS expected revenue mobilization contribution: 3-4 percent of GDP over 2024–2027 (MEFP ¶23).
- Draft NRS policy priorities (selected):
  - Revise simplified tax regime to address erosion of labor taxes.
  - Align VAT and excise duties with EU acquis.
  - Enhance corporate income taxation.
  - Assess tax privileges (Proposed Structural Benchmark, end-July 2024).
  - Strengthen STS and SCS, anti-corruption measures, customs operational management, move verification inland, implement digital solutions, and restore customs post-clearance audits effective March 1, 2024.

### Governance, anti-corruption, SOE and energy sector reforms
- Asset declarations:
  - Law restoring asset declaration obligations enacted in October; public access reinstated; linkages with public registers established.
  - Monitoring of asset declaration submissions in Q1 2024; risk-based verification planned.
- AML/CFT:
  - October amendment re-aligned PEP definition with FATF standards (implemented with delay).
  - Thematic inspection of banks’ risk-based approach to PEPs by June 2024.
- SAPO autonomy:
  - Authorities propose modifications to strengthen SAPO institutional autonomy (designation as separate legal entity within Prosecutor General’s Office; amend criminal procedural code).
  - Staff recommends adopting legislation to strengthen SAPO autonomy (Proposed SB, end-December 2023, modified).
- SOE governance and energy SOEs:
  - GTSO shareholding transferred to Ministry of Energy in September; charter approved in October; supervisory board appointed.
  - SOE corporate governance law (#5593-D) progressing; would enshrine transparent supervisory board selection, annual independent evaluations, and SOE board powers to appoint/dismiss CEOs.
  - Staff recommends sequence: pass #5593-D; implement secondary legislation; assess SOE financial conditions by end-March 2024; produce state ownership/dividend/privatization strategy (Proposed SB, end-August 2024).
- Energy winter preparedness and DHCs:
  - Government gas storage adequately filled; Naftogaz able to import further gas with EBRD and bilateral donor financing.
  - DHCs heavily indebted; desk review to establish stock of arrears and financial condition of DHCs (Proposed SB, end-June 2024).

### Program monitoring, performance criteria, and reporting (selected exact figures)
- QPC and IT performance (selected exacts):
  - Floor on the non-defense cash primary balance of general government, excl. budget support grants (end-June 2023): Adjusted QPC 213,000; Actual 278,872; Met.
  - Floor on tax revenues (excluding SSC) (end-June 2023): Adjusted QPC 696,400; Actual 747,986; Met.
  - Ceiling on publicly guaranteed debt (end-June 2023): Adjusted QPC 37,000/11,917/48,917; Actual 17,731; Met.
  - Floor on net international reserves (millions of U.S. dollars) (end-June 2023): Adjusted QPC 16,500-631/16,437; Actual 26,284; Met.
- Quantitative targets and proposed revisions (selected exact figures):
  - Requested modification: lower the floor on tax revenues by UAH 28.2 bn to UAH 1,654.0 bn (end-December QPC).
  - Tighten floor on non-defense primary balance excluding grants by UAH 8.3 bn to UAH 105.0 bn.
  - Increase floor on net international reserves to US$24.9 billion reflecting expected overperformance.
- Indicative and memorandum items (selected exact figures):
  - 2023 overall deficit excluding grants projected at UAH 1.74 trillion (-27.1 percent of GDP) (versus UAH 2.00 trillion in supplementary budget).
  - 2023 full-year tax collections (excluding SSC) projected at UAH 1,659 billion.
  - Financing: net external loan disbursements expected around US$31.7 billion in 2023; net domestic financing around US$2½ billion.
  - Gross reserves trajectory in baseline: 39.5; 40.9; 41.0 (US$ billion for 2023–2025).

### Capacity development, safeguards, and operational considerations
- CD needs: large across fiscal analysis, tax policy, monetary and FX operations, financial supervision; UCDF aim to mobilize up to US$65 million over five years; as of Nov 20, around $25 million secured/nearly secured.
- Safeguards and CtR:
  - CtR assurance provided by significant group of creditors/donors at program approval remains valid (G7 plus Belgium, Lithuania, Netherlands, Poland, Slovakia, Spain).
  - Under baseline, stock of total Fund credit expected to peak at 8.1 percent of GDP and 36.7 percent of gross reserves in 2024; debt service to Fund peak at 1.9 percent of GDP in 2024 and 8.7 percent of gross reserves in 2025.
  - 2023 Safeguards Assessment: broadly strong safeguards at NBU but autonomy impacted in 2022 by monetary financing; authorities establishing framework for financing of last resort consistent with recommendations.

### Risk Assessment Matrix — key risks and staff policy responses (selected)
- External risks rated High likelihood/high impact:
  - Intensification of regional conflict(s): policy response — maintain macro policies, develop contingency plans, mobilize domestic financing, seek grant/concessional external financing.
  - Shortfalls in external/domestic financing: policy response — prioritize spending, seek revenue measures, mobilize domestic financing, diversify external financing sources.
  - Commodity price volatility: policy response — ration energy, limit electricity exports, secure alternative sources, targeted transfers, deepen alternative export routes.
- Domestic risks:
  - Loss of reform momentum (Medium likelihood, High impact): policy response — adhere to governance reforms, mobilize domestic financing, prioritize spending.
  - Social unrest (Medium likelihood, High impact): policy response — maintain macro stability, targeted transfers.
- Structural risk: Deepening geo-economic fragmentation (High likelihood, High impact): policy response — maintain macro policies, diversify trade and partners, continue reforms.

*Source: IMF staff report for the 2023 Article IV Consultation, Second Review under the Extended Arrangement under the Extended Fund Facility (content unit: 1ukrea2023003).*

### 663.9 million).

### UKRAINE — STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY, AND REQUESTS FOR MODIFICATION OF PERFORMANCE CRITERIA AND A WAIVER OF NONOBSERVANCE OF PERFORMANCE CRITERION

### Program design, access, and recent implementation
- Ukraine’s 48-month EFF arrangement: access of SDR 11.6 billion (equivalent to US$15.6 billion, or about 577 percent of quota); approved on March 31, 2023; part of a US$122 billion support package for Ukraine.
- EFF objective: anchor policies to sustain fiscal, external, price and financial stability, support economic recovery, enhance governance and institutions for long-term growth in the context of reconstruction and EU accession.
- Implementation status:
  - All quantitative performance criteria for end-June and indicative targets for end-September were met.
  - The majority of structural benchmarks for end-October were met; others completed with some delay.
  - Staff supports completion of the second review under the EFF, enabling a purchase of SDR 663.9 million (33 percent of quota).

### Macroeconomic outturns and projections
- Upside revisions and resilience:
  - Macroeconomic indicators stronger than expected despite the war: better growth outturns, continued sharp disinflation, stable FX market, and strong reserves.
  - Baseline real GDP growth for 2023 revised up to 4.5 percent.
  - Growth expected to soften in 2024 to 3–4 percent as the war continues.
- Key projected and actual indicators (selected from Table 1):
  - Nominal GDP (billions of Ukrainian hryvnias): 2021 5,451; 2022 5,191; 2023 6,434; 2024 7,640; 2025 8,858; 2026 9,818; 2027 10,773.
  - Real GDP (percent change): 2021 3.4; 2022 -29.1; 2023 4.5; 2024 [3 to 4]; 2025 6.5; 2026 5.0; 2027 4.5.
  - Consumer prices (period average): 2021 9.4; 2022 20.2; 2023 13.0; 2024 7.7; 2025 7.8; 2026 6.0; 2027 5.2.
  - Consumer prices (end of period): 2021 10.0; 2022 26.6; 2023 6.0; 2024 9.5; 2025 6.5; 2026 5.5; 2027 5.0.
  - Unemployment rate (period average, percent): 2021 9.8; 2022 24.5; 2023 19.1; 2024 13.9; 2025 13.1; 2026 11.4; 2027 10.4.
  - Fiscal balance (percent of GDP): 2021 -4.0; 2022 -15.7; 2023 -18.6; 2024 -15.7; 2025 -8.1; 2026 -5.1; 2027 -3.8.
  - Fiscal balance, excl. grants (percent of GDP): 2021 -4.0; 2022 -25.0; 2023 -27.1; 2024 -20.4; 2025 -10.2; 2026 -6.1; 2027 -4.8.
  - Public and publicly-guaranteed debt (percent of GDP): 2021 50.5; 2022 78.5; 2023 87.1; 2024 96.7; 2025 98.5; 2026 98.2; 2027 97.0.
  - Gross reserves (end of period, billions of U.S. dollars): 2021 30.9; 2022 28.5; 2023 39.5; 2024 40.9; 2025 41.0; 2026 41.6; 2027 45.9.
  - Months of next year's imports of goods and services: 2021 4.5; 2022 3.8; 2023 5.1; 2024 5.3; 2025 5.1; 2026 5.0; 2027 5.2.

### Executive Board assessment and policy messages
- Executive Directors’ overall view:
  - Praised Ukrainian authorities’ skillful policymaking and substantial external support for preserving macroeconomic and financial stability.
  - Welcomed economic resilience, upgrade to real GDP growth, disinflation, and stable FX market supported by sizable external financing.
  - Emphasized high war-related uncertainty and the need for timely, predictable concessional external financing and avoidance of policy slippages.
- Fiscal policy priorities emphasized by Directors:
  - Decisive actions to achieve fiscal targets and lay foundations for a robust medium-term fiscal path to preserve fiscal and debt sustainability.
  - Mobilize tax revenues and avoid erosion of the tax base; timely launch and implementation of the National Revenue Strategy (NRS).
  - Strengthen medium-term budget preparation, budget credibility, fiscal risks management, fiscal transparency, and public investment management.
  - Note: Directors highlighted examining higher bank profit tax considerations.
- Debt and financing:
  - Planned commercial debt operation consistent with program parameters is essential to restoring debt sustainability and providing flow relief.
  - Preserving debt sustainability requires seeking new borrowing on highly concessional terms and delivering a revenue-based medium-term fiscal adjustment.
  - Directors noted credible process to restructure private external commercial claims and financing assurances on debt relief and concessional financing from official bilateral creditors and donors under both baseline and downside scenarios.
- Monetary and financial sector priorities:
  - Welcomed National Bank of Ukraine’s transition from the exchange rate peg to a managed exchange rate flexibility regime.
  - Continued evidence of sustained disinflation and FX cash market stability could support further easing in monetary policy.
  - Financial stability preserved via emergency measures; emphasized need for heightened vigilance, diagnostics, oversight, governance in state-owned banks, and contingency planning.
- Structural reforms and governance:
  - Steadfast implementation of structural reforms—governance, anti-corruption, public investment management—crucial for sustained growth and EU accession.
  - Welcomed progress on asset declarations, AML/CFT alignment with FATF standards; emphasized adoption of legislation to strengthen autonomy of the Specialized Anti-Corruption Prosecutor’s Office (SAPO).
  - Continue efforts to strengthen governance of state-owned enterprises and integrate donor funding mechanisms into budget processes.

### Program modifications, structural benchmarks, and conditionality
- Program modifications requested by authorities:
  - Modification of end-December QPC on tax revenues excluding social security contributions due to deviations in macroeconomic variables and tax collection blockages.
  - Tightening requested for end-December floor on the non-defense primary balance excluding grants and end-December floor on net international reserves to reflect better-than-expected outturns.
  - Modifications/resetting of structural benchmarks (SBs): revise one SB to strengthen SAPO autonomy (end-December 2023); reset missed SB on the 5-7-9 program from end-September 2023 to end-March 2024; reset SB on bank rehabilitation framework from March 2024 to December 2024.
  - 11 new proposed SBs for 2024 on fiscal, financial, and governance reforms and one continuous SB.
  - Authorities request approval of multiple currency practices (MCPs) under Article VIII Section 3 and a waiver of non-observance of the continuous PC against modification or introduction of MCPs.
- Structural benchmark performance:
  - 7 of the 12 SBs for June–October 2023 were met on time.
  - Four SBs (asset declaration, AML/CFT, energy corporate governance) implemented with delay under difficult circumstances.
  - Missed SB on tax policy and administration addressed via additional legislation on restoring tax audits.
  - Continuous PC against modification/introduction of multiple currency practices was not observed due to changes to the exchange rate regime.

### Risks, scenarios, and program design
- Principal risks:
  - Exceptionally high uncertainty from the ongoing war; potential for reversal of recovery and fiscal deterioration if war worsens.
  - Shortfalls or delays in external financing could force suboptimal policy choices and derail the program.
  - Limited room to maneuver to absorb shocks despite authorities’ policy capacity.
- Program resilience and design:
  - Program designed to achieve objectives across a range of assumptions about large-scale war under two scenarios (baseline and downside).
  - Continued sizable and timely donor support backed by credible and specific financing assurances helps mitigate risks but cannot fully eliminate them.
  - Assurance from a significant group of Fund shareholders regarding Ukraine’s capacity to repay supports safeguards for Fund lending.
- Upside potential:
  - Major upside potential once the war tapers off, contingent on policy and reform choices and financing availability.
  - Well-managed post-war reconstruction with decisive reforms and progress toward EU accession could stimulate return of migrants and investment flows for a sustained, resilient, and green recovery.

### Policy priorities and recommendations (staff and Directors)
- Fiscal:
  - Ensure adequate resources for priority spending; maintain a strong tax revenue base; refrain from measures that would erode the tax base.
  - Timely adoption and implementation of the National Revenue Strategy (NRS) to anchor revenue mobilization for reconstruction and social spending.
  - Enhance expenditure planning, medium-term budget framework, public investment management, budget unity, coherence, predictability, fiscal transparency, and fiscal risks management.
- Financing and debt:
  - Deliver debt sustainability via credible restructuring of external commercial debt by mid-2024 and a revenue-based medium-term fiscal adjustment.
  - Seek new borrowing on appropriately concessional terms; preserve concessional external financing.
- Monetary and exchange rate:
  - Support price stability and external sustainability; maintain adequate FX reserves; prudently manage wartime liquidity surplus.
  - Restore pre-war monetary and exchange rate policy frameworks, including return to inflation targeting as conditions permit.
- Financial sector:
  - Continue diagnostics, strengthen banking oversight, improve governance of state-owned banks, finalize and implement the next iteration of the financial sector strategy, and maintain contingency planning.
- Governance and growth:
  - Implement structural reforms in governance and anti-corruption; complete legislation strengthening SAPO autonomy; maintain progress on asset declarations and AML/CFT alignment.
  - Integrate donor funding into budget processes; pursue integrated strategy for critical recovery and reconstruction spending, including energy and procurement reforms.

*Source: UKRAINE — STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION, SECOND REVIEW UNDER THE EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY (IMF staff report).*

### 1. Strengthening Financial and Credit Market Infrastructure______________________________________28

### 1. Strengthening Financial and Credit Market Infrastructure

### Context
- The war has lasted 21 months and remains active in eastern and southern parts of Ukraine.
- Staff moved the assumption about the war winding down from mid-2024 to the end of 2024.
- Continued support of international partners is described as essential.
- Review objectives included: finalizing the 2024 Budget with contingency measures, updating baseline and downside macro frameworks and debt sustainability assessments, advancing structural reforms in governance, anti-corruption, and public investment management, and developing an illustrative upside scenario to guide reconstruction spending within a coherent macro framework.

### Recent Developments
- Growth and activity
  - Q2 2023: GDP expanded by 19.5 percent y/y (staff estimated 2.8 percent q/q seasonally adjusted).
  - Q3 2023: GDP is estimated to have grown by over 8 percent y/y (2.3 percent q/q sa).
  - Growth forecast for 2023 upgraded to 4.5 percent (from 1–3 percent range in the First Review).
  - Growth for 2024 expected in the range of 3–4 percent.
- Inflation and monetary policy
  - Headline inflation: October 2023 declined to 5.3 percent y/y from 7.1 percent y/y in September and 26.6 percent at end-2022.
  - End-2023 headline inflation forecast lowered to 6 percent y/y (15.5 percent in the First Review).
  - End-2024 inflation expected to be around 9.5 percent y/y.
  - Key Policy Rate (KPR) cut cumulatively by 900 bps to 16 percent since July.
  - Rate on the overnight CD has fallen by 700 bps since April 2023.
  - Real rates remain high and positive amid declining inflation and inflation expectations.
- External accounts and reserves
  - 2023Q3 trade deficit: US$8.8 billion (US$6 billion in 2023Q2).
  - NBU estimates forgone exports of US$1.3 billion between May and September 2023 due to import bans and termination of the BSGI.
  - Gross external budget grant and loan financing totaled US$35.4 billion as of end-October 2023.
  - Gross international reserves reached US$39 billion (5.1 months of imports) as of end-October 2023.
  - NBU transitioned on October 3 from an exchange rate peg to a managed exchange rate regime; the spread between cash and official exchange rate averaged in the 3–5 percent range through the year.
- Fiscal developments
  - Cumulative overall fiscal deficit (below the line) at end-September 2023: UAH 664.6 billion (10.3 percent of GDP), compared with UAH 406.6 billion (7.8 percent of GDP) in the same period of 2022.
  - Tax collections (excluding social security) up 23 percent, y/y over January-September 2023.
  - Expenditures expanded 57 percent y/y through September 2023.
  - Net budget financing through end-October 2023: US$22.9 billion external (loan) financing and US$3.3 billion through the domestic bond market.
  - Government cash deposits built up by about US$5.5 billion through end-October 2023.
  - Year-to-date rollover rates on local-market instruments reached 137 percent at end-October 2023.
  - No monetary financing in 2023.
- Banking sector
  - From February 2022 to August 2023, total banking system assets increased by 36 percent and client deposits by 51 percent.
  - Total lending fell by 7 percent on aggregate since the start of the war.
  - 5-7-9 affordable loans scheme accounts for 13 percent of total lending.
  - Net profit of banks (Jan–Aug 2023) grew more than 11-fold y/y to UAH 95 billion.
  - NPLs stood at nearly 40 percent at end-September 2023 (an 11½ pp increase since February 2022) with relatively high provisioning coverage.
  - Short-term liquidity ratios were three times higher than minimum requirements on average at end-September 2023.
  - Banks’ core and total capital ratios rose to 14.8 percent and 25.0 percent, respectively.

### Program Performance
- Quantitative Performance Criteria (QPCs) and Indicative Targets (ITs)
  - All QPCs for end-June 2023 were met, as were the ITs.
  - Specific outcomes (end-June 2023; end-September 2023):
    - Floor on the non-defense cash primary balance of the general government, excluding budget support grants: Adjusted QPC 213,000; Actual 278,872; Met. Adjusted IT 242,900; Actual 404,895; Met.
    - Floor on tax revenues (excluding Social Security Contributions): Adjusted QPC 696,400; Actual 747,986; Met. Adjusted IT 1,094,700; Actual 1,187,653; Met.
    - Ceiling on publicly guaranteed debt: Adjusted QPC 37,000/11,917/48,917; Actual 17,731; Met. Adjusted IT 37,000/11,917/48,917; Actual 19,571; Met.
    - Floor on net international reserves (in millions of U.S. dollars): Adjusted QPC 16,500-631/16,437; Actual 26,284; Met. Adjusted IT 16,500-1,975/14,525; Actual 28,138; Met.
  - Indicative targets met, including:
    - Floor on the cash balance of the general government, excluding budget support grants: Adjusted target -730,000; Actual -660,336; Met (end-June); Adjusted target -1,141,100; Actual -1,027,513; Met (end-September).
    - Ceiling on general government arrears: Adjusted target 4,500; Actual 1,620; Met (end-June); Adjusted target 3,000; Actual 1,690; Met (end-September).
    - Floor on social spending: Adjusted target 249,000; Actual 276,051; Met (end-June); Adjusted target 359,600; Actual 402,556; Met (end-September).
    - Ceiling on general government borrowing from the NBU: Adjusted target -2,573; Actual -2,573; Met (end-June); Adjusted target -1,153; Actual -1,153; Met (end-September).
  - Continuous performance criterion: Ceiling on non-accumulation of new external debt payments arrears by the general government: 0; Actual 0; Met.
- Structural benchmarks
  - 7 of 12 structural benchmarks for June–October 2023 met on time; 4 implemented with delay.
  - Examples of delayed or modified benchmarks:
    - Draft law on tax policy and administration adopted but omitted restoration of tax audits; restoration legislated separately.
    - Transfer of GTSO shareholding to the Ministry of Energy and adoption of new charter delayed from end-July and implemented in September–October 2023.
    - Law to restore obligation of public officials to submit asset declarations completed in September 2023 (after end-July due date).
    - Amendment to AML/CFT Law to re-establish enhanced due diligence measures on politically exposed persons met with one month delay.

### Outlook and Risks
- War-related assumptions and scenarios
  - Baseline now assumes war winding down by end-2024.
  - Downside scenario assumes war winding down by end-2025.
  - Baseline assumes no significant worsening in intensity or scope of the war and no protracted energy shortages.
- Macroeconomic projections (selected indicators, Baseline and Downside scenarios, 2023–2025)
  - Baseline (2023; 2024; 2025)
    - Real GDP growth (%): 4.5; [3 to 4]; 6.5
    - Inflation, eop (%): 6.0; 9.5; 6.5
    - Current account (% GDP): -4.6; -7.1; -9.0
    - Current account (US$ billion): -8.1; -13.1; -17.8
    - Trade balance (US$ billion): -29.9; -29.4; -35.3
    - FX reserves (US$ billion): 39.5; 40.9; 41.0
    - Overall fiscal balance (% GDP): -18.6; -15.7; -8.1
    - Overall fiscal balance, excl. grants (% GDP): -27.1; -20.4; -10.2
    - Public debt (% GDP): 87.1; 96.7; 98.5
  - Downside (2023; 2024; 2025)
    - Real GDP growth (%): 4.5-5.0; 0.0
    - Inflation, eop (%): 6.0; 11.0; 8.5
    - Current account (% GDP): -4.6; -10.9; -2.0
    - Current account (US$ billion): -8.1; -17.9; -3.3
    - Trade balance (US$ billion): -29.9; -42.2; -31.5
    - FX reserves (US$ billion): 39.5; 32.4; 39.8
    - Overall fiscal balance (% GDP): -18.6; -19.0; -17.8
    - Overall fiscal balance, excl. grants (% GDP): -27.1; -28.9; -24.1
    - Public debt (% GDP): 87.1; 111.5; 126.7
- Key downside risks and near-term headwinds
  - Risk of renewed attacks on energy infrastructure, particularly in winter, which would weigh on confidence and activity.
  - Trade shocks from closure of grain corridors and import bans; NBU estimates total foregone export proceeds of US$3.3 billion in 2023, projected to be recouped in 2024H1 under baseline.
  - Potential impact from blockade of Polish border crossings if sustained.
  - External financing and reform momentum risks if war prolongs.
- Current account and reserves outlook
  - 2023 current account expected to reach US$-8.1 billion (4.6 percent of GDP) following a surplus of US$8 billion in 2022.
  - 2024 current account expected to worsen to -7.1 percent of GDP.
  - FX reserves supported by external financing: baseline FX reserves trajectory shows 39.5; 40.9; 41.0 (US$ billion for 2023–2025).

*Source: IMF staff report, "1. Strengthening Financial and Credit Market Infrastructure."*

### 40.9 billion at end-2024 or 5.3 months of prospective imports.

### 1ukrea2023003 - 40.9 billion at end-2024 or 5.3 months of prospective imports.

### Medium-term outlook and program baseline
- The baseline medium-term outlook has been upgraded reflecting a more expansive and structured reform agenda tied to donor support and the EU accession path.
- Real GDP growth is expected to rebound strongly in 2025–26 (post-war), supported by investment, modest reconstruction (given relatively low absorptive capacity), and consumption as migrants steadily return.
- The fiscal deficit is assumed to narrow in 2025 as defense spending would substantially fall after the war.
- Inflation is expected to decline from 2025 after the temporary pick-up in 2024, and to return to within the pre-war target of 5±1 percent toward the end of the program period.
- FX reserves will continue to accumulate through the medium-term and be close to parity of the IMF’s composite reserve adequacy metric at the end of the program.
- A key medium- and longer-run feature is wide-ranging structural reforms to prepare for EU accession, including as part of the €50 billion Ukraine Plan, which contributes to the slight upgrade in the medium-term growth path.

### Downside scenario and risks
- The downside scenario assumes a more intense war running into 2025, with the shock beginning in 2024.
- Output contraction reaches 5 percent in 2024 due to a protracted and intensified war affecting sentiment, migrant return, fiscal needs, and export capacity.
- Inflation would be notably higher in 2024 in part due to depreciation.
- Given ample reserve buffers, some deployment of reserves is assumed to maintain macro-financial stability and address FX imbalances.
- The downside scenario anticipates added donor financing relative to the baseline for the duration of the war.
- Near-term downside risks include a large-scale resumption of winter attacks on energy infrastructure and further attacks on the Danube ports and the temporary sea corridor.
- Longer risk: the war extending beyond end-2024 could lead to a much wider fiscal deficit, reversal of the downward inflation trend, intensification of FX imbalances, difficulties mobilizing higher domestic financing, stronger sovereign-bank linkages, external financing shortfalls or delays, larger financing gaps, and possible resort to financial repression or monetary financing as last resort.
- Reform reversals could derail macroeconomic and financial stability, exacerbate fiscal and BoP gaps, weaken confidence, and hamper public support for reforms.

### Fund program enterprise, operational, and reputational risks
- Staff assesses enterprise risks to the Fund related to Ukraine’s EFF to be unchanged from program approval and the First Review.
- Mitigating factors include continued safeguards and an assurance over capacity to repay the Fund received from a group of significant Fund shareholders (¶71).
- Operational risks are mitigated by strong program implementation thus far and higher-than-expected economic resilience.
- Planned high frequency reviews in the coming year (Table 10) will enable close monitoring and program design adaptation.
- Reputational risks arise if the Fund does not continue to assist a member with large BoP needs that has shown strong commitment under its UCT quality-program.

### Program goals and conditionality
- Program goals: sustaining macroeconomic and financial stability, restoring debt sustainability, and supporting recovery on the path toward EU accession.
- The two-phased approach set out at program approval remains broadly appropriate, even as authorities have implemented reforms earlier than expected.
- As required under Fund policy for lending under exceptionally high uncertainty (EHU), the program is designed to achieve objectives under both a baseline and a downside scenario.
- Possible additional policy measures under the downside scenario include: seeking further external financing, larger mobilization of domestic financing, increasing revenues, making spending contingent on available financing, monetary tightening, FXI, and potentially adjusting FX policies and temporary CFMs. Monetary financing would be a last resort.

### Macro-fiscal policies and fiscal financing — 2023
- Objective for the rest of 2023: keep expenditures within the available resource envelope.
- A supplementary budget was adopted on October 19, 2023, to accommodate higher expenditures, largely for defense operations and social protection priorities.
- 2023 overall deficit excluding grants is currently projected at UAH 1.74 trillion (-27.1 percent of GDP) (versus UAH 2.00 trillion in the supplementary budget and UAH 1.67 trillion in the First Review).
- Key 2023 projections and outturns (UAH Billion; Percent of GDP):
  - Revenues excluding grants: 2,421 | 2,416 | 2,385 — 37.2 | 37.6 | 37.1
  - Tax: 2,190 | 2,198 | 2,144 — 33.7 | 34.2 | 33.3
  - Taxes excl. social security contributions: 1,683 | 1,680 | 1,659 — 25.9 | 26.1 | 25.8
  - Social security contributions: 507 | 518 | 485 — 7.8 | 8.0 | 7.5
  - Non-tax (excluding grants): 231 | 219 | 241 — 3.6 | 3.4 | 3.7
  - Expenditures: 4,096 | 4,415 | 4,129 — 63.0 | 68.6 | 64.2
  - Wages, goods & services, and capital: 2,577 | 2,821 | 2,707 — 39.7 | 43.9 | 42.1
  - Social: 991 | 1,076 | 1,003 — 15.3 | 16.7 | 15.6
  - Other expenditures: 527 | 518 | 420 — 8.1 | 8.1 | 6.5
  - Deficit excluding grants: -1,674 | -1,999 | -1,745 — -25.8 | -31.1 | -27.1
- Revenues: full-year tax collections (excluding social security contributions) projected at UAH 1,659 billion (UAH 24 billion less than expected in the First Review).
- Expenditures: expected at UAH 4,129 billion (64 percent of GDP), UAH 33 billion higher than in the First Review.
- Financing: net external loan disbursements expected to be around US$31.7 billion in 2023, assuming full disbursements; net domestic financing around US$2½ billion.

### 2024 budget, near-term measures, and financing options
- 2024 Budget (passed November 9) envisages a deficit excluding grants of UAH 1.56 trillion or 20.4 percent of GDP. Defense expenditures programmed consistent with a full-year of war operations.
- Authorities introduced an extraordinary one-time tax on bank profits expected to yield 0.3 percent of GDP; restoration of pre-war taxation on fuel and tobacco could yield another 0.3 percent of GDP. Both are in the baseline.
- Authorities are identifying measures of at least 0.5 percent of GDP that could generate additional revenue gains in 2024 (¶29).
- Official donor budget support (including grants) under the program amounts to US$37.3 billion in 2024.
- Net domestic bond financing in 2024 under the baseline is US$3.8 billion.
- Potential relief from debt operations, including external commercial debt restructuring expected next year, would be important to lower borrowing requirements and build buffers.
- Risks: timely provision of committed external financing is critical; if external disbursements underperform, authorities would need additional deficit control and deposit buffer use, requiring reconstitution of buffers the next year.

### Domestic debt market strategy and non-monetary financing priorities
- Authorities should continue to strengthen domestic bond financing; banks are highly liquid and well provisioned, and sovereign exposures remain below recent peaks.
- Considerations for domestic issuance: favorable yield dynamics, instrument types (maturity, currency), bank-specific characteristics (liquidity and risk appetite).
- Limited remaining space under the reserve requirement mechanism that supported rollovers in 2023.
- Over the longer-term, domestic market strategy should consider risks to credit growth and banking system health.
- Avoiding monetary financing remains critical; no monetary financing is expected in the baseline (Indicative Target). Monetary financing may be a last resort in limited amounts after alternatives exhausted.
- NBU and MoF are developing a framework governing conditions and terms for such financing, consistent with program design and IMF Safeguards Assessment recommendations.

### Treasury, liquidity, and debt management capacity
- Strengthening treasury cash and liquidity management is an important input to a more efficient domestic borrowing strategy; IMF TA requested to diagnose and strengthen liquidity management in treasury single accounts.
- Further enhancing debt management capacity is a priority:
  - Authorities published Medium-Term Debt Management Strategy (MTDS) (Structural Benchmark, end-October 2023).
  - MTDS objectives: (i) attract long-term concessional funding and maximize grants; (ii) maintain strong investor relations and develop local capital markets; (iii) contain refinancing risks.
  - Update the MTDS promptly after external commercial debt operation completion; continue capacity building at the Debt Management Agency (staffing and training).

### Medium-term fiscal policy anchors and debt dynamics
- Indicative modeling suggests average gross financing needs of 8 percent of GDP over the post program period (2028–33).
- Targets: lower debt to 82 percent of GDP by 2028 and 65 percent of GDP by 2033 as consistent with sustainable debt.
- Three connected components to achieve targets:
  - Fiscal adjustment: likely need to reach and maintain a primary surplus over the medium term, with durable domestic revenue mobilization central and the National Revenue Strategy (NRS) to identify policies.
  - Prudent financing mixes: prioritize concessional financing (long maturities, low interest rates) and careful return to market access to avoid vulnerabilities.
  - Debt restructuring: planned operations on official bilateral claims and external commercial debt; discussions on external commercial debt expected to begin shortly (¶69) and must be consistent with debt sustainability.

### Fiscal structural policies and short-term revenue mobilization
- For 2024, authorities introduced a one-time increase in bank profit tax from 18 to 50 percent in 2023 to boost revenues; corporate profit tax on banks will be permanently set at 25 percent from 2024 (2025 Budget and beyond).
- MoF will create a working group, with IMF TA, to propose a package of short-term tax and non-tax revenue measures to yield additional revenues of at least 0.5 percent of GDP in 2024 (Proposed Structural Benchmark, end-February 2024). These measures could be activated if additional spending pressures materialize.
- The NRS will discuss principles of corporate excess profits taxation and guidance on extraordinary circumstances for such taxes.

- Key headline figure referenced: 40.9 billion at end-2024 or 5.3 months of prospective imports.

*International Monetary Fund — Ukraine: selected program and policy discussions (excerpts).*

### 30.      The authorities remain committed to launching the NRS by end-December (Structural

### 1ukrea2023003 - 30.      The authorities remain committed to launching the NRS by end-December (Structural

### National Revenue Strategy (NRS)
- Authorities remain committed to launching the NRS by end-December (Structural Benchmark).
- Following the gap analysis completed in June, they have prepared the NRS roadmap and formulated reform action plans for the State Tax Services (STS) and State Customs Service (SCS) (Structural Benchmark, end-October 2023).
- NRS objectives and expectations:
  - NRS is seen as the anchor of tax policy and administration over the medium-to long-term, contributing to revenue mobilization of 3-4 percent of GDP over 2024-2027 (MEFP ¶23).
  - NRS is envisaged as a strategic document to guide revenue mobilization policies, including medium-term, post-war reforms in the main revenue categories.
  - NRS covers guidance for coordination among various public and private stakeholders, led by the MoF.
  - Staff’s view: NRS is critical to mobilizing revenues to help meet financing needs and restore fiscal and debt sustainability, and would lay the groundwork for greater budget coherence by emphasizing the need for domestic revenue mobilization to achieve Ukraine’s development goals.
- Draft NRS policy priorities (current draft; to be updated annually):
  - Tax policy focus:
    - (i) a revised simplified tax regime to address the erosion of labor taxes by moving the legal basis for labor relations to civil law;
    - (ii) alignment of VAT and excise duties with the EU acquis;
    - (iii) steps to enhance corporate income taxation;
    - (iv) tax reforms that balance ensuring an adequate revenue base with supporting EU accession, environmental reforms, and post-war reconstruction and recovery including investments and industrial development.
    - Authorities will assess the effectiveness of tax privileges, including their cost to the budget, to have a unified reform approach (Proposed Structural Benchmark, end-July 2024).
  - Tax and customs administration focus (MEFP ¶24):
    - (i) measures to strengthen the state tax and customs services;
    - (ii) strengthening anti-corruption measures and governance procedures;
    - (iii) customs reforms of HR and compensation policies;
    - (ii) improving customs operational management;
    - (iii) moving the verification/checking of customs documents from border crossings to inland offices.
    - STS will implement compliance risk management, apply new digital solutions, and improve organizational structure and staffing.
    - STS will continue analysis of tax arrears and strengthen the existing action plan to remediate arrears among taxpayers not located in combat or near-combat zones.
    - Following the reinstatement of tax audits, authorities aim to restore customs post-clearance audits effective March 1, 2024.
    - Authorities are working on legislation to criminalize large-scale customs fraud and smuggling of all goods to strengthen tax and customs compliance.

### Economic Security Bureau of Ukraine (ESBU)
- Authorities are bolstering ESBU operations, supported by several international partners.
- Authorities will adopt a law (Proposed Structural Benchmark, end-June 2024) to establish the legal basis for ESBU operations to:
  - (i) develop an open, transparent and competitive process for selection of management and staff for the ESBU;
  - (ii) strengthen requirements for the selection commission;
  - (iii) introduce a contract system for employees;
  - (iv) develop a mechanism of attestation of staff (MEFP ¶25).
- Revised law will clarify ESBU mandate and scope of investigative powers by focusing on major economic crimes and strengthening analytical capacity.
- Law will ensure administrative capacity of the STS and SCS to address tax and customs violations remains intact.
- Existing delineation of investigation powers with National Anti-corruption Bureau of Ukraine (NABU) will be maintained and any potential overlap prevented.

### Restoring the Medium-term Budget Framework (MTBF)
- Strengthening the MTBF is critical to balance spending needs with fiscal and debt sustainability concerns; it must consider revenue constraints (e.g., NRS), public investment management, fiscal transparency, and management of fiscal risks.
- Authorities reinstated provisions of the Budget Code suspended under Martial Law to help anchor fiscal sustainability and budget predictability; provisions reinstated MTBF, MTDS, and a fiscal rule that ringfences risks from guarantees, and strengthened Article 52 supporting budget credibility.
- Adoption of these measures allowed inclusion of contours of 2025-2026 projections in the 2024 budget declaration, and a fiscal risks statement with details on energy and critical infrastructure SOEs.
- Authorities will strengthen the full cycle of the MTBF (MEFP ¶27):
  - NRS will reference development goals while justifying tax revenue mobilization goals to strengthen the link between revenue mobilization and spending envelope.
  - With IMF TA, authorities will work on a diagnostic review of pre-war MTBF policies and identify gaps with MTBF best practices (Proposed Structural Benchmark, end-October 2024).
  - Gap analysis will inform a plan to eliminate weaknesses, strengthen strategic budgeting, leverage bottom-up PFM processes, and improve costing of public services.
  - Recommendations will feed into the formulation of the 2026-2028 budget declaration and the 2026 Budget.

### Pensions and Social Spending
- Authorities reaffirm commitment to maintain stability of the pension system.
- Potential introduction of a second pillar fully funded pension scheme is being debated; authorities committed to move in this direction only after Martial Law is lifted and a careful review of preconditions is conducted (MEFP ¶28).
- Staff’s view:
  - Appropriate to focus on enhancing the first pillar, ensuring it remains rules-based and financially viable, especially once the war is over.
  - Introduction of a second pillar should not translate into a deficit for the pay-as-you-go system.
  - Any changes to the pension system should be accompanied by a medium-term fiscal and budgetary impact analysis, including the budget of the Pension Fund of Ukraine.
- Mechanisms to support vulnerable groups:
  - With World Bank support, in August 2023 a government decree was enacted to strengthen targeting and means testing of benefits for Internally Displaced Persons (IDPs), determining eligibility and procedures for a living allowance.
  - Staff view: further work needed to sharpen the objective, calculation formula, target coverage, budgetary implications and exit conditions for such benefits.
  - Greater clarity needed on timing for increasing the income threshold for eligibility under the Guaranteed Minimum Income (GMI) program.

### Fiscal Transparency and Risks
- Authorities working to strengthen fiscal risk assessment and fiscal transparency.
- SOE stress testing:
  - Work underway to strengthen SOE stress testing under different scenarios with IMF TA (MEFP ¶29).
  - Martial Law reporting requirements limit MoF’s ability to fully understand SOE updated balance sheets for those severely affected by war; post-war assessment of impaired assets may reveal additional risks.
  - Authorities will identify major public companies severely affected by the war and prepare an assessment of their potential fiscal and quasi-fiscal costs (Structural Benchmark, end-September 2024).
  - Authorities are developing methodological guidance for assessing fiscal risks in key spending areas and contingent liabilities, including PPP and guarantees.
  - By end-September 2024, authorities will publish a list of PPPs and prepare a review of related risks and their impact on the 2025 Budget.
- Risk-based fees for guarantees:
  - Work on developing risk-based fees for guarantees has been more challenging than expected.
  - With IMF TA, authorities are working on unifying risk assessments across domestic portfolio and international guarantees.
  - Elaboration of risk-based fees is expected to continue after completion of the guarantee risk assessment process.
  - Organizational changes in MoF to strengthen risk assessment practices may be needed.

### The 5-7-9 Loan Program and the Business Development Fund (BDF)
- In July the government adopted a decree transferring the 5-7-9 program to the Ministry of Economy (MoE) and expanding the operational portfolio of the program.
- Program targeting and fiscal risk mitigation:
  - Staff and authorities agreed the program should target micro, small and medium businesses who otherwise face financing challenges for working capital or investment.
  - A government decree is being prepared to start phasing out large companies from the program.
  - A first draft of the concept note will be shared with IMF and other international partners by end-December 2023. Due to comprehensive nature, additional time allocated; Structural Benchmark proposed to be reset to end-March 2024 (MEFP ¶30).
- BDF governance stocktaking:
  - Stocktaking of governance risks of the BDF (of which 5-7-9 represents a significant share) is underway.
  - MoF, with international partners, commissioned an independent assessment of the BDF and its support programs to strengthen governance and operational design to serve SMEs.
  - Staff recommends bolstering MoF’s powers over the BDF and its programs to manage fiscal risks and strengthen governance and financial self-sustainability of the BDF.

### Transparency in Management and Spending of Budgetary Funds and Special Accounts (MEFP ¶31)
- Fund for the Liquidation of the Consequences of the Armed Aggression:
  - Designed for rapid recovery and reconstruction spending; served its purpose in 2023 but program implementation was slow given wartime priorities.
  - Authorities aim to continue using the fund for rapid response to urgent recovery needs.
  - Staff view: to maintain budget unity and coherence, authorities should utilize this fund for implementation of critical infrastructure projects during and after the end of the war.
- Special accounts and commitment controls:
  - Authorities finalized integration of special accounts into the budget framework.
  - Authorities commit to strengthening transparency and accountability by improving reporting on sources and usage, opening and closing balances, and undertaking periodic audits of transactions in special accounts.
  - MoF is working on strengthening commitment controls and has a mechanism for reporting overdue payment obligations (which remain below 0.1 percent of GDP).

### Strengthening Public Investment Management (PIM)
- Authorities have prepared a roadmap of measures to strengthen PIM with World Bank and EU4PFM support; on track to finalize the roadmap by end-December (Structural Benchmark).
- Roadmap elements:
  - Clear views on selection criteria of investment projects consistent with the MTBF.
  - Stronger gatekeeper powers for MoF during stages of the investment project cycle.
  - Adaptation of the national e-procurement system to comply with international competitive bidding standards used by Multilateral Development Banks to avoid multiple procurement platforms.
- Operationalization and gatekeeper role:
  - PIM roadmap will be operationalized to link MTBF with national reconstruction priorities and specify a gatekeeper role for MoF (MEFP ¶33).
  - Government will adopt a decree with an action plan and timeline providing clear linkages between MTBF and capital expenditures, including reconstruction priorities, and specifying MoF gatekeeper role (Proposed Structural Benchmark, end-December 2024).
  - Decree would strengthen budget unity, coherence, and predictability, and clarify roles of MoF and line ministries (line ministries remain responsible for project execution).

### Monetary and Exchange Rate Policies
- Scope to continue the easing cycle:
  - October KPR cut of 400 bps resulted in no effective change in the monetary policy stance, given rates on the NBU’s key liquidity absorption instruments remained unchanged.
  - In staff’s view, real policy rate (both ex ante and ex post) is expected to remain high and positive; there is further room for easing over coming months depending on inflation and exchange rate developments, and progress in maintaining transmission to rates of return on hryvnia assets (particularly term deposits).
- Excessive liquidity persists:
  - Large external budget financing (and monetary financing in 2022) has driven a surge in structural liquidity: the stock of overnight CDs amounted to nearly UAH 500 billion (US$13.7 billion as of end-October).
  - Liquidity can create distortions in the FX market and monetary transmission.
  - NBU has managed liquidity through sterilization (since the start of the war through end-August 2023) via net FX sales and CDs and raising reserve requirements (RR).
  - Remuneration on CDs is linked to the KPR; reserve requirements (part of which can be met by government bonds) remain unremunerated, weakening transmission.
  - NBU should monitor liquidity conditions and relative use of instruments while being mindful of supporting budget financing during wartime.
- Move to a floor system:
  - NBU’s move to a floor system is appropriate given likely persistent high liquidity.
  - Majority of liquidity operations are via overnight CDs, which formed the floor of the NBU’s interest rate corridor.
  - Prior to the floor system, de jure KPR was set by an auxiliary instrument based on the 3-month CD.
  - Excessive liquidity pushed overnight interbank rates (UONIA) near the floor of the corridor, weakening the signaling effect of the KPR.
  - Given expectations of high liquidity and need to keep the 3-month CD to support hryvnia term deposits amid the exchange rate transition, moving to a floor system simplified operations by aligning the KPR with the most active instrument (overnight CD), helping converge KPR with effective policy stance.
- Returning to a two-sided corridor (future consideration):
  - As liquidity surplus unwinds, merits of returning to a two-sided corridor should be assessed.
  - Important to reintroduce instruments longer than overnight CD (e.g., return of two-week CD as main instrument) to strengthen average maturity of sterilization, while mindful of potential side effects on primary government bond market.
  - Near term: NBU does not see merit in reintroducing the 2-week instrument as main liquidity absorbing instrument because overnight interbank rate likely to remain close to the floor and no material difference in average maturity between two-week and overnight instruments.
- Exchange flexibility and transition:
  - Gradual introduction of exchange flexibility is an important step in strengthening monetary and exchange rate policy.
  - Preconditions for move away from exchange rate peg to a managed float were achieved in line with NBU Strategy; early transition has been successful supported by IMF TA-supported communication campaign.
  - Exchange rate has remained fairly stable since transition started, supported by continued FX sales by the NBU.
  - Given continuing structural deficit in FX market and assuming continued official support underpinning reserves, NBU will continue to play a dominant role in the FX market.
  - Allowing gradual exchange rate flexibility will strengthen resilience to external shocks and mitigate risk of external imbalances from a prolonged peg.
  - Transition is an important first step toward return to inflation targeting regime.
  - Supporting an appropriately tight monetary policy stance can help anchor inflation and inflation expectations, restoring its role as the nominal anchor over time.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 49.      The NBU is continuing to ease FX controls on a case-by-case basis. In line with the FX

### 1ukrea2023003 - 49.      The NBU is continuing to ease FX controls on a case-by-case basis. In line with the FX

### FX liberalization and market developments
- The NBU is gradually easing FX controls, conditional on economic developments, in line with the FX liberalization roadmap under its Strategy.
- Recent easing measures:
  - Eased restrictions on lending and factoring and the servicing of old and some new loans.
  - Adjusted measures including narrowing and enhanced enforcement of settlement period from 180 to 90 days in agriculture exports.
- Rationale and caveats:
  - Actions taken given strong reserves and stability in the FX market and the goal of supporting economic activity.
  - In view of risks to the outlook, it remains important to carefully assess and monitor the effect of any potential and past measures undertaken.
- Specific instrument outcome:
  - The introduction in April 2023 of the 3-month CDs linked to hryvnia term deposit growth has proven effective in increasing the share of such deposits (up 5 pp to 38 percent since end-October) and thereby mitigating risks to the FX market.

### Credit growth, NBU strategy, and monetary policy implications
- Current situation:
  - Credit to GDP was already very low prior to the war, and private credit has further declined since due to high credit risks and availability of alternative bank assets (NBU CDs, government bonds).
  - About 13 percent of the stock of credit to the private sector is supported by concessional financing schemes.
- Policy steps and timelines:
  - Mobilizing credit is highlighted as important for private sector growth and investment needs in the post-war recovery.
  - The NBU is preparing a comprehensive strategy to support the resumption of lending by end-May 2024 (¶57, Box 1).
  - Over time, an exit strategy will be needed for the NBU’s holdings of government bonds to enhance monetary policy effectiveness.

### Financial sector strategy and supervision
- Ukraine Financial Sector Strategy:
  - Updated and approved by the Financial Stability Council on July 19, 2023.
  - Five goals: macroeconomic stability, financial stability, the financial system operates for the country’s recovery, modern financial services, and institutional capacity of regulators and the DGF.
  - Strategy prepared by the NBU with DGF, MoF and NSSMC; has yet to include considerations specific to SOBs, which comprised 56 percent of banking system assets as of August 2023.
- Supervision enhancements:
  - NBU met the end-September 2023 Structural Benchmark.
  - Resumed scheduled on-site inspections for bank and NBFIs.
  - Related Parties Unit separated from Banking Supervision to promote independence; supervisory challenge panels introduced.
  - NBU preparing to transition to a risk-based supervisory model (Proposed Structural Benchmark, end-June 2024) with organizational and capacity-building changes.
  - Oversight of gambling businesses improved, resulting in a ten-fold increase in tax collections from the gambling business in 2023 relative to 2022.

### Resilience assessment, safety nets, and contingency measures
- Resilience assessment:
  - Launched in Q2 2023; covers 20 banks accounting for over 90 percent of banking system’s assets.
  - Three-stage diagnostic: review of sample bank assets, extrapolation to lending operations, and estimation of banks’ performance indicators under a baseline scenario with required capital adequacy ratios.
  - Findings will be published in March 2024 and will inform strategic decisions until conditions allow for an independent asset quality review.
- Financial safety nets and resolution capacity:
  - Improvements planned for 2024 to bank intervention capacity, financial backstop mechanisms, and resolution tools (Structural Benchmark, proposed to be reset to end-December 2024).
  - NBU and DGF, in consultation with IFIs, will diagnose financial and operational readiness by end-February 2024.
  - Roadmap to set out reform agenda by end-April 2024 and close key gaps by end-December 2024.
  - Structural benchmark moved from end-March to end-December based on initial findings of the NBU’s Resilience Assessment, which has not identified vulnerabilities warranting immediate remediation.
- DGF contingency measures:
  - Draft amendments to the DGF law submitted to Parliament envision DGF’s subordination under the Council of Ministers of Ukraine (CMU) in a narrowly defined manner while seeking to protect DGF’s operational autonomy.
  - DGF prepared a methodology for determining the target level of its fund based on indicators projecting banking system risks over a 12-month horizon.

### State-owned banks (SOBs) and related actions
- SOBs position and policy:
  - Following nationalization of Sense bank in July, SOBs account for 56 percent of total system assets and 65 percent of household deposits.
  - MoF developing framework to inform decisions on additional banks that come under State control based on guiding principles: preserve value, ensure effective operational management, and reach timely decisions on the future of such banks.
  - All banks with majority state ownership will remain under MoF responsibility (MEFP ¶ 60); any nationalized non-systemic banks will be transferred to the DGF for resolution (new continuous Structural Benchmark).
- Privatization and oversight steps:
  - 2012 draft SOB privatization law is being reviewed and will be submitted to Parliament by end-March 2024.
  - MoF preparing to conduct performance assessments for SOBs, expected in 2025.

### Strengthening financial and credit market infrastructure (Box 1)
- Financial reporting:
  - Financial statements and audit report requirements reinstated for financial institutions for the 2023 financial year, and for other business entities located outside the occupied territories for the 2024 financial year.
- Bank regulatory capital framework:
  - Gaps relative to EU rules to be closed by end-December 2023, and all other gaps by end-December 2024.
- Property valuations law:
  - Law “On Valuation of Property, Property Rights and Professional Valuation Activities in Ukraine” (#7386) to be updated by end-March 2024.
  - An implementation roadmap to be prepared including transitional arrangements and strengthened profession requirements and specialized licensing for valuation of banking assets, insurance assets and collateral.
- Immovable property registers and indices:
  - NBU and MoJ to prepare proposals by March 2024 to (i) develop a publicly accessible database of real estate transaction prices with detailed metadata; and (ii) residential and commercial property price indexes and a framework for annual publication of property price index forecasts.
- Bank remuneration policies:
  - To be aligned with EU norms by end-December 2023, including limits on variable compensation and payment mechanisms for senior bank management.
- Virtual assets:
  - NBU and NSSMC to prepare an update of legislation by end-June 2024 to align with international best practice while considering economic development goals and mitigating price and financial stability risks.
- Capital market infrastructure:
  - NBU will identify priority pathways for mechanisms enabling foreign investors to directly access marketable debt instruments beyond government securities.
- War risk insurance:
  - NBU, Ministry of Economy and Ministry of Finance to develop a concept note for establishing a fully functional War insurance system by end-January 2024.
- Credit conditions:
  - NBU to prepare a comprehensive strategy to support the resumption of lending, with due regard to financial stability, by end-May 2024.
- Responsible consumer lending:
  - Law “On Amendments to Certain Legislative Acts of Ukraine on Improving State Regulation in the Field of Consumer Lending” (#9422) due to be adopted by Parliament by end-2023 to align NBFI consumer lending with international standards.

### Non-bank financial institutions (NBFIs) and regulatory reforms
- Priority reforms:
  - Ensure credit unions comply with updated rules by July 2024 to strengthen capital, corporate governance, and internal control.
  - Require NBFIs (except credit unions) to disclose owners and remedy opaque ownership structures to strengthen beneficial ownership.
  - Increase capital and reporting requirements starting in December 2023, with a six-month transition period for existing entities to align operations with new requirements.
  - Capital requirements for payment market participants to be aligned with EU rules by end-June 2024.
  - Prepare a supervisory risk assessment methodology by end-September 2024 to distinguish between types of NBFIs and transition to risk-based supervision for NBFIs.
  - Amendments to the law on National Securities and Stock Market Commission (NSSMC) remain outstanding.

### Administrative procedures and implementation timing
- Implementation of the Law on Administrative Procedures (#2073-20) will be postponed for the NBU, the DGF and NSSMC until end-December 2024.
- An assessment of the law’s implications for decision-making and enforcement procedures by June 2024 will precede implementation, followed by adoption of appropriate measures.

### SOE corporate governance and energy sector measures
- GTSO and energy SOE governance:
  - CMU transferred GTSO shareholding to the Ministry of Energy in September; GTSO charter approved in October; four new GTSO supervisory board members approved after competitive selection in end-October.
  - Independent evaluation of GTSO supervisory board planned one year after appointment.
  - GTSO preparing for financial and operational rightsizing if Gazprom transit contract is not renewed at end-2024; rightsizing to involve legislative and CMU approvals to decommission non-critical compressor stations.
  - Authorities committed to seat a seventh member on Naftogaz’s and Ukrenergo’s supervisory boards and to launch an independent evaluation of their supervisory boards in early 2024 to be concluded by end-June 2024.
- SOE corporate governance law (#5593-D):
  - Law progressing well; would enshrine competitive and transparent selection for supervisory board members, establish annual independent evaluations, and give SOE boards powers to appoint and dismiss CEOs.
  - MoF’s gatekeeper role retained in law #5593-D, including approval of key financial metrics in financial plans or annual owner’s letters for natural monopolies and strategic SOEs.
  - A minimum SOE dividend will be established, subject to a sunset clause.
  - After adoption, authorities will develop secondary implementing legislation covering SOEs’ financial planning process and indicators.
- Staff recommendations and sequencing:
  - Staff views the envisaged SOE corporate governance as the best platform for strengthening SOE management; establishment of an SOE holding company is premature.
  - Recommended well-sequenced SOE reform agenda:
    - (i) pass law #5593-D;
    - (ii) implement related secondary legislation;
    - (iii) as an interim step, assess financial conditions and fiscal risks of SOEs in the state ownership policy by end-March 2024;
    - (iv) produce a comprehensive state ownership and dividend policy and a privatization strategy (Proposed Structural Benchmark, end-August 2024).
  - These steps are essential preconditions for exploring options to strengthen SOE management.
- Energy sector winter preparedness:
  - Government gas storage adequately filled ahead of the heating season; Naftogaz able to import further gas through financing from the EBRD and bilateral donors.
  - Recent emergency measures: energy imports, extending ban on gas exports, financial support for energy equipment imports, promotion of alternative fuel production and energy-saving measures.
- District Heating Companies (DHCs):
  - DHCs heavily indebted with major arrears to Naftogaz from accumulated tariff differentials and war impacts.
  - Because large tariff increases are unlikely in wartime, temporary measures and strengthened Housing Utility Subsidy (HUS) targeting will be important.
  - Authorities will commission a desk review by a reputable audit firm (Proposed Structural Benchmark, end-June 2024) to establish the stock of arrears and financial condition of DHCs, distinguishing between pre- and post-war arrears.

### Governance and anti-corruption measures
- Asset declarations:
  - Law restoring asset declaration obligations of public officials enacted in October (with some delay); reinstated public access to asset declarations.
  - Established linkages with public registers of properties, income, shares and beneficial ownership to enhance system effectiveness.
  - Monitoring of asset declaration submissions in Q1 2024 and risk-based verification using technology tools planned.
- AML/CFT:
  - In October, the definition of politically exposed persons (PEP) in the AML/CFT legal framework was re-aligned with FATF standards (albeit with some delay).
  - Abandoned earlier proposal for a government-issued PEP register with actual names.
  - NBU plans a thematic inspection of banks’ risk-based approach to PEPs by June 2024 to inform future guidance and plans to boost operational capacity on AML/CFT matters.
- SAPO institutional autonomy:
  - Authorities propose modifications to the end-December Structural Benchmark to strengthen SAPO institutional autonomy:
    - (i) designate SAPO as a separate legal entity within the Prosecutor General’s Office;
    - (ii) amend the criminal procedural code to strengthen SAPO autonomy in prosecuting corruption cases, including extending investigation periods, settling investigative jurisdiction disputes with NABU, and carrying out joint investigations.
  - Staff notes scope to reassess time limitations on pre-trial investigations prior to notice of suspicion and the SAPO Head's power to authorize NABU joint investigations with foreign law enforcement agencies.

*Source: 1ukrea2023003*

### 66.      Further progress on anti-corruption and judicial reforms in 2024 should contribute to

### 66.      Further progress on anti-corruption and judicial reforms in 2024 should contribute to

### Anti-corruption and judicial reforms: objectives and near-term actions
- Further progress in 2024 is expected to strengthen institutions and provide a conducive environment for post-war reconstruction and private investment.
- Laws and legislative actions noted:
  - New provisions introduced limiting verification prior to appointment and against repeated verification; the government plans to repeal these in separate legislation.
  - A separate law adopted by the Rada, yet to be signed by the President, would—if enacted—change administrative penalties for falsifying asset declarations from up to UAH1.3 million (US$36,000) to paying a fine of no more than 3 percent.
- Proposed Structural Benchmarks (timing as specified) to enhance anti-corruption adjudication and administrative adjudication:
  - Enact law to rationalize adjudication of the High Anti-Corruption Court between a single judge or panel of judges (Proposed Structural Benchmark, end-March 2024) to enhance effectiveness and efficiency in adjudicating numerous and complex corruption cases (in addition to the 24 new vacancies announced in September).
  - Enact law to establish a new administrative court to replace the dissolved Kyiv District Administrative Court (Proposed Structural Benchmark, end-July 2024) to provide independent, competent and objective adjudication of administrative cases filed against NBU, NABU, NACP, and other national state agencies, with judges properly vetted for professional competence and integrity.
  - Complete the first ever external audit of the NABU by independent experts nominated by international partners (Proposed Structural Benchmark, end-September 2024) to provide an impartial assessment of NABU’s performance since 2015; this complements a proposed draft law increasing NABU staffing from 700 to 1,000.
  - The NACP’s annual reporting of the implementation of Ukraine’s 2022 Anti-Corruption Strategy will feed into the post-Martial Law Governance and Corruption Diagnostic to be supported with IMF TA.

### Program modalities, quantitative targets, and structural benchmarks (commitments through end-2024)
- Letter of Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) describe progress and commitments through end-2024.
- Quantitative target adjustments requested for end-December 2023 QPCs:
  - Lower the floor on tax revenues by UAH 28.2 bn to UAH 1,654.0 bn.
  - Tighten the floor on the non-defense primary balance excluding grants by UAH 8.3 bn to UAH 105.0 bn.
  - Increase the floor on net international reserves to US$24.9 billion reflecting expected overperformance.
- Two Indicative Targets (ITs) to be revised:
  - Floor on overall cash balance excluding grants lowered from UAH -1,674.5 bn to UAH -1,744.7 bn.
  - IT on domestic arrears to be raised slightly at end-December, end-March, and end-June.
- Structural benchmark modifications and resets:
  - Modify one benchmark to strengthen institutional autonomy of SAPO (end-December 2023).
  - Reset missed benchmark on developing a concept note for the 5-7 -9 program from end-September 2023 to end-March 2024.
  - Reset benchmark on the bank rehabilitation framework from March 2024 to December 2024.
- Twelve new structural benchmarks proposed through end-2024 (4 reviews), including (with deadlines):
  - SOBs to remain under MoF shareholder management and nationalized non-systemic banks to be transferred to the DGF for resolution (continuous).
  - Prepare short-term revenue measures (end-February 2024).
  - Adopt a new law on the ESBU (end-June 2024).
  - Assess the effectiveness of tax privileges (end-July 2024).
  - Review potential fiscal and quasi-fiscal costs of major public companies (end-September 2024).
  - Develop an expenditure planning framework (end-October 2024).
  - Prepare a guidance note on MTBF, capital expenditures and reconstruction priorities (end-December 2024).
  - Enact amendments to the procedural code related to HACC (end-March 2024).
  - Enact a law for a new administrative court (end-July 2024).
  - Complete an external audit of NABU (end-September 2024).
  - Determine the stock of arrears and assess financial conditions of DHCs (end-June 2024).
  - Produce a SOE state ownership policy, dividend policy and privatization strategy (end-August 2024).
- Waiver of nonobservance requested for the continuous PC related to the introduction or modification of MCPs.

### Quantitative performance criteria and indicative targets (selected exact figures from tables)
- I. Quantitative Performance Criteria (end-period, millions of Ukrainian hryvnias, unless otherwise indicated):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants:
    - end-Sep. 2024 QPC: 96,737; Proposed Rev. QPC: 105,000
    - end-Dec. 2024 QPC: 100,000; Proposed Rev. QPC: 140,715; QPC: 150,000; Proposed Rev. QPC: 257,184; QPC: 368,313; Proposed Rev. QPC: 415,410
  - Floor on tax revenues (excluding Social Security Contributions):
    - end-Sep. 2024: 1,679,170; Proposed Rev.: 1,653,992; end-Dec. 2024 entries include 420,000; 426,300; 835,000; 880,400; 1,398,600; 2,042,250
  - Ceiling on publicly guaranteed debt:
    - values listed include 37,000; 37,000; 46,000; 47,900; 46,000; 47,900; 47,900; 47,900
  - Floor on net international reserves (in millions of U.S. dollars):
    - entries include 16,500; 24,900; 16,500; 25,400; 16,500; 25,300; 25,400; 23,000
- II. Indicative Targets (end-period):
  - Floor on the cash balance of the general government, excluding budget support grants:
    - entries include -1,674,500; -1,744,668; -354,000; -344,485; -750,000; -725,996; -1,123,107; -1,557,208
  - Ceiling on general government arrears:
    - entries include 1,600; 2,000; 1,600; 2,000; 1,600; 2,000; 1,800; 1,600
  - Floor on social spending:
    - entries include 499,600; 499,600; 172,000; 130,000; 270,000; 262,500; 390,000; 537,800
  - Ceiling on general government borrowing from the NBU:
    - entries include -704; -704; -9,500; -9,500; -2,884; -2,884; -1,153; -704
- IV. Memorandum items (selected):
  - External project financing (in millions of U.S. dollars): 1,555; 894; 32,700; 8,647; 65,400; 413; 832; 1,496
  - External budget financing (in millions of U.S. dollars): 37,627; 40,956; 356,223; 8,521; 712,367; 17,367; 26,548; 31,565
  - Budget support grants (in millions of U.S. dollars): 11,573; 14,909; 79,040; 3,103; 158,000; 5,937; 8,770; 8,770
  - Budget support loans (in millions of U.S. dollars): 26,054; 26,048; 277,183; 5,417; 554,367; 11,430; 17,778; 22,795
  - Interest payments: 283,000; 260,218; 57,910; 49,500; 215,000; 161,780; 284,320; 429,820
  - NBU profit transfers to the government: 71,868; 71,868; 0; 0; 20,000; 17,700; 17,700; 17,700
  - Spending from receipts resulting from sales of confiscated Russian assets and transfers of bank accounts: 25,800; 25,800; 25,800; 0; 25,800; 0; 0; 2,370
  - Spending on gas purchases, PSO compensation and transfer to GTSO: 60,000; 60,000; 0; 30,000; 0; 60,000; 60,000

### Debt sustainability, financing assurances, and program financing
- Forward-looking debt sustainability assessment:
  - Public debt expected to peak at 98.5 percent of GDP in 2025 under the baseline and 138.2 percent of GDP in 2026 under the downside.
  - Staff indicative modeling debt sustainability targets: debt level of 82 percent of GDP in 2028 and 65 percent of GDP in 2033.
  - Average gross financing need target of 8 percent of GDP over the post-program period (2028–33).
  - Authorities should seek meaningful flow relief from debt operations of 1.0–1.7 percent of GDP annually during the program period (2024–27).
  - In the downside, delivering debt and GFN targets would require a deeper debt treatment and higher program-period grants; further exceptional financing over 2028–2033 would still be needed.
- Restructuring strategy and timelines:
  - Official bilateral debt: Group of Creditors announced a debt service standstill during the EFF (2023–27) with commitment to a final debt treatment before the final review of the program.
  - External commercial debt: authorities, with advisors, have taken early steps; restructuring process expected to begin soon and aim to finalize the debt operation at the latest by mid-2024.
- Program financing status:
  - EFF-supported program remains fully financed with firm financing commitments for the next 12 months.
  - Baseline financing gap estimate over the program period increased from around US$114 billion to US$122 billion; downside financing gap maintained at US$140 billion.
  - Additional baseline financing broadly offsets what would have been needed in 2023 under a downside.
  - Noted EC proposal for €50 billion in concessional loan and grant support for 2024-27 as a positive prospect for continued support.

### Tables and financing aggregates (selected exact figures)
- Table 1: Baseline Financing Gap and Sources (Billions of U.S. dollars):
  - A. Financing gap (cumulative program period): 45.7; 41.8; 23.9; 14.7; 4.8; 121.7
  - Underlying BoP Gap: 34.7; 40.4; 23.9; 14.1; 0.5; 107.5
  - Gross international reserves (+ = accumulation): 11.0; 1.5; 0.1; 0.6; 4.2; 14.3
  - B. Official financing (excl. IMF): 41.2; 31.9; 18.9; 8.5; 0.0; 91.3
  - C. IMF (prospective): 4.5; 5.4; 1.8; 2.6; 1.3; 15.6
  - D. Potential flow relief from debt operations: 0.0; 4.6; 3.2; 3.6; 3.5; 14.8
  - Residual financing gap (A-B-C-D): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- Memorandum items (selected):
  - IMF (net disbursements): 1.9; 3.0; -0.5; 0.6; 0.1; 3.1
  - Gross international reserves: 39.5; 40.9; 41.0; 41.6; 45.9

### Capacity to repay, safeguards, and institutional governance
- Capacity to Repay (CtR) assurances:
  - CtR assurance provided by a significant group of creditors/donors at program approval remains valid.
  - Group includes countries in the G7 plus Belgium, Lithuania, the Netherlands, Poland, Slovakia, and Spain with assurances to: (i) reaffirm recognition of the Fund’s preferred creditor status for amounts outstanding and any purchases under the proposed extended arrangement; and (ii) undertake to provide adequate financial support to secure Ukraine’s ability to service all obligations to the Fund.
  - Under the baseline, the stock of total Fund credit is expected to peak at 8.1 percent of GDP and 36.7 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 1.9 percent of GDP in 2024 and 8.7 percent of gross reserves in 2025; downside materialization would increase these ratios.
- NBU safeguards and governance steps:
  - 2023 Safeguards Assessment found broadly strong safeguards at the NBU, but autonomy and mandate were significantly impacted in 2022 by monetary financing of the government.
  - Authorities are establishing a more robust framework for such financing of last resort (MEFP ¶55) as recommended.
  - Central bank requested IMF assistance to study international experience to inform potential legal amendments on eligibility criteria and experience for appointments at the NBU Council and Executive Board.
  - Staff engaging on other safeguards recommendations.
- European Commission (EC) support and conditions:
  - Ongoing EC support recognizes progress on governance reforms but highlights the need to ramp up efforts.
  - In November, EC recommended opening accession negotiations with Ukraine following progress on seven steps outlined in July 2022.
  - Positive governance developments cited: restoring asset declaration obligations of public officials; re-alignment of politically exposed persons definition with international AML/CFT standards; integrity vetting of candidates to the High Council of Justice.
  - Successful accession negotiations will require progress across clusters, including functioning market economy, fight against corruption, and functioning judiciary.
  - New Ukraine Facility proposed by the EC preconditions budget support on progress in preventing, detecting, and correcting high-level corruption.
  - Near-term governance reforms emphasized: improving institutional independence of the anti-corruption prosecutor and revisions to the criminal procedural code on corruption cases.

*Source: IMF staff report excerpts (content unit: 1ukrea2023003 - 66).*

### Box 2. EU Accession Negotiations and Ukraine Facility

### Box 2. EU Accession Negotiations and Ukraine Facility

### EU accession progress and screening
- On November 8, the European Commission (EC) recommended to the European Council to open accession negotiations with Ukraine.
- The EC recommended that the Council adopts the negotiating framework once Ukraine fulfills the remaining elements; the EC will report on this in March 2024.
- The EC stands ready to start the screening process (preparatory work ahead of the negotiations) immediately.
- EC assessment of Ukraine’s progress on the 7 steps:
  - Steps 1 and 2 completed: established a transparent pre-selection system for Constitutional Court judges in line with Venice Commission recommendations; reformed judicial governance bodies.
  - Step 3 completed (EC’s assessment): developed track record of high-level corruption investigations and convictions; strengthened institutional framework including appointment of the NABU and SAPO heads and asset declaration reform.
  - Step 4 completed (EC’s assessment): aligned AML/CFT legislation with FATF.
  - Step 5: taken positive steps in a wider and systemic effort to address the influence of oligarchs.
  - Step 6 completed (EC’s assessment): media law aligned with the relevant EU directive.
  - Step 7: made progress in reforming and implementing the legal framework for minorities.
- EC’s broader assessment: Ukraine has overall demonstrated capacity to make progress in aligning with the EU acquis, even during the war.

### Ukraine Facility: design and delivery
- The EC proposed a new Ukraine Facility of €50 billion for 2024–27 to support recovery, reconstruction, and modernization.
- Facility architecture:
  - Pillar I: financial support to the government in the form of loans and grants to support financing needs and reforms as well as investments that can pave the way for a resilient economic recovery and facilitate EU accession.
  - Pillar II: a specific Ukraine Investment Framework with a de-risking mechanism for investors and to support the Ukrainian private sector.
  - Pillar III: technical assistance to the authorities such as on the EU acquis and reforms, and related measures.
- Governance and implementation:
  - The Ukraine Facility will be steered and delivered through a Ukraine Plan, developed by the authorities.
  - The Plan will present an evidence-based analysis to explain and motivate the investments, reforms and expected impact for Pillar I, and guide Pillar II and III.
  - The EC plans to have the economic and fiscal framework covering the 2024–27 period, and consistent with the Fund’s EFF.
  - The EU Facility will be subject to quarterly disbursements.
- Coordination:
  - IMF staff has been in close coordination with the EC and the authorities to ensure consistency of the framework and planned reforms.

### Upside scenarios and growth potential
- Context:
  - Decisive macroeconomic policies coupled with international support have stabilized the economy and initiated a nascent recovery despite large-scale destruction of capital and outward migration.
- Staff illustrative upside scenarios (Annex VI):
  - Results show Ukraine could attain long-run real GDP growth of up to 4.5-6.5 percent in the upside scenarios compared to 4 percent in the baseline.
  - Assumptions: conservative investment-growth elasticities; private investment as the main driver given public absorptive capacity constraints; faster export recovery than in the baseline with a larger import component to support assumed investment surge.
  - Upside scenarios implicitly capture some growth anticipation effects in outer years; staff does not assume a length for the EU accession process.
- Preconditions for upside materialization:
  - Achieve and sustain effective institutional and governance reforms.
  - Avoid boom-bust cycles.
  - Reduce corruption and the role of connected parties/oligarchs.
  - Implement appropriate structural reforms (efficient public spending, enabling business environment).
  - Calibrate macroeconomic policy settings to prevent risks associated with large scale aid flows (high inflation, excessive real exchange rate appreciation, accumulation of fiscal and external imbalances).
- Authorities’ priorities noted:
  - Attracting large volumes of foreign capital and directing it to productive investment.
  - Addressing demographic challenges by creating conditions for migrants to return and reintegrating war veterans into the job market.
  - Rebuilding human capital to boost productivity capacity.

### External sector and financing considerations
- 2022 external position assessed weaker than level implied by fundamentals and desirable policies (Annex II).
- Key measures to safeguard external sustainability:
  - Normalizing monetary and exchange rate policy.
  - Securing donor financing at sufficiently concessional terms.
  - Delivering on debt restructuring and fiscal consolidation.
  - Advancing structural reforms in the context of EU accession.
- Authorities’ observations:
  - Limitations of EBA-lite methodology in a war context; recommended revisiting the adjustor for grants and the conflict adjustor treatment; noted current account model does not capture highly concessional donor loan terms.

### Fiscal policy recommendations
- Program fiscal design:
  - Preserve near-term macroeconomic stability and create fiscal space for large post-war spending needs.
  - As the war tapers, reductions in defense spending likely to be replaced by capital and social spending (reconstruction, internally displaced persons, veterans, those with disabilities).
  - Significant expenditures will be required to converge to European standards in infrastructure and social services.
- Debt sustainability:
  - Fiscal policy should be anchored on the restoration and maintenance of debt sustainability.
  - Proceeding with debt treatments will help ensure adequate fiscal space for reconstruction and shock resilience.
- Revenue mobilization priorities:
  - A revenue mobilization package to build an adequate and durable tax base, eliminate potential arbitrage and distortions, and adhere to simplicity and fairness.
  - Authorities’ NRS will serve as the overarching framework anchoring medium-term revenue mobilization consistent with spending priorities.
  - Key priorities: revisions to the simplified tax regime to address erosion of the labor tax base; aligning excise duties and VAT with the EU acquis; enhancing corporate income taxation while creating a conducive framework for reconstruction investment; strengthening tax and customs administration.
  - Anti-corruption efforts to address integrity risks and build public buy-in for reforms.
- Fiscal structural reforms:
  - Develop a medium-term budget framework (MTBF) to ensure efficient, productive, and well-prioritized public spending.
  - Ringfence existing fiscal risks and prevent/mitigate new risks as aid inflows grow by strengthening PFM practices and increasing transparency.
  - Integrate fiscal risks assessment into the early stages of the budget cycle and make competitive choices in procurement for value for money.
- Authorities’ views:
  - Agreed on need to mobilize domestic revenues and implement fiscal structural reforms, while noting challenges in increasing tax burden post war and difficulties in substantially reducing post-war defense spending.
  - Additional pressures: de-mining and addressing environmental damage.

### Monetary and exchange rate policy
- Restore pre-war monetary policy framework to anchor inflation expectations and enable exchange rate as shock absorber, in line with the NBU’s Strategy.
- Following managed exchange rate flexibility and gradual relaxation of FX controls, NBU plans to eventually revert to inflation targeting (IT).
- Preconditions and steps:
  - Inflation should remain under control and progressively trend toward its 5 percent target before returning to IT.
  - NBU should optimize operational design: strengthen role of key policy rate and enhance monetary transmission.
  - Uphold central bank independence and continue to abstain from monetary financing.
  - Proceed gradually with relaxation of FX controls while assessing impact and transition to a floating exchange rate regime.
- Authorities’ views:
  - Concurred with staff on gradual FX liberalization and transition to IT; pointed to rapid disinflation and need for flexible, conditions-based transition.

### Macroeconomic policy management under scaling up of aid
- Risks from large, sustained aid flows:
  - Potential for inflation; real exchange rate appreciation (Dutch disease-type effects); heightened risks to debt sustainability; volatile and imbalanced growth.
- Staff’s illustrative policy options for balanced growth under scaling up:
  - Well-coordinated fiscal, monetary, and structural policies.
  - Fiscal: allow aid spending to boost growth potential while considering debt sustainability and institutional capacity to manage investment; balance pace of spending with strengthening public investment management.
  - Monetary/Fx: scaling up of aid can generate price pressures risking de-anchoring of inflation expectations; real exchange rate appreciation and widening current account deficit should inform NBU’s FX reserve accumulation strategy.
  - Structural: policies to strengthen productivity growth to alleviate real exchange rate appreciation pressures.
- Authorities’ views:
  - Agreed on importance of effective management of large-scale aid flows.
  - Considered FX reserve accumulation effective short-term to stem real appreciation, but emphasized longer-term focus on fiscal and structural policies to boost productivity and economic potential.
  - Suggested IMF’s integrated policy framework (IPF) could be a tool for post-war macroeconomic management.
  - Stated reparations (compensation) should be an important part of post-war inflows to help cover reconstruction costs.

### Financial sector policies
- Role and prerequisites:
  - Financial sector will need to support reconstruction, but only after an assessment and restoration of its health (Annex V).
  - Pre-war: system relatively shallow and dominated by state-owned banks; banks entered war well-capitalized, liquid, and highly provisioned but asset quality uncertain amid Martial Law forbearance.
- Required actions:
  - Bank diagnostics to quantify non-performing loans and capital adequacy.
  - Bank and non-bank balance sheet cleanup and restoration of capital buffers.
  - Unwind remaining wartime emergency measures.
  - Structural reforms: implement international valuation standards; improve insolvency and creditor rights frameworks; strengthen quality and accessibility of public registers.
  - Targeted and timebound credit support schemes to assist borrowers’ transition.
  - Planned eventual privatization of state-owned banks to promote corporate governance improvements.
- Authorities’ views:
  - Concurred on challenges and need for structural reforms to support financial intermediation.
  - Emphasized banks’ important role in economic restoration and noted challenges including increasing role and use of virtual assets.

*Source: IMF staff Box 2 from the Article IV consultation material provided in the content unit.*

### 95.      Independent and competent governance institutions are essential for strong post-war

### 1ukrea2023003 - 95.      Independent and competent governance institutions are essential for strong post-war

### Governance, Rule of Law, and Anti-Corruption: Findings
- Independent and competent governance institutions are essential for strong post-war growth, sustaining public and donor confidence, and establishing a level-playing field between foreign investors and local businesses.
- Good governance, a robust anti-corruption regime, and respect for rule of law are fundamental for Ukraine’s goal of EU membership.
- Legislation to support the effectiveness of the anti-corruption agencies is critical to the sustainability and success of the infrastructure to combat high-level corruption.
- Robust vetting of judges by renewed judicial self-governance bodies and establishing a new Administrative Court to hear cases against national state agencies will advance judicial independence and predictability of dispute resolution for businesses.

### Transparency, Accountability, and Institutional Strengthening: Recommendations and Priorities
- Strengthen key governance agencies to enhance the post-war environment for private investment and market competition:
  - Anti-Monopoly Committee
  - Accounting Chamber
  - State Audit Service
  - Asset Recovery and Management Agency
- Conduct a new governance diagnostic to assess corruption vulnerabilities and lay out future reform plans, potentially for 2024.
- Integrate ProZorro digital procurement system with the Ministry of Economy’s Digital Restoration EcoSystem for Accountable Management to increase transparency and accountability of reconstruction procurement.
- Verify beneficial ownership information in the registry under the Ministry of Justice to enhance public procurement transparency, detect conflicts of interest, and prevent misuse of companies.

### Authorities’ Views on Governance Reforms
- Authorities agreed on the importance of good governance and strong anti-corruption institutions.
- They highlighted risks to public sector recruitment if public servants were stigmatized, noting that onerous asset declarations and the consequences of the recently adopted AML/CFT law could potentially deter high-quality candidates from joining the public service.
- Authorities emphasized the need for adequate training of civil servants.

### Green Transition: Climate Risks, Adaptation, and Mitigation
- Temperatures in Ukraine have been rising since at least the 1990s, with an upward trend likely to continue; long-term projections suggest increasingly volatile rainfall patterns increasing risks of droughts, floods, and wildfires.
- Large agriculture sector is vulnerable; demographic and population-concentration challenges (including war legacy) increase potential damages from future disaster events.
- Ukraine’s GHG emissions, despite a substantial reduction since the 1990s, remain above average compared to other European countries; further mitigation is needed to meet international commitments and address the EU’s Carbon Border Adjustment Mechanism.
- EU accession objectives require alignment with the EU’s “Fit for 55” and 2050 net zero emission targets.

### Green Transition: Policy Options and Illustrative Impacts
- Adaptation:
  - Public investments will be required to enhance resilience to climate change while maintaining fiscal and debt sustainability once restored.
  - Illustrative DSA modeling suggests authorities could reconcile adaptation investment needs with fiscal sustainability by avoiding excessive fiscal relaxations after the program and seeking financing on appropriate terms whenever possible.
- Mitigation:
  - Comprehensive reform of carbon taxation and an emissions trading system could mobilize revenues and lower emissions.
  - IMF-WB Climate Policy Assessment Tool modeling suggests gradually raising carbon prices from around the current $1/ton up to $50/ton by 2035 could yield around 4½ percent of GDP in revenues, which could be recycled in an equitable and growth-friendly way.
- Green finance policies:
  - NBU’s Sustainable Financing Policy implementation was postponed; update envisaged in the recently updated Strategy of the Financial Sector Development.
  - Once high-level national ESG goals are clarified, the NBU will update its Policy to ensure financial institutions internalize climate risks and exposure to climate risks, developing tools including regulations, supervisory assessments, climate stress-testing, and monetary-policy related measures within its mandate.

### Authorities’ Views on Environmental Priorities
- Authorities concur that environmental priorities are medium- and long-term priorities but noted current large-scale defense operations constrain major environmental reform implementation.
- They emphasized war-related ecological damage (including destruction of the Kakhovka dam) and the importance of large-scale de-mining of formerly occupied areas.
- Authorities commit to advancing green priorities in the future, view environmental taxation as important, and the NBU stands ready to update sustainable finance policies once conditions allow under a broader national ESG agenda.

### Data Quality and Statistical Gaps
- Data quality is broadly adequate for surveillance but with shortcomings (see Informational Annex).
- Martial Law led to suspension in some sectors and narrowing of data sampling, deteriorating data coverage and quality; while data availability has widened relative to a year ago, substantial delays persist compared to pre-war.
- Priority data gaps to address for surveillance and understanding high-frequency dynamics:
  - Agriculture
  - Wholesale trade
  - Transportation
  - PPI
  - Labor market metrics
  - GDP deflator components
  - Broad energy sector metrics
- IMF stands ready to provide TA to improve data provision.

### Exchange Arrangement: Multiple Currency Practices (MCPs) and Staff Recommendation
- Staff identified three MCPs arising from the exchange rate system and recommend temporary approval under Article VIII, Section 3:
  1. Spread of more than 2 percent between exchange rates that banks may freely set for certain non-cash FX transactions and the official exchange rate required for other non-cash transactions (including government transactions).
  2. Potential for a spread of more than 2 percent between (i) the official exchange rate on the day of FX transactions and (ii) the official exchange rate of the previous business day required for certain FX transactions.
  3. Use of multiple price foreign exchange auctions conducted by the NBU without a mechanism to prevent deviation of more than 2 percent between auction rates and the market exchange rate at the time of the auction.
- Recommendation rationale:
  - MCPs maintained for BoP reasons given risks to the outlook, role of FX controls in preserving external stability in the near term, and program objective to maintain an adequate level of FX reserves.
  - Measures are expected to be temporary and unwound in line with the authorities’ intention to ease FX controls when conditions permit (MEFP ¶50).
  - MCPs do not give Ukraine an unfair competitive advantage over other members or discriminate among members.

### Capacity Development (CD): Needs, Financing, and Coordination
- Ukraine’s CD needs are large and aligned with the authorities’ program across areas including fiscal analysis and risks, tax policy and revenue administration, monetary and FX policy operations and communications, financial sector supervision and governance.
- Extensive CD needs call for close coordination, prioritization, and substantial external financing via the newly established Ukraine CD Fund (UCDF).
- UCDF financing aim: mobilize up to US$65 million over five years to support prioritized CD while ensuring additionality and avoiding crowding out IMF-funded CD for other members.
- As of November 20, around $25 million in donor contributions have been secured or nearly secured, including from Japan ($2m), Lithuania ($1.6m), the Netherlands ($7.4m), and the Slovak Republic ($3.2m). Additional donor contributions are forthcoming.
- A steering committee (SC) for the UCDF is expected to be convened in early 2024 to provide strategic guidance; IMF CD Departments will prepare detailed, costed work plans for remainder of FY2024 and for FY2025-26.
- CD delivery will be prioritized and tailored given war-related absorptive constraints; emphasis on well-targeted activities with short, focused, in-person components and agility in placing long-term experts (LTXs).

### Staff Appraisal: Macroeconomic Performance, Risks, and Policy Priorities
- 2023 performance:
  - Ukrainian economy demonstrated remarkable resilience in 2023 despite exceptionally high war-related uncertainty.
  - Economic activity stronger than expected, inflation sharply decelerated, reserves buoyant, and FX market stable.
- Key risks:
  - War continues to pose enormous risk; significant external financing at concessional terms needs to flow timely; policy slippages should be avoided.
- Program performance and financing:
  - Authorities implemented challenging reforms during the war with strong overall performance at the Second Review.
  - Secured parliamentary support for restoration of asset declarations and AML/CFT reform; NBU transitioned off its exchange rate peg.
  - All QPCs and ITs for end-June 2023 met; all ITs for end-September achieved.
  - Estimates of program external financing increased to US$122 billion compared with US$114 billion in the First Review.
- Fiscal and debt-sustainability priorities:
  - Firm actions required to implement the 2024 budget consistent with debt sustainability; fiscal deficit remains very high.
  - Key priorities: enact law to fully restore tax audits and launch the National Revenue Strategy (NRS) in December 2023 as planned.
  - Authorities should be ready to take additional revenue measures and continue mobilizing domestic bond market financing.
  - Timely disbursement of committed external support is critical for budget financing and macroeconomic stability.
- Debt operations and monetary policy:
  - Authorities should proceed with planned commercial debt operations as envisaged to restore debt sustainability and provide flow relief; seek new borrowing on most concessional terms possible and deliver revenue-based medium-term fiscal adjustment.
  - NBU’s move to managed exchange rate flexibility has proceeded successfully; if inflation and expectations remain under control, there is scope for further monetary easing in December, and through 2024.
- Financial sector vigilance:
  - Financial system remains stable, liquid, and highly provisioned; continued vigilance warranted given war-related uncertainty.
  - Priorities: bank diagnostics, banking oversight reforms, strengthening governance of SOBs, and contingency planning.
- Structural reforms:
  - Steadfast implementation of structural reforms—including governance, anti-corruption, and public investment management—crucial for strong sustained growth and EU accession path.
  - Recent achievements: restoration of asset declarations and AML/CFT alignment with FATF standards.
  - Momentum should be sustained; legislation to strengthen autonomy of SAPO should be adopted in December as planned.
  - Continue efforts to strengthen governance of state-owned enterprises.
  - Ensure mechanisms for managing donor funding are integrated into budget processes to support recovery and reconstruction spending.

*Source: Excerpt from IMF staff report text.*

### 111.      Ukraine has major upside potential once the war tapers off. Well-managed post-war

### 1ukrea2023003 - 111.      Ukraine has major upside potential once the war tapers off. Well-managed post-war

### Upside potential and reconstruction
- Ukraine has major upside potential once the war tapers off.
- Well-managed post-war reconstruction coupled with decisive reforms (including on public investment management, governance, and business environment) could:
  - stimulate the return of migrants;
  - stimulate investment flows needed to set the economy on a sustainably stronger growth footing;
  - help achieve Ukraine’s broader development goals.
- Staff welcomes the start of EU accession talks.

### EFF-supported program and financing assurances
- The EFF-supported program for Ukraine continues to satisfy Fund policies governing the Fund’s financing assurances for UCT-financing under exceptionally high uncertainty.
- The authorities continue to exhibit the capacity and commitment to implement the program.
- A credible process to restructure private external commercial claims is underway.
- Adequate financing assurances on debt relief and concessional financing during and after the program have been received from official bilateral creditors and donors to support debt sustainability both in the baseline and under a downside scenario.
- The assurance provided by a significant group of Fund shareholders to the Fund about Ukraine’s capacity to repay completes the necessary safeguards.

### Program reviews, conditions, and structural measures
- Staff supports the authorities’ request to:
  - complete the Second Review under the Extended Arrangement;
  - modify three QPCs;
  - reset two structural benchmarks;
  - modify another structural benchmark.
- Rationale for staff support:
  - The authorities’ strong performance under the program;
  - The authorities’ strong commitment to maintaining appropriate policies;
  - Commitments from donors provide confidence that the program remains on track to meet its objectives.
- Specific supported modifications:
  - modification of the end-December QPC on tax revenues;
  - tightening floors on net international reserves and the non-defense cash primary balance of the general government (excluding budget support grants);
  - modification and resetting of structural benchmarks.

### Measures related to MCPs and policy compliance
- Staff supports the approval of the new and modified MCPs, which are all maintained for balance of payment reasons.
- The authorities have requested approval on the basis that the MCPs are:
  - temporary;
  - expected to be gradually lifted over the program period;
  - not giving rise to an unfair competitive advantage over other members;
  - not discriminating among members.
- On the basis of their temporary nature, staff support the waiver of nonobservance of the PC on non-introduction/modification of MCPs.

*Source: IMF staff report (paragraphs 111–114).*

### 115.      It is recommended that the next Article IV consultation take place on a 24-

### It is recommended that the next Article IV consultation take place on a 24-month cycle.

### Structural benchmarks (selected, timing and status)
- The document lists 35 structural benchmarks with sector, timing, and status. Selected benchmarks and outcomes:
  - 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 — Fiscal — End-May 2023 — Met
  - 3 Prepare an action plan as input into National Revenue Strategy roadmap — Fiscal — End-May 2023 — Met
  - 4 Submit to Parliament a draft law reinstating articles of Budget Code establishing limits on issuance of public guarantee — Fiscal — End-May 2023 — Met
  - 5 Enact amendments to the Budget Code to enhance transparency and consolidate special accounts within general government — Fiscal — End-May 2023 — Met
  - 6 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 — Met
  - 7 Adopt the draft law on tax policy and administration prepared under the PMB — Fiscal — End-July 2023 — Not Met (implemented with delay)
  - 8 Transfer the GTSO shareholding directly to the Ministry of Energy and adopt the new charter — Energy/Corporate Governance — End-July 2023 — Not Met (implemented with delay)
  - 9 Enact the law to restore asset declaration of public officials and reinstate NACP verification function — Governance/Anti-Corruption — End-July 2023 — Not Met (implemented with delay)
  - 10 Enact the articles of the Budget Code allowing preparation of the medium-term budget framework and elaboration of the debt strategy — Fiscal — End-September 2023 — Met
  - 11 Present in the 2024 budget declaration projections for major revenue and spending categories for 2025-2026 and a fiscal risks statement — Fiscal — End-September 2023 — Met
  - 12 Develop a concept note on the 5-7-9 program with proposals to target SMEs and phasing out eligibility of large companies — Fiscal (Reset to End-March 2024) — Not Met
  - 13 Amend the AML/CFT Law to re-establish enhanced due diligence measures on politically exposed persons consistent with FATF — Governance/Anti-Corruption — End-September 2023 — Not Met (implemented with delay)
  - 14 Strengthen bank governance and oversight by: (i) separating the related-parties-unit from banking supervision; (ii) implementing “supervisory panels”; (iii) resume scheduled inspections — Financial Sector — End-September 2023 — Met
  - 15 MoF, with STS and SCS, to prepare an action plan feeding into broader NRS — Fiscal — End-October 2023 — Met
  - 16 Update and publish the Medium-Term Debt Management Strategy — Fiscal — End-October 2023 — Met
  - 17 Simplify the asset declaration system through linking with other databases — Governance/Anti-Corruption — End-October 2023 — Met
  - 18 Select and appoint a supervisory board for the GTSO — Energy/Corporate Governance — End-October 2023 — Met
  - 19 Review PIM procedures and develop a roadmap to ensure unified PIM approaches and MoF gatekeeping — Fiscal — End-December 2023
  - 20 Adopt the National Revenue Strategy — Fiscal — End-December 2023
  - 21 Adopt legislation to enhance institutional autonomy and effectiveness of SAPO — Governance/Anti-Corruption — End-December 2023
  - 22 Prepare short-term revenue measures with yields of at least 0.5 percent of GDP for inclusion in budget 2024 — Fiscal — End-February 2024
  - 23 Adopt a new law on the ESBU consistent with MEFP ¶25, focusing on major economic crimes and delineation with NABU — Fiscal — End-June 2024
  - 24 Prepare a bank rehabilitation framework in consultation with the DGF and IMF staff — Financial Sector — End-December 2024 (Reset)
  - 25 Prepare an assessment of the effectiveness of tax privileges and their cost to the budget — Fiscal — End-July 2024
  - 26 Implement a supervisory risk assessment methodology — Financial Sector — End-June 2024
  - 27 Produce a diagnostic review of pre-war MTBF policies and practices with IMF TA — Fiscal — End-October 2024
  - 28 Identify major public companies severely affected by the war and prepare a review of potential fiscal and quasi-fiscal costs — Fiscal — End-September 2024
  - 29 Adopt a government decree linking MTBF and capital expenditures, specifying MoF gatekeeper role — Fiscal — End-December 2024
  - 30 All banks with majority public ownership remain under MoF shareholder management; nationalized non-systemic banks to DGF for resolution — Financial Sector — Continuous
  - 31 Determine the stock of arrears and assess financial conditions of District Heating Companies through a desk review — Energy — End-June 2024
  - 32 Enact amendments to the procedural code to rationalize first-instance anti-corruption judges — Governance/Anti-Corruption — End-March 2024
  - 33 Complete an external audit of NABU’s effectiveness with three independent international experts and publish report — Governance/Anti-Corruption — End-September 2024
  - 34 Enact a law to establish a new court for administrative cases against national state agencies with properly vetted judges — Governance/Anti-Corruption — End-July 2024
  - 35 Produce a SOE state ownership policy, dividend policy and privatization strategy — SOE Corporate Governance — End-August 2024

### Macroeconomic outlook and key projections (selected)
- Nominal GDP (billions of Ukrainian hryvnias): 5,451 5,191 6,500 6,434 7,711 7,640 8,858 9,818 10,773 11,798 12,908 14,109 15,408 16,826 18,374
- Real GDP (percent change, selected entries shown as in table): 1/3.4-29.1[ 1 to 3 ]4.53.2[3 to 4]6.55.04.54.34.24.14.04.04.0
- Consumer prices (period average): 9.4 20.2 17.7 13.0 13.0 7.7 7.8 6.0 5.2 5.0 5.0 5.0 5.0 5.0 5.0
- Consumer prices (end of period): 10.0 26.6 15.5 6.0 10.0 9.5 6.5 5.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0
- Unemployment rate (ILO definition; period average, percent): 9.8 24.5 19.4 19.1 10.6 13.9 13.1 11.4 10.4 9.2 8.8 8.6 8.5 8.5 8.5
- GDP deflator (percent change): 24.8 34.3 22.8 18.6 15.0 14.7 8.9 5.6 5.0 5.0 5.0 5.0 5.0 5.0 5.0
- Savings (percent of GDP) total and components (selected): Total 12.5 17.6 9.5 11.9 9.8 11.0 10.4 13.9 16.5 17.4 18.6 19.3 19.9 20.6 21.3; Private 12.7 30.8 25.6 27.3 23.7 24.4 14.1 14.6 15.4 14.9 15.2 15.3 15.4 15.9 16.5; Public -0.2 -13.2 -16.1 -15.4 -13.9 -13.4 -3.6 -0.6 1.2 2.5 3.4 4.0 4.5 4.7 4.8

### Fiscal sector (selected indicators and projections)
- General government fiscal balance (percent of GDP): -4.0 -15.7 -19.1 -18.6 -17.8 -15.7 -8.1 -5.1 -3.8 -2.5 -2.0 -1.5 -1.0 -0.8 -0.7
- Fiscal balance, excluding grants (percent of GDP): -4.0 -25.0 -25.8 -27.1 -21.1 -20.4 -10.2 -6.1 -4.8 -3.3 -2.7 -2.2 -1.6 -1.4 -1.3
- Public and publicly-guaranteed debt (percent of GDP): 50.5 78.5 88.1 87.1 98.6 96.7 98.5 98.2 97.0 93.7 90.1 85.9 81.5 77.1 72.6
- Table 5a (billions of Ukrainian hryvnia, selected flows):
  - Revenue: 1,990 2,609 2,855 2,935 3,199 3,220 3,594 3,961 4,416 4,854 5,277 5,752 6,243 6,797 7,432
  - Expenditure: 2,207 3,426 4,096 4,129 4,573 4,423 4,316 4,467 4,825 5,144 5,532 5,962 6,394 6,930 7,555
  - General government overall balance (billions): -216 -817 -1,240 -1,194 -1,375 -1,203 -722 -505 -409 -289 -255 -210 -152 -133 -123
- Table 11: Quantitative performance criteria (selected actuals/status):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants: Adjusted QPC 213,000 — Actual Status Met (for Sep 2024); other test dates show Met entries with figures such as 242,900, 404,895, etc.
  - Floor on tax revenues (excluding Social Security Contributions): 696,400 — Actual Status Met (Sep 2024); later values include 1,094,700, 1,187,653 Met, and projected targets like 1,679,170 1,653,992
  - Ceiling on publicly guaranteed debt: 37,000 11,917 48,917 — Met (Sep 2024); subsequent QPC values listed (37,000 11,917 48,917 Met)
  - Floor on net international reserves (in millions of U.S. dollars): 16,500 -631 16,437 — Met (Sep 2024); later entries include 26,284 Met, and further proposed targets (16,500 24,900 etc.)

### External sector and financing
- Gross reserves (end of period, billions of U.S. dollars): 30.9 28.5 30.5 39.5 33.2 40.9 41.0 41.6 45.9 46.9 48.3 50.5 51.8 53.7 56.0
- Current account balance (percent of GDP, selected): -1.9 5.0 -5.7 -4.6 -7.2 -7.1 -9.0 -7.0 -5.2 -5.0 -4.3 -4.1 -3.9 -3.6 -3.4
- Balance of payments (selected entries, percent of GDP):
  - Goods (net): -6.6 -14.7 -27.2 -29.9 -29.0 -29.4 -35.3 -35.6 -39.1 -37.8 -35.8 -35.0 -34.3 -33.3 -32.4
  - Services (net): 4.0 -11.1 -11.6 -9.6 -4.2 -5.0 2.6 9.1 16.0 16.6 17.1 17.6 18.0 18.5 18.9
- Table 7: Gross External Financing Requirement (A. Total financing requirements, billions of U.S. dollars): 37.5 54.7 69.6 65.6 64.7 68.3 58.2 55.7 53.4 54.6 56.8 55.6 57.4 56.4 56.6
  - B. Total financing sources (billions of U.S. dollars): 39.6 27.7 30.1 32.5 32.8 35.9 37.0 44.6 43.9 46.3 50.4 49.5 51.0 50.1 51.0
  - C. Financing needs (A - B): -2.2 27.0 39.5 33.1 31.9 32.4 21.2 11.1 9.5 8.3 6.4 6.1 6.4 6.3 5.7
- Official financing (E, billions of U.S. dollars): 1.7 30.6 41.0 44.0 34.6 34.9 21.3 11.7 13.8 10.2 9.4 9.1 8.6 8.5 8.8

### Monetary developments (selected)
- Base money (end of period, percent change, memorandum): 11.2 19.6 30.6 22.6 13.0 17.7 12.9 9.5 9.1 8.0 7.0 6.5 6.0 5.5 5.0
- Broad money (end of period, percent change): 12.0 20.8 29.7 22.8 15.5 18.2 9.8 9.5 10.6 9.5 9.4 9.3 9.2 9.2 9.2
- Credit to nongovernment (end of period, percent change): 8.4 -3.1 2.0 -7.5 13.3 9.5 17.2 16.1 15.5 10.2 12.9 12.9 15.5 18.1 18.1
- Monetary survey (selected levels, broad money and components, billions of Ukrainian Hryvnia): Broad money 2,071 2,501 3,244 3,072 3,746 3,630 3,986 4,366 4,829 5,288 5,786 6,325 6,907 7,542 8,237

### Fund credit, schedule, and financing metrics (selected)
- Table 9/10 snapshot (selected): Stock of existing Fund credit (end of period, millions of SDR): 8,379 6,600 4,863 3,366 2,453 2,007 1,561 1,115 669 223 0
- Stock of existing and prospective Fund credit (millions of SDR): 9,043 11,267 10,899 11,332 11,385 10,634 9,353 7,821 5,967 4,032 2,320
- In percent of quota (SDR 2011.8 million): 450 560 542 563 566 529 465 389 297 200 115
- In percent of GDP (projections): 6.9 8.1 7.4 7.4 7.1 6.4 5.3 4.2 3.0 1.9 1.0

*Source: Ukrainian authorities; National Bank of Ukraine; Ministry of Finance; World Bank; and IMF staff estimates and projections as presented in the cited chapter.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### External Risks
- Intensification of regional conflict(s).
  - Risk description: Escalation of Russia’s 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, FDI and financial flows, and payment systems, and lead to refugee flows.
  - Risk likelihood: High
  - Expected impact: High. In addition to increased loss of life, 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.
  - Risk description: Global and idiosyncratic risk factors combine to cause a synchronized sharp growth downturn, with recessions in some countries, adverse spillovers through trade and financial channels, and market fragmentation causing sudden stops in EMDEs.
  - Risk likelihood: Medium
  - Expected impact: High. 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 highl y concessional terms.

- Commodity price volatility.
  - Risk description: A succession of supply disruptions (e.g., due to conflicts, uncertainty, and export restrictions) and demand fluctuations causes recurrent commodity price volatility, external and fiscal pressures in EMDEs, contagion effects, and social and economic instability.
  - Risk likelihood: High
  - Expected impact: High. 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 and the collapse of the Black Sea Grain Initiative (BSGI) 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.
    - Build on and deepen alternative export routes.

- Shortfalls in availability of external financing as well as domestic financing.
  - Risk likelihood: High
  - Expected impact: High. An unexpected shortfall or delay in external and/ or domestic financing could result in larger financing gaps, necessitating financial repression, monetary financing and a sharp compression in spending, thus intensifying macro-financial risks and reverse the ongoing economic recovery.
  - 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.

### Domestic Risks
- Social unrest.
  - Risk likelihood: Medium
  - Expected impact: High. High 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.
  - Risk likelihood: Medium
  - Expected impact: High. 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.
  - Risk likelihood: High
  - Expected impact: Medium. The termination of the BSGI will have a severe impact on Ukraine’s balance of payments, potentially exacerbating financing gaps and FX markets and could risk undermining the nascent recovery. In that context, a prolonged closure of other transit routes through Eastern Europe would pose an additional burden, curtailing exports and weighing on future farming decisions.
  - Policy response:
    - Urge partners for a quick resolution to minimize disruption to transit routes.
    - Diversify supply chains.
    - Accelerate the reconstruction of Danube Deep Sea shipping lanes and repair of railroads with external financing.

### Structural Risks
- Deepening geo-economic fragmentation.
  - Risk description: Broader and deeper conflict(s) and weakened international cooperation result in a more rapid reconfiguration of trade and FDI, supply disruptions, protectionism, technological and payments systems fragmentation, rising input costs, financial instability, a fracturing of international monetary and financial systems, and lower potential growth.
  - Risk likelihood: High
  - Expected impact: High. Ukraine remains at the fault line of ongoing geopolitical tensions and being a trade dependent economy 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.

*Annex I. Risk Assessment Matrix — International Monetary Fund staff assessment and policy responses as presented in the source.*

### 12.6 percent of GDP. Debt and GFNs are also higher in this updated downside scenario, with

### 1ukrea2023003 - 12.6 percent of GDP. Debt and GFNs are also higher in this updated downside scenario, with

### Overall debt sustainability assessment
- Debt is assessed as unsustainable in the baseline and downside scenarios without:
  - debt restructuring,
  - financing on appropriate terms, and
  - fiscal adjustment.
- Mechanical metrics from both medium-term modules (debt fanchart and GFNs) indicate risks remain at high levels.
  - For the debt fanchart: the higher debt trajectory has widened the fan and caused the corresponding risk metric to deteriorate.
  - For GFNs: higher near-term primary deficits have raised the average GFNs over the medium-term.
- Risks are exacerbated under the downside scenario, which incorporates further shocks.
- Staff continues to assess longer-run risks as high despite illustrative longer-term trajectories that suggest sustainability could be achieved with the measures below.

### Updated indicative modeling and targets to deliver debt sustainability
- Debt targets to achieve sustainability:
  - Public debt should reach 82 percent of GDP by 2028 and 65 percent of GDP by 2033.
  - Gross financing needs (GFNs) should average 8 percent of GDP in the post-program period (2028–33).
- Complementary target:
  - Authorities should aim to achieve debt service flow relief on external obligations of around 1-1.7 percent of GDP per year.
    - If realized, these savings could:
      - lower excessive demands on the domestic market,
      - avoid oversaturating local financial institutions with government debt,
      - create space for lending,
      - build an adequate liquidity buffer against macro-fiscal or contingent liability shocks, and
      - enable the envisaged economic recovery.
- Preconditions for forward-looking sustainability:
  - (i) official bilateral creditors’ commitments to the level of relief necessary in the baseline and additional relief if the downside scenario emerges;
  - (ii) Ukrainian authorities’ commitment to seek comparable terms with private external commercial creditors and a credible process underway to deliver this outcome;
  - (iii) credible and specific assurances from donors about support on adequate financial terms in both the baseline and downside scenarios.
- With debt restructuring, fiscal adjustment, and concessional financing, debt and GFNs could remain within sustainable ranges over the longer term; however, substantial uncertainty remains.

### Deficit financing and exceptional financing (selected figures from projection table)
- Overall deficit (percent of GDP): 2023: -18.6; 2024: -15.7; 2025: -8.1; 2026: -5.1; 2027: -3.8.
- Financing (percent of GDP): 2023: 18.6; 2024: 15.7; 2025: 8.1; 2026: 5.1; 2027: 3.8.
- External financing (percent of GDP): 2023: 17.0; 2024: 13.7; 2025: 7.6; 2026: 2.3; 2027: 2.8.
- Disbursements (percent of GDP): 2023: 18.2; 2024: 16.1; 2025: 10.0; 2026: 5.3; 2027: 5.6.
- Amortization (percent of GDP): 2023: -1.1; 2024: -2.5; 2025: -2.3; 2026: -3.0; 2027: -2.8.
- Domestic (percent of GDP): 2023: 1.5; 2024: 1.1; 2025: -1.1; 2026: 1.1; 2027: -0.6.
- Domestic bonds, net (percent of GDP): 2023: 1.4; 2024: 1.0; 2025: 0.0; 2026: 0.0; 2027: 0.0.
- Deposit financing, net (-=accumulation) (percent of GDP): 2023: 0.0; 2024: 0.0; 2025: -1.2; 2026: 1.0; 2027: -0.7.
- Privatization and other (percent of GDP): 0.1 in each year 2023–2027.
- Exceptional financing 1/ (percent of GDP): 2023: 0.0; 2024: 1.0; 2025: 1.6; 2026: 1.7; 2027: 1.6.
- Memo: Exceptional financing in billion US dollars 1/: 2023: 0.0; 2024: 1.9; 2025: 3.2; 2026: 3.6; 2027: 3.5.

Note on exceptional financing:
- Exceptional financing comprises estimates of flow relief from debt service. For 2024, this estimate excludes deferred payments arising from the initial stages of the standstill.

### Pre-restructuring baseline projections (selected public debt and GFN figures)
- Public debt (percent of GDP): 2022: 78.5; 2023: 87.1; 2024: 96.8; 2025: 98.5; 2026: 98.2; 2027: 97.0; 2028: 93.7; 2029: 90.1; 2030: 85.9; 2031: 81.5; 2032: 77.1; 2033: 72.6.
- Change in public debt (percent of GDP): 2023: 29.5; 2024: 8.6; 2025: 9.7; 2026: 1.8; 2027: -0.4; 2028: -1.1; 2029: -3.4; 2030: -3.6; 2031: -4.2; 2032: -4.4; 2033: -4.5.
- Contribution of identified flows (percent of GDP): 2023: 24.1; 2024: 9.4; 2025: 8.8; 2026: 1.0; 2027: -1.4; 2028: -2.5; 2029: -3.9; 2030: -3.7; 2031: -4.3; 2032: -4.5; 2033: -4.4.
- Primary deficit (percent of GDP): 2023: 12.6; 2024: 14.5; 2025: 10.1; 2026: 4.1; 2027: 1.4; 2028: 0.4; 2029: -0.7; 2030: -0.9; 2031: -1.2; 2032: -1.4; 2033: -1.5.
- Gross financing needs (GFN) (percent of GDP): 2023: 25.0; 2024: 25.4; 2025: 24.9; 2026: 18.5; 2027: 15.8; 2028: 13.5; 2029: 12.6; 2030: 12.1; 2031: 10.8; 2032: 11.3; 2033: 8.4; 2034: 8.3 (extended horizon values appear in table).
- Of which: debt service (percent of GDP): 2023: 12.4; 2024: 10.9; 2025: 14.6; 2026: 13.1; 2027: 14.4; 2028: 13.1; 2029: 13.3; 2030: 13.1; 2031: 12.0; 2032: 12.7; 2033: 9.9; 2034: 9.8.
- Local currency (percent of GDP): 2023: 8.0; 2024: 7.7; 2025: 8.5; 2026: 8.1; 2027: 8.8; 2028: 8.2; 2029: 7.4; 2030: 7.0; 2031: 6.3; 2032: 6.8; 2033: 4.5; 2034: 4.8.
- Foreign currency (percent of GDP): 2023: 4.4; 2024: 3.2; 2025: 6.0; 2026: 5.0; 2027: 5.5; 2028: 5.0; 2029: 5.8; 2030: 6.0; 2031: 5.7; 2032: 5.9; 2033: 5.4; 2034: 4.9.

### Debt structure, coverage, and disclosures (selected points)
- End-2022 debt structure:
  - Externally held debt rose to 64 percent of total public and publicly guaranteed debt.
  - Multilateral debt accounted for the largest share at 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 expected official financing during the program, implying currency risk.
- DSA coverage (based on end-2022 debt stock data) includes:
  - central government direct debt;
  - domestic and external government-guaranteed debt (loans and bonds) extended to SOEs;
  - debt of local governments; and
  - Ukraine's liabilities to the IMF that are not included in central government direct debt.
- The DSA does not include:
  - non-guaranteed domestic and external liabilities of SOEs; nor
  - Ukraine's GDP warrants.
- Data on debt consolidation across sectors are not available.

### Medium-term risk analysis and stress testing
- Both medium-term modules signal high sovereign stress risk in the baseline scenario.
  - Debt fanchart module:
    - Fanchart width: 141.7 2.1 (percent of GDP) [table entries as shown].
    - Probability of debt non-stabilization (percent): 8.6 0.1.
    - Terminal debt-to-GDP x: 64.2 1.4.
    - Debt fanchart index (DFI): 3.5 → Risk signal: High.
  - Gross financing needs (GFN) module:
    - Average baseline GFN (percent of GDP): 18.4 6.3.
    - Banks' claims on the general government (pct bank assets): 21.3 6.9.
    - Change in banks' claims in stress (pct banks' assets): 76.1 25.4.
    - GFN financeability index (GFI): 38.6 → Risk signal: High.
- Medium-term index:
  - Combines DFI and GFI and signals High risk.
  - 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.
- Commentary:
  - The DFI remains deeply in high-risk territory and is little changed from the previous DSA.
  - The GFI indicates high liquidity-related risks reflecting high average GFN-to-GDP ratios and very large changes in bank claims on the government in a stress scenario.
  - Current level of bank exposures to the government: 21.3 percent (unchanged from the last DSA).

### Policy implications and recommended measures
- Restore medium-term external viability through:
  - policy commitments,
  - specific and credible safeguards commitments, and
  - exceptional financing from creditors and donors, including debt relief, consistent with achieving:
    - GFNs averaging 8 percent of GDP over 2028–33, and
    - public debt of 82 percent of GDP by 2028 and 65 percent of GDP by 2033.
- Implementation of fiscal adjustment and donor commitments on concessional financing, together with debt restructuring, should help deliver these targets and bring debt and GFNs to sustainable levels.
- Building liquidity buffers and avoiding oversaturation of the domestic market are critical to mitigate refinancing and banking-sector risks.

*Source: IMF staff (excerpts from the DSA and Annex III).*

### Annex III. Figure 7. Ukraine: Public Debt Structure Indicators Under the Pre-Restructuring

### Annex III. Figure 7. Ukraine: Public Debt Structure Indicators Under the Pre-Restructuring — Downside Scenario

### Structure of public debt (perimeter = general government)
- Debt by currency: foreign currency; local currency; local-linked (visual breakdown in figure).
- Public debt by holder: external private creditors; external official creditors; domestic other creditors; domestic commercial banks (visual breakdown in figure).
- Public debt by governing law, 2022: Domestic law; Foreign law ex. multilateral; Multilateral (visual breakdown in figure).
- Debt by instruments: marketable debt (direct); nonmarketable and guaranteed debt (visual breakdown in figure).
- Public debt by maturity: ≤ 1 year; 1-5 years; > 5 years. Residual maturity: n.a. years (visual breakdown in figure).
- Projection note: “This downside scenario preserves two features of downside scenarios presented in previous SRDSAs: (i) elevated fiancing needs cause the share of local currency debt to grow notably above that of the baseline and (ii) the maturity structure is also more tilted toward the shorter-term relative to the baseline.”

### Key projections and debt dynamics (Pre-Restructuring Downside Scenario — selected figures)
- Public debt (Percent of GDP): 78.5; 87.1; 111.5; 126.7; 138.2; 136.5; 134.0; 131.1; 127.5; 123.9; 120.1; 116.6
- Change in public debt (Percent of GDP): 29.5; 8.6; 24.4; 15.2; 11.4; -1. 6; -2. 5; -2. 9; -3. 6; -3. 7; -3. 7; -3. 5
- Contribution of identified flows (Percent of GDP): 24.1; 9.4; 19.4; 14.2; 11.1; -3. 2; -4. 1; -4. 2; -5. 2; -5. 3; -5. 3; -5. 0
- Primary deficit (Percent of GDP): 12.8; 14.5; 13.1; 12.7; 8.9; -0. 8; -1. 0; -1. 4; -2. 0; -2. 1; -2. 1; -2. 0
- Noninterest revenues (Percent of GDP): 50.3; 45.6; 46.7; 43.3; 42.6; 41.5; 40.5; 40.5; 40.5; 40.3; 40.3; 40.2
- Noninterest expenditures (Percent of GDP): 63.0; 60.1; 59.8; 56.0; 51.5; 40.6; 39.5; 39.1; 38.5; 38.2; 38.2; 38.2
- Automatic debt dynamics (Percent of GDP): 11.4; -5. 0; 6.1; 11.0; 0.0; -2. 4; -2. 7; -2. 4; -2. 9; -3. 0; -3. 0; -3. 0
- Real interest rate and relative inflation (component): -6. 5; -1. 6; 1.5; 1.0; 2.5; 2.9; 2.3; 2.5; 1.9; 1.7; 1.5; 1.4
- Real interest rate (Percent): -14.7; -7. 7; -5. 3; -6. 2; -1. 7; 0.1; -0. 4; -0. 6; -0. 6; -0. 8; -0. 8; -0. 8
- Relative inflation (Percent): 8.3; 6.0; 6.8; 7.2; 4.2; 2.8; 2.7; 3.1; 2.5; 2.4; 2.3; 2.3
- Real GDP growth (Percent): 20.0; -3. 4; 4.6; 0.0; -2. 5; -5. 3; -5. 0; -4. 9; -4. 8; -4. 7; -4. 5; -4. 4
- Other identified flows (Percent of GDP): 0.0; -0. 1; 0.2; 0.5; 2.2; 0.0; -0. 4; -0. 3; -0. 3; -0. 2; -0. 2; -0. 1
- Contribution of residual (Percent of GDP): 5.4; -0. 8; 5.0; 1.0; 0.4; 1.6; 1.6; 1.2; 1.7; 1.6; 1.6; 1.5
- Gross financing needs (Percent of GDP): 25.1; 25.4; 29.2; 29.2; 34.4; 25.9; 25.3; 23.4; 20.4; 22.5; 16.3; 16.8
  - of which: debt service (Percent of GDP): 12.3; 10.9; 15.8; 16.5; 24.0; 26.7; 26.3; 24.8; 22.5; 24.5; 18.4; 18.8
  - Local currency (Percent of GDP): 8.0; 7.7; 9.0; 10.4; 17.1; 20.5; 18.9; 17.1; 15.0; 16.7; 11.1; 12.0
  - Foreign currency (Percent of GDP): 4.3; 3.2; 6.8; 6.1; 6.9; 6.2; 7.4; 7.8; 7.5; 7.9; 7.3; 6.9
- Memo indicators:
  - Real GDP growth (percent): -29.1; 4.5; -5. 0; 0.0; 2.0; 4.0; 3.8; 3.8; 3.8; 3.8; 3.8; 3.8
  - Inflation (GDP deflator; percent): 34.3; 18.6; 13.9; 11.4; 6.7; 5.0; 5.0; 5.0; 5.0; 5.0; 5.0; 5.0
  - Nominal GDP growth (percent): -4. 8; 23.9; 8.2; 11.4; 8.8; 9.3; 9.0; 9.0; 9.0; 9.0; 9.0; 9.0
  - Effective interest rate (percent): 5.6; 6.5; 7.4; 5.2; 5.2; 5.2; 4.7; 4.5; 4.5; 4.3; 4.3; 4.3

### Medium-term risk analysis and indices
- Debt fanchart module:
  - Fanchart width (percent of GDP): 187.2 2.7
  - Probability of debt non-14.60.1 (percent) [as shown in figure]
  - Terminal debt-to-GDP x91.9 2.0
  - Debt fanchart index (DFI): 4.8
  - Risk signal: High
- Gross financing needs (GFN) module:
  - Average baseline GFN (percent of GDP): 28.2 9.6
  - Banks' claims on the govt (pct bank assets): 21.3 6.9
  - Chg. in banks' claims in stress (pct banks' assets): 124.9 41.8
  - GFN financeability index (GFI): 58.3
  - Risk signal: High
- Medium-term index (combined): 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.
- Staff conclusion: “As in the baseline, both medium-term modules signal high risks of sovereign stress. The signals are the same as the First Review SRDSA, and both the DFI and GFI are little changed. All three components of the DFI (width, probability of stabilization, and terminal debt level interacted with an institutions index) are worse than in the baseline. The GFI also remains very high and well-above the baseline, reflecting higher levels of average GFNs and the change on bank claims in the stress scenario (the initial bank claims on the government is a data outturn and is common across both scenarios).”

### Long-term debt and GFN trajectories (Annex III, Box 1) — scenario descriptions and outcomes
- Starting assumptions for long-term analysis:
  - Analysis begins in 2033 and assumes full implementation of the program.
  - Authorities adopt revenue-based fiscal adjustment measures to deliver a primary surplus around 1½ percent of GDP over the medium term.
  - Successful completion of debt operations on official bilateral and external commercial claims brings debt to 65 percent of GDP by 2033; GFNs would have averaged 8 percent of GDP over 2028–33.
- Scenarios:
  - Extrapolating Trends: key macro variables, primary balance-to-GDP ratio, and effective borrowing terms remain constant at 2033 settings.
  - Debt-Stabilizing Primary Balance: relaxes primary balance after 2033 (primary surplus kept high until 2033, then relaxed) while leaving macro variables and borrowing terms as in Extrapolating Trends.
  - Harder Borrowing Terms: assumes shorter maturities on new FX issuances (amortized smoothly over 10 years) and a hike in the effective marginal interest rate on FX debt to 7.5 percent (consistent with long-term risk-free rates of 2 percent and a spread of 550 bps). Other assumptions same as Extrapolating Trends.
- Long-term results (qualitative outcomes reported):
  - Extrapolating Trends: debt falls to around 5-10 percent of GDP by 2053; GFNs very low at end of horizon.
  - Debt-Stabilizing Primary Balance: debt stabilizes in the 65 percent of GDP range; GFNs around 8-11 percent of GDP over 2034–53.
  - Harder Borrowing Terms: debt on downward trajectory to around 20–25 percent of GDP by 2053; GFNs stabilize within manageable ranges.
- Staff judgment: “Nevertheless, staff still assesses long-term risks as high. This judgement reflects the exceptionally high uncertainty, especially on the longer-term outlook. Additional risks, including ones could arise from demographics and the sustainability of public pensions. These issues could be handled in future DSA updates.”

### Downside scenario narrative, financing gap, and policy contingencies (Annex IV summary)
- Scenario assumptions (summary):
  - Downside scenario begins from 2024 onwards; assumes a longer and more intense war (war assumed to wind down by end-2025 versus end-2024 in the baseline).
  - Results: sharp real GDP decline of 5 percent in 2024 (versus 3–4 percent growth in the baseline) and zero growth in 2025.
  - Higher defense needs, lower economic activity, resurfacing FX market imbalances, higher nominal depreciation before converging to baseline; some FXI for 2024 assumed given ample buffers; lower path of reserves compared to baseline; more subdued subsequent recovery.
- Financing gap and required support:
  - “The updated cumulative financing gap in the downside scenario would remain around US$140 billion at the EFF request, about a US$18 billion increase compared with the baseline forecast for 2023–27 (US$122 billion), requiring additional steps to ensure debt sustainability.”
  - 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 would require 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.
  - Expected result of such support: decrease total public debt to around 60 percent of GDP by the end of the 10-year projection, and gross financing needs of 8–9 percent of GDP per year in the post-program period.
- Policy contingencies and authorities’ readiness:
  - Authorities have implemented measures since the start of war: streamlining capital expenditure and other lower priority expenditure items, identifying additional financing, measures to maintain financial stability and protect FX reserves (including FX controls), and further reforms in the PMB since the EFF approval.
  - Contingency measures to address the downside would be largely in line with those in the First Review: mix of increases in tax revenues, seeking further external financing, monetary tightening, larger mobilization of domestic financing (both in UAH and FX if required), and likely further adjusting FX policies and CFMs (temporary and justified).
  - On the fiscal side, with a very tight expenditure envelope in the 2024 budget, the bulk of adjustment would come from tax measures that can be rapidly implemented to boost revenues; some spending made contingent on available financing.
  - If shocks exceed the downside scenario, additional temporary unconventional measures may be considered, including:
    - Additional revenue measures (e.g., a solidarity tax supplement to the PIT, additional tax on luxury goods, or excise duties/fees).
    - Mobilizing domestic bond financing on a larger scale, possibly including administrative measures requiring banks to hold a stipulated amount in or a minimum holding period of government securities (differentiated by banks’ liquidity conditions).
    - Secondary purchases of government bonds by the NBU as a backstop for the primary market.
    - Instruments such as inflation- or exchange-rate-linked bonds.
    - Expanded FX controls and proactive FX policies if pressures on the exchange rate recur while reserves remain adequate.
  - Spending under certain categories would remain contingent on the flow of highly concessional/grant-based external financing.

*Source: IMF staff estimates and projections as presented in Annex III and Annex IV of the document.*

### 6. Overall, wide-ranging discussions with the authorities on contingency plans during the

### 6. Overall, wide-ranging discussions with the authorities on contingency plans during the

### Program robustness and debt sustainability
- The program “remains robust” even under the updated downside scenario.
- Authorities’ policy commitments, track record, renewed financing assurances from international partners, and expected debt relief provide confidence that program objectives could be met:
  - Maintain macroeconomic and financial stability.
  - Restore debt sustainability on a forward-looking basis.
  - Ensure medium-term external viability.
- Debt sustainability analysis reconfirms that “additional financial assurances provided by Ukraine’s international partners would restore debt sustainability on a forward-looking basis.”

### Macroeconomic projections (downside scenario)
- Nominal GDP (billions of Ukrainian hryvnias):
  - 2021: 5,451
  - 2022: 5,191
  - 2023: 6,434
  - 2024: 6,964
  - 2025: 7,760
  - 2026: 8,446
  - 2027: 9,227
  - 2028: 10,057
  - 2029: 10,961
  - 2030: 11,947
  - 2031: 13,021
  - 2032: 14,192
  - 2033: 15,468
- Real GDP (percent change):
  - 2021: 1/
  - 2022: 3.4
  - 2023: -29.1
  - 2024: 4.5
  - 2025: -5.0
  - 2026: 0.0
  - 2027: 2.0
  - 2028: 4.0
  - 2029: 3.8
  - 2030: 3.8
  - 2031: 3.8
  - 2032: 3.8
  - 2033: 3.8
- GDP deflator (percent change): 2022: 34.3; 2023: 18.6; 2024: 13.9; 2025: 11.4; 2026: 6.7; 2027: 5.0; 2028–2033: 5.0 (each year)
- Consumer prices (period average): 2022: 20.2; 2023: 13.0; 2024: 8.5; 2025: 9.6; 2026: 7.7; 2027–2033: 5.0 (each year)
- Unemployment rate (ILO; period average, percent): 2022: 24.5; 2023: 19.1; 2024: 17.1; 2025: 16.6; 2026: 13.5; 2027: 12.6; 2028: 11.0; 2029: 10.6; 2030: 10.0; 2031: 9.0; 2032: 8.6; 2033: 8.5
- Real wages (average): 2022: -16.0; 2023: 6.3; 2024: 0.1; 2025: 2.9; 2026: 7.0; 2027: 5.0; 2028: 4.5; 2029: 4.0; 2030: 4.0; 2031: 3.9; 2032: 3.8; 2033: 3.8
- Savings (percent of GDP): Total 2022: 17.6; 2023: 11.9; 2024: 5.0; 2025: 14.1; 2026: 13.5; 2027: 13.6; 2028: 14.4; 2029: 15.2; 2030: 15.0; 2031: 15.2; 2032: 15.8; 2033: 16.3
- Gross reserves (end of period, billions of U.S. dollars):
  - 2021: 30.9
  - 2022: 28.5
  - 2023: 39.5
  - 2024: 32.4
  - 2025: 39.8
  - 2026: 41.6
  - 2027: 45.9
  - 2028: 46.9
  - 2029: 48.3
  - 2030: 50.5
  - 2031: 51.8
  - 2032: 53.7
  - 2033: 56.0
- Months of next year's imports of goods and services:
  - 2021: 4.5
  - 2022: 3.8
  - 2023: 4.6
  - 2024: 4.6
  - 2025–2026: 5.2 (each year)
  - 2027: 5.6
  - 2028: 5.4
  - 2029: 5.3
  - 2030: 5.3
  - 2031: 5.2
  - 2032: 5.1
  - 2033: 5.0

### General government finances (downside scenario)
- General government overall balance (percent of GDP):
  - 2021: -4.0
  - 2022: -15.9
  - 2023: -18.6
  - 2024: -19.0
  - 2025: -17.8
  - 2026: -15.0
  - 2027: -5.7
  - 2028: -4.8
  - 2029: -4.2
  - 2030: -3.4
  - 2031: -3.0
  - 2032: -2.8
  - 2033: -2.7
- General government overall balance, excluding grants (percent of GDP):
  - 2021: -4.0
  - 2022: -25.2
  - 2023: -27.1
  - 2024: -28.9
  - 2025: -24.1
  - 2026: -19.2
  - 2027: -8.0
  - 2028: -5.9
  - 2029: -5.1
  - 2030: -4.3
  - 2031: -3.9
  - 2032: -3.6
  - 2033: -3.5
- Public and publicly-guaranteed debt (percent of GDP):
  - 2021: 48.9
  - 2022: 78.5
  - 2023: 87.1
  - 2024: 111.5
  - 2025: 126.7
  - 2026: 138.2
  - 2027: 136.5
  - 2028: 134.0
  - 2029: 131.1
  - 2030: 127.5
  - 2031: 123.9
  - 2032: 120.1
  - 2033: 116.6
- Revenue (billions of Ukrainian Hryvnia):
  - 2021: 1,990
  - 2022: 2,609
  - 2023: 2,935
  - 2024: 3,253
  - 2025: 3,362
  - 2026: 3,601
  - 2027: 3,826
  - 2028: 4,075
  - 2029: 4,436
  - 2030: 4,836
  - 2031: 5,241
  - 2032: 5,715
  - 2033: 6,213
- Expenditure (billions of Ukrainian Hryvnia):
  - 2021: 2,207
  - 2022: 3,434
  - 2023: 4,129
  - 2024: 4,574
  - 2025: 4,746
  - 2026: 4,866
  - 2027: 4,350
  - 2028: 4,556
  - 2029: 4,891
  - 2030: 5,238
  - 2031: 5,633
  - 2032: 6,108
  - 2033: 6,634
- Contingency reserve (billions of Ukrainian Hryvnia): 2021: 0; 2022: 0; 2023: 1; 2024: 5; 2025: 25; 2026: 8; 2027: 63; 2028: 69; 2029: 75; 2030: 57; 2031: 57; 2032: 67; 2033: 75
- General government financing (percent of GDP): 2021: 4.0; 2022: 15.7; 2023: 18.6; 2024: 19.0; 2025: 17.8; 2026: 15.0; 2027: 5.7; 2028: 4.8; 2029: 4.2; 2030: 3.4; 2031: 3.0; 2032: 2.8; 2033: 2.7
- Memorandum—Primary balance (percent of GDP): 2021: -1.1; 2022: -12.8; 2023: -14.5; 2024: -13.1; 2025: -12.7; 2026: -8.9; 2027: 0.8; 2028: 1.0; 2029: 1.4; 2030: 2.0; 2031: 2.1; 2032: 2.1; 2033: 2.0

### Balance of payments and external financing (downside scenario)
- Current account balance (billions of U.S. dollars):
  - 2021: -3.9
  - 2022: 8.0
  - 2023: -8.1
  - 2024: -17.9
  - 2025: -3.3
  - 2026: -6.0
  - 2027: -7.6
  - 2028: -7.1
  - 2029: -6.5
  - 2030: -7.7
  - 2031: -8.2
  - 2032: -7.9
  - 2033: -7.7
- Current account balance (percent of GDP): 2021: -1.9; 2022: 5.0; 2023: -4.6; 2024: -10.9; 2025: -2.0; 2026: -3.6; 2027: -4.4; 2028: -4.0; 2029: -3.5; 2030: -4.0; 2031: -4.1; 2032: -3.8; 2033: -3.6
- Goods exports (annual volume change in percent): 2021: 35.0; 2022: -44.1; 2023: -15.3; 2024: 8.8; 2025: 2.0; 2026: 13.2; 2027: 3.9; 2028: 10.9; 2029: 7.5; 2030: 8.3; 2031: 9.1; 2032: 8.9; 2033: 8.8
- Goods imports (annual volume change in percent): 2021: 17.0; 2022: -24.7; 2023: 21.2; 2024: 15.3; 2025: -12.9; 2026: 20.5; 2027: 11.1; 2028: 3.3; 2029: 3.7; 2030: 5.1; 2031: 5.1; 2032: 4.9; 2033: 5.2
- Financial account balance (percent of GDP):
  - 2021: -5.7
  - 2022: 8.4
  - 2023: -18.9
  - 2024: -11.9
  - 2025: -10.5
  - 2026: -6.9
  - 2027: -11.3
  - 2028: -8.2
  - 2029: -7.9
  - 2030: -10.9
  - 2031: -10.8
  - 2032: -11.2
  - 2033: -11.2

### Gross external financing requirement and official financing (downside scenario)
- A. Total financing requirements (Billions of U.S. dollars):
  - 2021: 37.5
  - 2022: 54.7
  - 2023: 65.6
  - 2024: 83.3
  - 2025: 54.2
  - 2026: 52.9
  - 2027: 51.1
  - 2028: 50.5
  - 2029: 53.0
  - 2030: 52.1
  - 2031: 54.9
  - 2032: 53.6
  - 2033: 53.9
- B. Total financing sources (Billions of U.S. dollars):
  - 2021: 39.6
  - 2022: 27.7
  - 2023: 32.5
  - 2024: 35.9
  - 2025: 34.5
  - 2026: 38.2
  - 2027: 39.9
  - 2028: 42.2
  - 2029: 46.6
  - 2030: 45.9
  - 2031: 48.5
  - 2032: 47.3
  - 2033: 48.2
- C. Financing needs (A - B) (Billions of U.S. dollars): 
  - 2021: -2.2
  - 2022: 27.0
  - 2023: 33.1
  - 2024: 47.4
  - 2025: 19.7
  - 2026: 14.8
  - 2027: 11.2
  - 2028: 8.3
  - 2029: 6.4
  - 2030: 6.2
  - 2031: 6.4
  - 2032: 6.3
  - 2033: 5.7
- D. Total exceptional financing needs: same as C.
- E. Official financing (Billions of U.S. dollars):
  - 2021: 1.7
  - 2022: 30.6
  - 2023: 44.0
  - 2024: 41.4
  - 2025: 27.0
  - 2026: 16.6
  - 2027: 15.4
  - 2028: 10.2
  - 2029: 9.4
  - 2030: 9.1
  - 2031: 8.6
  - 2032: 8.5
  - 2033: 8.8
- IMF (net, Billions of U.S. dollars):
  - 2021: -0.7
  - 2022: 0.7
  - 2023: 1.9
  - 2024: 3.0
  - 2025: -0.5
  - 2026: 0.6
  - 2027: 0.1
  - 2028: -1.0
  - 2029: -1.7
  - 2030: -2.1
  - 2031: -2.5
  - 2032: -2.6
  - 2033: -2.3
- Official grants (Billions of U.S. dollars): 2021: 0.0; 2022: 14.0; 2023: 14.9; 2024: 15.3; 2025: 9.7; 2026: 6.8; 2027: 3.8; 2028: 3.8; 2029: 2.0; 2030: 1.7; 2031: 1.7; 2032: 1.7; 2033: 1.7
- Official creditors (Billions of U.S. dollars): 2021: 2.3; 2022: 15.9; 2023: 27.2; 2024: 23.2; 2025: 17.8; 2026: 9.1; 2027: 11.5; 2028: 9.2; 2029: 9.4; 2030: 9.4; 2031: 9.4; 2032: 9.4; 2033: 9.4

### Key risk metrics and operational indicators
- Percent of short-term debt (remaining maturity): 2021: 67.5; 2022: 66.1; 2023: 85.6; 2024: 75.1; 2025: 84.9; 2026: 89.4; 2027: 93.2; 2028: 85.6; 2029: 91.4; 2030: 90.7; 2031: 95.9; 2032: 98.6; 2033: 94.2
- Percent of the IMF composite metric (float):
  - 2021: 98.9
  - 2022: 92.9
  - 2023: 109.7
  - 2024: 80.1
  - 2025: 93.7
  - 2026: 92.8
  - 2027: 99.2
  - 2028: 98.9
  - 2029: 86.6
  - 2030: 101.9
  - 2031: 102.4
  - 2032: 105.3
  - 2033: 108.2
- Loan rollover rate (percent), Total:
  - 2021: 91.4
  - 2022: 98.2
  - 2023–2033: 100.0 to 101.8 (see table for annual values)
- Memorandum—Gross international reserves (USD billions) repeated: see Gross reserves above.

### Policy implications and contingency planning (as presented)
- Wide-ranging contingency discussions with authorities were held during the Second Review.
- Even under the downside scenario, program objectives could be achieved provided:
  - Continued policy commitment and implementation by authorities.
  - Renewed financing assurances and expected debt relief from international partners.
  - Additional financial assurances from international partners would restore forward-looking debt sustainability.

*Sources: Ukrainian authorities; National Bank of Ukraine; Ministry of Finance; World Bank, World Development Indicators; and IMF staff estimates and projections.*

### Annex IV. Table 5. Ukraine: Monetary Accounts (Downside Scenario), 2021–2033

### Annex IV. Table 5. Ukraine: Monetary Accounts (Downside Scenario), 2021–2033

### Monetary survey — headline aggregates (end of period, UAH billions)
- Net foreign assets: 1,002 (2021 Act); 1,326 (2022 Act); 1,854 (2023 Proj); 1,757 (2024 Proj); 2,287 (2025 Proj); 2,432 (2026 Proj); 2,746 (2027 Proj); 2,969 (2028 Proj); 3,301 (2029 Proj); 3,731 (2030 Proj); 4,166 (2031 Proj); 4,688 (2032 Proj); 5,261 (2033 Proj)
- Net domestic assets: 1,070; 1,176; 1,218; 1,552; 1,205; 1,324; 1,390; 1,539; 1,613; 1,625; 1,671; 1,674; 1,673
- Domestic credit (total): 1,925; 2,212; 2,251; 2,524; 3,211; 4,393; 4,624; 5,126; 5,467; 5,944; 6,577; 7,227; 7,943
  - Net claims on government: 898; 1,218; 1,331; 1,553; 2,209; 3,348; 3,500; 3,909; 4,094; 4,395; 4,788; 5,162; 5,558
  - Credit to the economy: 1,023; 991; 917; 967; 996; 1,039; 1,119; 1,210; 1,366; 1,542; 1,780; 2,056; 2,375
    - Domestic currency credit: 731; 725; 688; 745; 786; 836; 917; 1,012; 1,171; 1,351; 1,593; 1,873; 2,195
    - Foreign currency credit: 292; 266; 229; 222; 211; 204; 202; 198; 195; 191; 187; 184; 180
  - Other claims on the economy: 544; 556; 677; 899; 910
- Other items, net: -856; -1,036; -1,034; -972; -2,006; -3,069; -3,235; -3,587; -3,854; -4,320; -4,907; -5,554; -6,271
- Broad money (M3): 2,071; 2,501; 3,072; 3,309; 3,492; 3,756; 4,136; 4,508; 4,914; 5,355; 5,837; 6,362; 6,934
- Currency in circulation: 581; 666; 640; 686; 886; 954; 1,031; 1,107; 1,309; 1,388; 1,464; 1,535; 1,600
- Total deposits: 1,489; 1,834; 2,431; 2,622; 2,605; 2,800; 3,104; 3,399; 3,603; 3,965; 4,371; 4,824; 5,331
  - Domestic currency deposits: 1,014; 1,204; 1,786; 1,878; 1,771; 1,922; 2,131; 2,303; 2,423; 2,695; 3,003; 3,353; 3,749
  - Foreign currency deposits: 474; 630; 645; 743; 834; 878; 973; 1,097; 1,181; 1,271; 1,367; 1,471; 1,583

### Accounts of the NBU (end of period, UAH billions and noted USD rows)
- Net foreign assets (NBU): 852; 981; 1,412; 1,170; 1,674; 1,820; 2,136; 2,361; 2,666; 3,069; 3,476; 3,968; 4,509
- Net international reserves: 838; 978; 1,408; 1,166; 1,670; 1,816; 2,131; 2,355; 2,661; 3,063; 3,470; 3,961; 4,503
  - (In billions of U.S. dollars) 30.7 26.7 .................................
- Reserve assets: 843; 980 .................................
- Other net foreign assets: 143; 444; 555; 566; 67
- Net domestic assets (NBU): -190; -188; -440; -126; -535; -595; -804; -922; -1,127; -1,429; -1,738; -2,134; -2,584
- Net domestic credit (NBU): 175; 312; 219; 176; 41; 1,716; 1,616; 1,779; 1,762; 1,864; 2,075; 2,254; 2,443
  - Net claims on government: 270; 704; 689; 665; 651; 639; 633; 627; 621; 613; 604; 594; 582
  - Claims on government: 325; 758; 744; 731; 718; 706; 694; 682; 671; 659; 647; 635; 623
  - Net claims on banks: -95; -392; -687; -474; 113; 1,077; 983; 1,152; 1,142; 1,251; 1,472; 1,660; 1,861
- Other items, net (NBU): -365; -501; -441; -317; -1,299; -2,310; -2,420; -2,700; -2,889; -3,293; -3,813; -4,389; -5,027
- Base money: 662; 793; 972; 1,045; 1,139; 1,226; 1,332; 1,439; 1,539; 1,639; 1,738; 1,833; 1,925
  - Currency in circulation (repeated): 581; 666; 640; 686; 886; 954; 1,031; 1,107; 1,309; 1,388; 1,464; 1,535; 1,600
  - Banks' reserves: 81; 126; 332; 323; 592; 532; 723; 013; 312; 312; 512; 742; 983; 25
  - Cash in vault: 47; 49; 76; 82; 82; 88; 97; 106; 113; 124; 137; 151; 167
  - Correspondent accounts: 357; 725; 627; 717; 218; 4
  - (Additional fragmented rows appear as) 204 225 118 127 137 147 158

### Deposit money banks (end of period, UAH billions)
- Net foreign assets (deposit money banks): 149; 345; 443; 586; 612; 612; 610; 608; 635; 662; 691; 721; 752
  - Foreign assets: 254; 427; 541; 712; 774; 809; 846; 884; 924; 966; 1,010; 1,056; 1,104
  - Foreign liabilities: 105; 82; 98; 81; 26; 161; 197; 235; 276; 304; 319; 335; 352
- Net domestic assets (deposit money banks): 1,339; 1,489; 1,988; 2,035; 1,992; 2,188; 2,493; 2,791; 2,968; 3,303; 3,679; 4,103; 4,579
- Domestic credit (deposit money banks): 1,875; 2,064; 2,619; 2,729; 2,737; 2,986; 3,347; 3,716; 3,973; 4,369; 4,812; 5,308; 5,862
  - Net claims on government 1/: 628; 513; 642; 888; 1,558; 2,709; 2,866; 3,283; 3,474; 3,782; 4,185; 4,568; 4,976
  - Credit to the economy: 1,023; 991; 916; 966; 996; 1,039; 1,118; 1,210; 1,365; 1,541; 1,780; 2,056; 2,374
  - Other claims on the economy: 534; 556; 677; 899; 910
- Net claims on NBU (deposit money banks): 220; 594; 1,057; 871; 178; -768; -644; -783; -873; -962; -1,161; -1,325; -1,498
- Other items, net (deposit money banks): -536; -574; -631; -694; -745; -798; -854; -925; -1,005; -1,066; -1,133; -1,205; -1,283
- Banks' liabilities (total): 1,488; 1,834; 2,431; 2,622; 2,605; 2,800; 3,104; 3,399; 3,603; 3,965; 4,370; 4,824; 5,331

### Memorandum items and ratios (as reported)
- Base money percent changes: 11.2; 19.6; 22.6; 7.5; 9.0; 7.6; 8.7; 8.0; 7.0; 6.5; 6.0; 5.5; 5.0
- Currency in circulation percent changes: 12.6; 14.6; -4.0; 7.2; 29.1; 7.7; 4.8; 5.8; 6.8; 7.8; 8.8; 9.8; 10.8
- Broad money percent changes: 12.0; 20.8; 22.8; 7.7; 5.5; 7.6; 10.1; 9.0; 9.0; 9.0; 9.0; 9.0; 9.0
- Credit to the economy percent changes: 8.4; -3.1; -7.5; 5.5; 3.1; 4.3; 7.6; 8.1; 12.9; 12.9; 15.5; 15.5; 15.5
- Real credit to the economy (deflated by CPI eop), percent changes: 2/ -1.5; -23.5; -12.7; -5.0; -5.0; -2.5; 2.5; 3.0; 7.5; 7.5; 10.0; 10.0; 10.0
- Credit-to-GDP ratio, in percent: 18.8; 12.1; 14.2; 13.9; 12.8; 12.3; 12.1; 12.0; 12.5; 12.9; 13.7; 14.4; 15.4
- Velocity of broad money, ratio: 1.9; 1.6; 2.1; 2.1; 2.2; 2.2; 2.2; 2.2; 2.2; 2.2; 2.2; 2.2; 2.2
- Money multiplier, ratio: 3.1; 3.2; 3.2; 3.2; 3.1; 3.1; 3.1; 3.1; 3.2; 3.3; 3.4; 3.5; 3.6
- Hryvnia per U.S. dollar (end of period): 27.3; 36.6 .................................
- Sources cited in table: National Bank of Ukraine; and IMF staff estimates and projections.
- Notes in table: 2/ Deflated by CPI (eop), at current exchange rates, year-on-year percent change. 1/ Includes claims for recapitalization of banks.

*Source: IMF staff compilation of "Annex IV. Table 5. Ukraine: Monetary Accounts (Downside Scenario), 2021–2033."*

### Annex V. Figure 1. Ukraine: Corporate and Household Loans

### Annex V. Figure 1. Ukraine: Corporate and Household Loans

### Key charts and indexed series (as presented)
- Net Corporate Loans — Dec. 2021 = 100 percent.
- Net Corporate Loans in Hryvnia — Dec 2021 = 100 percent.
- Net Retail Loans — Jun. 2021 = 100 percent.
- New Mortgage Lending, UAH millions — chart axes and series markers shown with levels: 0, 200, 400, 600, 800, 1,000 (UAH millions).
- Selected percentage markers or series values shown on charts: 135%, 66%, 89%, 92%.
- Retail loan component series shown in charts: Housing loans, Car loans, Other loans.
- Series labeling in charts: State-owned, Foreign, Private, All banks; In hryvnia; In FX (USD equiv.); Fullscale war.
- Weighted average interest rate (r.h.s.) plotted alongside: series labels include Loans issued within the program “eOselia 3%”, Loans issued outside the programs, Loans issued within the program “Affordable mortgage 7%”, and Weighted average interest rate (r.h.s.).

### Banking sector developments and interventions (paragraphs and table)
- Several banks were intervened during the war; sanctions were imposed on Russian shareholders of some banks during the martial law period.
- Liquidity and/or viability pressures led the NBU to revoke licenses of several small banks; two banks were nationalized in 2023.
- State-owned banks (SOBs) accounted for 53.2 percent of total system assets and 65.1 percent of household deposits at end-July 2023.
- The number of licensed banks fell from 180 in 2014 to 64 as of August 2023.
- Table of bank events (Date — Bank Name — Percent of System Assets — Event):
  - Feb-2022 — International Reserve Bank (Sberbank) — 2.6 — Liquidation
  - Feb-2022 — Prominvestbank — 1.2 — Liquidation
  - Jun-2022 — Megabank — 0.3 — Liquidation
  - Aug-2022 — Bank Sich — 0.1 — Liquidation
  - Feb-2023 — Forward Bank — 0.1 — Liquidation
  - Feb-2023 — PIN Bank — 0.04 — Court order to nationalize
  - Mar-2023 — Ibox Bank — 0.1 — Liquidation
  - Jul-2023 — Sense Bank (formerly Alfa) — 3.2 — Nationalization
  - Aug-2023 — Concord Bank — 0.2 — Liquidation
  - Sep-2023 — Ukrbudinvestbank — 0.04 — Liquidation

### Financial sector strategy and authorities’ priorities
- A new financial sector strategy was approved in July 2023.
- Five strategic (short-term and medium-term) objectives highlighted: promoting macroeconomic stability; financial stability; the reconstruction of the country; modern financial services; institutional capacity of the authorities.
- Key elements of the strategy include:
  - Gradual unwinding of extraordinary prudential measures.
  - Diagnostics to quantify bank asset values and NPL resolution priorities.
  - Monitoring and tackling of non-performing loans.
  - Prioritized transposition of EU banking norms.
- The strategy provides a platform for coordination across the NBU, Ministry of Finance, National Securities and Stock Market Commission, and Deposit Guarantee Fund.

### Upside scenarios for medium- and long-term growth (Annex VI material)
- Strategic context:
  - Medium- and long-term growth post-war depends on high sustained investment, inward migration (return migration), re-building human capital, and an enabling business environment to support EU accession prospects.
  - Public sector plays an important role during reconstruction; public absorptive capacity, public investment management framework, and governance reforms are critical.
  - Pace of structural reform implementation in the EFF-supported program, the forthcoming EC Facility or conditions for EU accession would catalyze private investment.
- Staff illustrative upside scenarios incorporate:
  - Higher investment levels, absorption capacity, migration, productivity, and some real exchange rate appreciation given assumed capital and investment inflows.
  - A conservative elasticity of 0.2 to GDP is assumed consistent with the aid scale up scenarios.
  - The baseline assumes a medium-to long-term growth rate around 4 percent, lifting real GDP level to around 114 percent of the pre-war level by 2033.
  - Upside real GDP growth could reach up to 4.5–6.5 percent depending on migration inflows, investment levels, absorption capacity, and reform/TFP dynamics.
  - For high investment levels, staff assumes the bulk of investment must come from private sources given public absorptive capacity constraints.
  - Baseline assumes additional investments of around US $240 billion in the 10-year period to 2033 relative to the pre-war level in 2021.

- Selected assumptions and results (table values preserved exactly):
  - GDP growth, end of projection period (2033):
    - Baseline: 4 percent
    - Downside: 3.8 percent
    - Upside range: 4.5-6.5 percent
  - Investment to GDP, (2033):
    - Baseline: 25 percent
    - Downside: 20 percent
    - Upside range: 28- 33 percent
  - Total investment 2024-33 (relative to baseline):
    - Baseline: US$530 billion
    - Downside: US$340 billion (-US$190 billion)
    - Upside range: US$650-890 billion (+US$120 - 360 billion)
  - Net migration relative to end-2021:
    - Baseline: -2.1 million persons
    - Downside: -3.2 million persons
    - Upside range: -1.5 to 0 million persons

### Policy implications and recommended reform priorities (from staff analysis)
- Public investment management:
  - Increase efficiency of public investment and enhance prioritization to raise returns and crowd in private investment amid limited fiscal space.
- Encouraging return migration and boosting human capital:
  - Accelerate basic infrastructure rehabilitation, strengthen institutions, and support employment opportunities to encourage return migration; implement longer-term policies to increase skills that match high productivity sectors.
- Enabling business environment:
  - Encourage private investment (FDI and domestic private capital) to achieve required reconstruction investment and mitigate external stability risks as external official support declines.
- Advancing a comprehensive anti-corruption agenda:
  - Maximize use of donor funds for public investment, encourage private investment, and facilitate return migration by strengthening trust.

*Source: Annex V. Figure 1 and surrounding text, 1ukrea2023003 (IMF).*

### 13. In line with our commitment to transparency, we consent to the IMF’s publication of this

### Attachment I. Memorandum of Economic and Financial Policies

### I. Background, Recent Economic Developments, and Outlook — Context and Key Messages
- Russia’s invasion continues to cause "enormous human, social, and economic costs"; around a quarter of the population has been displaced; attacks on infrastructure and missile strikes continue.
- Termination by Russia of the Black Sea Grain Initiative and continued assault on ports have cut off a critical lifeline for Ukrainian grains to reach global markets.
- The Extended Fund Facility (EFF) arrangement, approved in March, helped mobilize an external financing package "now totaling US$122 billion over the program period" and anchors macroeconomic policy.
- Rapid damage needs assessment (RDNA) updates expected around February 2024; earlier estimate of long-term reconstruction needs "as of February 24, 2023" is "US$411 billion".
- EU accession progress: European Commission recommended opening accession negotiations on November 8, 2023; the "€50 billion Ukraine Facility for 2024–27" will be critical for budgetary needs, recovery, reconstruction, and modernization.
- EU acquis and integration through the Association Agreement and Deep and Comprehensive Free Trade Agreement are expected to support trade, revenue, and technology transfer.

### Economic Outlook — Recent Performance and Projections
- 2022: output declined "about 29 percent".
- 2023: recovery stronger than projected; sequential recovery strong as households and firms adapted and war-related expenditures supported demand. Key contributing sectors: defense industry, construction, and a strong harvest. FX markets stable; disinflationary trend continued; labor market shows signs of stabilization amid lower net migrant outflows.
- 2023 annual growth projection: "around 4 to 5 percent".
- 2024 annual growth projection: "3 to 5 percent".
  - Assumptions: available supply routes for exports; no further escalation of the war; uncertainty may temper investment, migrant return, consumption, and export availability.
  - If no significant worsening of the security situation and no protracted energy shortages, a war through end-2024 is not expected to materially impact economic performance.
- Inflation:
  - Peak end-2022: "26.6 percent y/y".
  - October 2023: "5.3 percent y/y".
  - Expected: "around 6 percent y/y by end-2023" and "slightly below 10 percent y/y by end-2024".
  - Contributing factors to disinflation: recovery of energy system, favorable FX conditions, better food and fuel supply, tight monetary policy, improving inflation expectations. Household electricity tariffs increased "by 60 percent from June" (impact on inflation described as minor due to a low base).
- Current account:
  - 2022 surplus: "US$8 billion".
  - 2023 expected to be negative due to a widening trade deficit driven by increased imports and subdued exports (loss of production capacity, logistical bottlenecks, termination of the grain corridor, trade restrictions).
  - Possible export supports: increased transport capacity via alternative routes (including Danube ports), export licenses with EU neighbors, and better-than-expected 2023/24 harvest.
  - Services balance expected to remain negative in 2023 due to withdrawals and card payments by Ukrainian migrants abroad; net outflow of migrants expected to be close to zero.
  - Gross international reserves estimated "to reach US$39.5 billion by end-2023", equivalent to "5.1 months of prospective imports".
- FX market conditions: spread between official and cash rates remained low "in the 3–5 percent for most of the year"; managed flexibility transition maintained low spreads despite seasonal pressures.

### Risks and Upside Scenarios
- Upside factors that could accelerate rebound:
  - Improvement in the security situation enabling faster migrant return, improved sentiment, swifter resolution of supply disruptions, and improved access to seaports (including "new corridor along the coasts of our neighboring countries in the Black Sea").
  - Successful resource-raising for recovery and repair projects.
  - Forceful structural reforms in context of EU integration, significant reconstruction investments, and private investment inflows.
- Downside risks (tilted to the downside amid exceptionally high uncertainty):
  - Prolonged or worsening security risks that depress sentiment and migrant return.
  - Further disruption to export transit routes or additional damage to energy infrastructure causing power outages or supply chain disruptions (including western border logistics).
  - Insufficient or delayed donor support, widening fiscal and external financing gaps.
  - Difficulty mobilizing much higher domestic financing.
- Policy readiness: authorities stand ready to take feasible fiscal measures, identify rapid tax or spending adjustments, secure additional domestic financing, and deploy foreign reserves to maintain FX market stability as needed. Partners stand ready to provide additional financial resources to close financing gaps and preserve debt sustainability.

### II. Macroeconomic and Structural Policies for 2023–27 — Strategy Overview
- Two-phased approach given large uncertainty:
  - First phase: maintain macroeconomic, external, and financial stability; robust budget remainder of 2023 and in 2024; medium-term fiscal framework to anchor fiscal policy and financing-gap assessment; managed flexibility of the exchange rate to strengthen resilience; implement preparatory reforms in fiscal structural areas, financial sector, monetary and exchange rate policies, governance, anti-corruption, and energy sector; safeguard social spending to the extent possible.
  - Second phase (post-war tapering): shift focus to expansive reforms to entrench macro stability, support recovery and early reconstruction, promote growth, and restore medium-term external viability; revert to pre-war policy frameworks as conditions allow, including completing transition toward an inflation targeting regime; advance reforms to enhance productivity and competitiveness and leverage EU accession progress.
- Commitment to respond decisively under a downside scenario by implementing fiscal measures and seeking additional external and domestic financing while preserving stability and debt sustainability.
- Emphasis on policies to achieve high sustained growth via catalyzing investment, supporting inward migration, rebuilding human capital, improving business environment, and enabling private and foreign direct investment absorption through post-war reconstruction frameworks.

### B. Fiscal Policy — Recent Performance and Policy Stance for 2023
- Fiscal objective: ensure adequate resources for core spending priorities while safeguarding fiscal and debt sustainability; refrain from tax policy/administrative measures that erode the tax base in 2023 and beyond; consult IMF staff before revising spending categories and identify financing sources.
- Fiscal results and requests for end-December 2023 modifications:
  - Non-defense cash primary balance excluding grants:
    - Outturn end-June: "UAH 278.9 billion" versus program floor "UAH 213.0 billion" (Quantitative Performance Criterion).
    - Outturn end-September: "UAH 404.9 billion" versus indicative target "UAH 242.9 billion".
    - Request: modify end-December floor to "UAH 105.0 billion".
  - Overall balance excluding grants (Indicative Target):
    - End-June: "UAH -660.3 billion" versus floor "UAH -730 billion".
    - End-September: "UAH -1,027.5 billion" versus floor "UAH -1,141.1 billion".
  - Tax revenues (excluding social security contributions):
    - End-June outturn: "UAH 748.0 billion" versus target "UAH 696.4 billion" (Quantitative Performance Criterion).
    - End-September outturn: "UAH 1,187.7 billion" versus floor "UAH 1,094.7 billion".
    - Request: modify end-December 2023 floor on tax revenues QPC to "UAH 1,654.0 billion".
    - Note: some local government tax categories underperformed due to deviations in macro parameters (wage growth, gas prices, exchange rate); fourth-quarter 2023 tax revenues likely to fall short of expectations; recent blockages at western border crossings may affect import-related tax collections.
  - Accumulation of overdue accounts payable (domestic arrears) (Indicative Target):
    - End-June: "UAH 1.62 billion" below ceiling "UAH 4.5 billion".
    - End-September: "UAH 1.69 billion" below ceiling "UAH 3.0 billion".
  - Ceiling on publicly guaranteed debt (Quantitative Performance Criterion):
    - Issuance through June: "UAH 17.7 billion" consistent with adjusted ceiling "UAH 48.9 billion".
    - End-September indicative target: "UAH 19.6 billion" against adjusted target "UAH 48.9 billion".
  - Social spending:
    - End-June: "UAH 276.1 billion" (UAH 27.1 billion above Indicative Target "UAH 249 billion").
    - End-September: "UAH 402.6 billion" versus floor "UAH 359.6 billion".
    - Elevated social expenditures justified by protection needs for vulnerable populations affected by the war.

*Source: Attachment I. Memorandum of Economic and Financial Policies (Excerpt).*

### 12.      Our expenditure policies for the remainder of 2023 aim to accommodate core

### 1ukrea2023003 - 12.      Our expenditure policies for the remainder of 2023 aim to accommodate core

### Expenditure policy stance for remainder of 2023
- Aim: accommodate core priorities, contain additional spending pressures, and provide some room for recovery and reconstruction.
- Commitment to resist expenditure pressures on non-core categories of spending given priority for the conduct of the war and high contributions from international donors and partners.
- New initiatives that increase current expenditures will require full financing through identified new resources or compensating fiscal measures.
- Continue to operate strong commitment controls and maintain strict oversight of budget execution by key spending units.

### Revenue mobilization and tax administration (policy commitments and recent measures)
- Commitment to achieving much needed revenue mobilization.
- Adoption of Law No. 8401 in July 2023:
  - Reinstated the pre-war setup for taxpayers who moved from the universal tax regime to the single tax, with effect from August 2023.
  - Reintroduced enforcement of the use of cash registers in retail outlets, including restoring liability for violations.
  - Canceled moratoria on tax audits only for a limited set of taxpayers.
- Determination to fully reinstate tax audits; legislation adopted by parliament on November 8 (¶17) to this effect.
- Earlier measures: canceled deferrals on customs duties from March 1, 2023, and remaining deferrals on import duties as of June 1, 2023.
- Will not extend Tax Code provisions introduced during Martial Law that relaxed administration of taxes and fees.
- Will refrain from introducing tax amnesties for the duration of the program or any tax measures jeopardizing the tax base.
- Measures to support imports related to national defense and security will be targeted, timebound, controlled, and subject to oversight.

### Supplementary budget 2023 and fiscal outturn expectations
- Supplementary budget adopted on October 6, 2023, to reflect greater-than-expected expenditure needs triggered by the war.
- Authorizes additional essential expenditures of UAH 311.1 billion on national defense and social protection.
- Increased envelope for social protection to enhance support to internally displaced persons.
- Plan to mobilize new funding from the local bond market to cover a large part of these new spending needs.
- With the supplementary budget, expected 2023 general government fiscal deficit excluding external grants: UAH 1.88 trillion, or about 29.3 percent of GDP.
- The supplementary budget widened the deficit excluding grants by UAH 208 billion (3.2 percentage points of GDP) since the First Review.
- 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.

### Fiscal policies for 2024 (budget and financing)
- Budget for 2024 approved by Parliament on November 9, 2023.
- Budget submitted for second reading targets an overall deficit excluding external grants of UAH 1,562 billion.
- Expenditure envelope envisages maintaining high defense-related expenditures; other areas contained while allocating resources for social safety net for war veterans and vulnerable layers.
- Guarding against spending pressures given narrow non-defense expenditure envelope; ensure key spending units adhere to expenditure envelope limits consistent with fiscal and debt sustainability.
- Deficit to be largely financed by international donor support, with important contributions from the domestic market.

### Revenue measures and contingency planning for 2024
- Reinstated pre-war tax framework, including excises on fuel.
- Adopted law to reinstate tax audits for all taxpayers from December 1st, 2023, except taxpayers whose tax address is located in temporarily occupied territories and combat zones (¶13).
- Budget for 2024 allocates personal income tax revenues between the state and local budgets to ensure adequate resources for critical expenditure programs without jeopardizing local authority independence.
- Stand ready to take additional domestic revenue measures to safeguard fiscal stability in extraordinary circumstances (¶22).
- National Revenue Strategy (NRS) to identify durable measures over the medium term.

### Medium-term fiscal framework and targets
- Plan to complete a treatment of external public debt to bring debt and gross financing needs back to manageable levels (¶40-42).
- Implement a revenue-based fiscal adjustment over the coming years and seek concessional financing where possible (¶19).
- Budget 2024 includes budget projections with key revenue and expenditure categories for 2025-26.
- Guiding principle: keep the spending envelope within the available financing envelope, including tax revenue mobilization.
- Reform efforts in tax policy and administration aim to mobilize 3-4 percent of GDP in additional revenues during 2024-2027, as prescribed by National Revenue Strategy (NRS).
- Part of revenue mobilization and reduction in defense expenditures will be directed toward improving the fiscal balance.
- Target a primary fiscal surplus consistent with debt sustainability.
- Some space from reduced defense expenditures and domestic revenue mobilization will be directed to capital and social spending, including reconstruction and newly emerging vulnerable groups.
- Anchor path to reforms in governance of public resources, public finance and investment management, and higher quality public and social services.

### Recovery and reconstruction financing approach
- Update to the RDNA expected to be published in February 2024; will assess damages and identify priorities for recovery and reconstruction initiatives.
- Recovery activities to be evaluated for financing mix and will need financing on highly concessional terms.
- Reconstruction financing mechanisms to be consistent with integrated public investment management and fit into the medium-term budget framework while maintaining fiscal stability and debt sustainability (see ¶33).

### Fiscal structural reforms (objectives and priorities)
- Aim: anchor the medium-term fiscal path, maintain fiscal and debt sustainability, and lay foundations for long-term growth.
- Post-war reallocation: as defense spending winds down, channel resources to recovery, reconstruction, and social safety net.
- Substantial changes to pension and social safety nets, including improved targeting and means-testing mechanisms for social assistance in line with World Bank (WB) and social policy concept note.
- Structural reform focus areas (supporting medium-term spending, development goals, and EU accession):
  - (i) Raise adequate revenues to meet reconstruction and social spending needs via efficiency, fairness, and simplicity of tax system; implement a home-grown multi-year NRS.
  - (ii) Prepare public investment and public financial management for post-war era by strengthening public investment processes, project management cycle, and commitment controls.
  - (iii) Enhance fiscal transparency and management of fiscal risks.
  - (iv) Ensure fiscal sustainability and predictability by strengthening interlinkages between MTBF, reconstruction priorities, and public investment management; keep fiscal risks from state-owned companies under control.

### Short-term revenue mobilization policies (specific measures and targets)
- Adopted law on taxation of banks’ profits (temporary increase in corporate income tax on banks from 18 to 50 percent applied on net profit), expected to generate about 0.3 percent of GDP to meet deficit financing needs during 2024.
- Plan to increase banks’ CIT from the current 18 to 25 percent for 2025 and subsequent fiscal years to align with international peers.
- NRS will include discussion on principles of corporate excess profits taxation for extraordinary circumstances.
- By December 11, establish a working group complementing NRS preparation to formulate a proposal with a package of short-term revenue measures (tax and non-tax) that would yield additional revenues of at least 0.5 percent of GDP in 2024 (Proposed Structural Benchmark, end-February 2024). These measures could be activated in 2024 should additional spending pressures materialize.
- Will request IMF TA in preparation of this proposal.

### National Revenue Strategy (NRS) objectives and contents
- NRS anchor for tax policy and administration reforms to allow increase in tax revenues by about 3.0-4.0 percent of GDP over the program period.
- June: finalized NRS gap analysis with IMF TA and identified priority reforms in specific tax categories for NRS (2024-2030), focusing on labor taxation/personal income taxation, corporate income taxation, and excise.
- On track to adopt the NRS by end-2023 (Structural Benchmark, end-December 2023).
- NRS to include:
  - Measures to strengthen state tax and customs services.
  - A revised simplified tax regime to address erosion of labor taxes by moving legal basis for labor relations to civil law.
  - Alignment of VAT and excise duties with the EU acquis.
  - Steps to enhance corporate income taxation.
  - Strengthening anti-corruption measures and governance procedures to address integrity risks.
  - Tax reforms balancing revenue base needs with supporting EU accession, environmental reforms, and post-war reconstruction and recovery.
  - Broad development objectives (social, infrastructure) to justify ambitious revenue targets.
  - Revenue mobilization targets with specific revenue gains from reforms of core tax categories.
  - Medium-term/post-war tax reforms (e.g., the single tax regime), risks and contingencies.
  - Assessment of effectiveness of tax privileges, including their cost to the budget (Proposed Structural Benchmark, end-July 2024).
  - Guidance for coordination among government agencies, donors, the private sector and civil society on tax policies and administration led by the MoF.

### Strengthening tax and customs administration
- State Tax Service (STS):
  - Adopted action plan to take on board recommendations of survey completed in November 2022.
  - July 2023: STS approved list of measures to reduce tax arrears based on analyses distinguishing arrears related to/caused by Russian military aggression and occupation and those not impacted by the war.
  - STS to perform periodic exercises and review action plan as progress occurs and more analyses become available.
  - NRS gap analysis identified critical STS reform areas: implementation of a compliance risk management framework, strengthening integrity and trust in STS, creating and implementing modern digital solutions aligned with MOF IT Strategy, and improving organizational structure and staffing.
- State Customs Service (SCS):
  - Following SCS diagnostics with IMF TA in June 2023, focus on three reform areas to reduce corruption risks:
    - Adopt legislation reinstating customs post-clearance audit effective March 1st, 2024 to complement reinstatement of tax audits.
    - Adopt and implement legislation to criminalize large-scale customs fraud and smuggling of all goods.
    - Reforms of HR and compensation policies; improve operational management from headquarters including centers of excellence; move verification/checking of customs documents from border crossings to inland offices.
- SCS and STS prepared comprehensive action plans identifying short- and medium-term reform priorities (Structural Benchmark, end-October 2023), to be included in the overall NRS ahead of end-December SB deadline.

### Economic Security Bureau of Ukraine (ESBU) reforms
- Adopt a new law on the ESBU to:
  - Provide a clear mandate and scope for investigative powers focusing on major economic crimes and strengthen analytical capacity.
  - Maintain delineation between investigative powers of ESBU and National Anti-corruption Bureau of Ukraine (NABU).
  - Establish legal basis for ESBU operations to:
    - Develop an open, transparent and competitive process for selection of management and staff.
    - Strengthen requirements for the selection commission.
    - Introduce a contract system for employees.
    - Develop a mechanism of attestation of staff (Proposed Structural Benchmark, end-June 2024).
- Ensure capacity of STS and SCS to effectively address violations in tax and customs spheres.

### Restoring and strengthening the Medium-Term Budget Framework (MTBF)
- Steps taken towards repealing Martial Law provisions impeding policies that anchor fiscal sustainability and budget predictability:
  - Reinstatement of MTBF, medium-term debt strategy (MTDS) and fiscal rule that ringfences risks from guarantees.
  - Reinstatement and strengthening of Article 52 of the Budget Code supporting budget credibility.
  - Inclusion of contours of the 2025–2026 budget projections in the 2024 draft budget and a fiscal risks statement including details on energy and critical infrastructure SOEs.
- With IMF TA, produce a diagnostic review of pre-war MTBF policies and practices relative to best practices (Proposed Structural Benchmark, end-October 2024).
- Based on diagnostic review, prepare proposals to strengthen medium-term budget planning reflected in instructions for formulation of 2026-2028 Budget declaration and 2026 Budget.

### Pensions and social spending reforms
- With World Bank TA, preparing modifications to pensions system and mechanisms to support vulnerable layers:
  - Pensions:
    - Work on a comprehensive conceptual framework to improve the pension system and review possibility of introducing a second pillar when conditions are in place.
    - Any proposed legal amendments that increase pension expenditures must be accompanied by a medium-term fiscal and debt sustainability analysis and clear identification of necessary resources in amendments to the Pension Fund of Ukraine budget.
    - Will refrain from: (i) introducing new special pensions or privileges; (ii) providing further discretionary benefit increases; (iii) modifications that would lower the legally defined retirement age.
  - Mechanisms to support vulnerable groups:
    - August 2023 government decree enhances targeting and means testing of benefits for Internally Displaced Persons (IDPs), determining eligibility and procedures for living allowance.
    - Plan to sharpen objective, calculation formula, target coverage, budgetary implications and graduation conditions.
    - Specifically plan to increase the income threshold for eligibility under the Guaranteed Minimum Income (GMI) program.

*Source: 1ukrea2023003 - 12. Our expenditure policies for the remainder of 2023 aim to accommodate core (PDF).*

### 29.      Measures to enhance fiscal transparency and address fiscal risks remain an important

### 1ukrea2023003 - 29.      Measures to enhance fiscal transparency and address fiscal risks remain an important

### Fiscal transparency and fiscal risk management
- Significant progress made in strengthening the Fiscal Risk Statement (FRS) attached to the budget 2024.
- Planned enhancements:
  - Include a consolidated view of financial performance analysis and stress testing across major SOEs.
  - Strengthen policies and practices for feeding FRS analysis into annual budget preparation and integrating fiscal risks at all stages of the budget cycle.
- Methodological guidance will be developed for assessing fiscal risks in key spending areas and contingent liabilities, including PPPs, guarantees, and SOEs, and will be integrated into early stages of the budget cycle to inform budgetary decisions.

### SOE stress testing and risk assessment
- Continue strengthening SOE stress testing under different scenarios, building on recent IMF TA on risk assessment and SOE stress testing.
- Proposed Structural Benchmark: identify major public companies severely affected by the war and prepare an assessment of their potential fiscal and quasi-fiscal costs (Proposed Structural Benchmark, end-September 2024).
- Will request further IMF TA to support the assessment.

### Guarantees, PPPs, and related policy actions
- With IMF TA, the MoF will finalize development of risk-based fees for guarantees and amend the existing decree.
- Will publish a list of PPPs and prepare a review of associated risks and potential impact on the 2025 Budget and onwards by end-September 2024.
- Quantitative Performance Criterion: continue to strictly limit the issuance of guarantees (see ¶42), consistent with reinstatement of the articles of the Budget Code, with space for IFI and foreign government loan guarantees for recovery and reconstruction projects.

### Business Development Fund (BDF) and 5-7-9 loan program
- Continue monitoring fiscal risks related to the 5-7-9 loan program.
- Concept note under preparation to:
  - Target the program on small and medium enterprises by phasing out eligibility of large companies.
  - Enhance monitoring and maintain adequate safeguards.
- MOF initiated phasing out large company eligibility; draft regulation under approval by other governmental bodies.
- MOF has clarified roles with MOE: MOF to handle policy development, controlling and monitoring of spending, and the return of the 5-7-9 loan program to MOF management.
- MOF plans to release the draft by end-December 2023 and, in collaboration with the IMF, aims to complete the concept note by end-March 2024 (Structural Benchmark, proposed to be reset for end-March 2024).
- Independent assessment of the Business Development Fund and its support programs commissioned to refine operational design to serve SMEs facing substantial barriers to funding.
- Ongoing work to strengthen governance and financial self-sustainability of the Business Development Fund.

### Transparency of budgetary funds and special accounts
- Fund for the Liquidation of the Consequences of the Armed Aggression:
  - Served its purpose in Budget 2023; available resources expected to be exhausted by end 2023.
  - Will strengthen operational framework to facilitate rapid response to urgent recovery needs.
  - Integrated in treasury reporting; operations will continue to be reported consistent with a regular consolidated report summarizing sources of financing and expenditure (economic classification) in one report.
  - Continue work on legal framework to enable use of sanctioned and confiscated Russian assets for reconstruction and recovery.
- Special accounts:
  - Operationalized new legal framework for integrating special accounts into the budget framework and started receiving treasury reporting for use of funds.
  - Will strengthen transparency and accountability, improve reporting on sources and usage and opening/closing balances, and undertake periodic audits of transactions reflected in special accounts.

### Strengthening Public Investment Management (PIM)
- Objective: enhance efficiency of public investment consistent with medium term budget and debt sustainability objectives; channel resources to projects with greatest value for money while supporting recovery and growth.
- Building on EU4PFM and World Bank Public Investment Management Diagnostic Assessment Report 2022.
- With World Bank TA, reviewing PIM procedures and developing 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 provided to the MoF, including a clear gatekeeping role during different stages of the investment project cycle.
- Adapted national e-procurement system to comply with international competitive bidding standards used by Multilateral Development Banks.
- Proposed Structural Benchmark: operationalize the roadmap with a government decree and specific action plan/timeline establishing linkages between the MTBF and national reconstruction priorities and specifying a gatekeeper role for the MoF (Proposed Structural Benchmark, end-December 2024).

### Financing strategy and external assistance
- Timely external financing on appropriately concessional terms is essential.
- As of end-October 2023, external budget support disbursements of US$35.4 billion (including the IMF) have been received.
- Over next 12 months of the IMF-supported program (December 2023–December 2024), firm financing assurances are in place from official, multilateral, and bilateral commitments.
- Key partners have assured continued support beyond December 2024 to help ensure the program remains fully financed over the program period.

### Mobilizing domestic financing and debt management
- Will strengthen efforts to mobilize domestic financing consistent with macroeconomic and financial stability and debt sustainability.
- Objective: maximize issuance of domestic government securities in the primary market with an objective of obtaining net positive financing in the fourth quarter of 2023 and in 2024.
- As of October 31st, raised UAH 452 billion in the primary market in 2023, achieving a year-to-date rollover rate of 137 percent, providing net financing to the budget of about UAH 123 billion or US$3.4 b illion.
- About 65 percent of gross hryvnia issuance raised through designated benchmark bonds that banks may use to meet reserve requirements.
- Continue matching issuance yields and maturities to market demand and lengthening maturities.
- Reserve requirement mechanism contributed to improved rollover rates; plan to study liquidity flows, including bank-by-bank, to develop targeted strategies to encourage increased uptake of government bonds via a joint Working Group under the Financial Stability Council (FSC), established in April 2023.
- Updated and published Medium-Term State Debt Management Strategy on October 27, 2023 (Structural Benchmark, end-October 2023); plan to update MTDS after external commercial debt treatment is concluded in 2024 to reflect debt operation outcomes by end-2024.
- Commit to strengthen capacity of the Debt Management Agency, including increasing staffing and training.
- Support development of domestic debt market, including benchmark securities outside the reserve requirement mechanism; undertake efforts to expand and diversify investors, encourage return of non-residents, and restore international capital market access.

### Avoiding monetary financing and treasury management
- Committed to avoiding monetary financing; monitored by a ceiling on general government borrowing from the NBU (Indicative Target).
- If unexpected critical financing needs or delays in external disbursements occur, first explore drawing down excess government deposits and borrowing additional funds from the government debt market; request monetary financing from the NBU only as a last resort and in strictly limited amounts.
- Strengthen treasury cash and liquidity management to reduce volatility and transaction costs of treasury resource management; requested IMF TA to review and diagnose main areas of improvement, starting with liquidity in the treasury single account.

### External debt treatment strategy
- Announced intention to proceed with debt treatment of external public debt on March 24.
- Strategy aims to close financing gaps during the program, reduce gross financing needs to manageable levels, place public debt on a sustainable path, and create conditions for private sector participation in post-war reconstruction while preserving financial stability.
- Hired external financial advisors and committed to a credible transparent process; continue engagement with private creditors.
- Debt treatment elements:
  - Official bilateral debt: Paris Club committed to a two-step process extending the current debt standstill that expires at end-December 2023 throughout the program period, coupled with an assurance to deliver a final debt treatment sufficient to restore debt sustainability before the final review of the IMF-supported program; will seek comparable terms with other official creditors.
  - External commercial debt: August 2022 agreement with international bondholders included a voluntary 24-month deferral of debt service on Ukraine’s direct and state-guaranteed Eurobonds and similar deferrals on some non-guaranteed external commercial debt; plan to begin discussions with commercial creditors shortly after this review, targeting completion of needed debt operation no later than mid-2024, with terms consistent with IMF macroframework and DSA parameters.

### Monetary and exchange rate policy stance and liquidity
- Objectives: safeguard price and external stability and ensure adequate international reserves amid high uncertainty from the war.
- Inflation outlook and policy:
  - Expect inflation at around 6 percent by end-2023 and around 10 percent by end-2024; medium-term trend toward the 5 percent target expected if conditions evolve; upside risks remain, notably from the security situation.
  - Headline and core inflation have declined faster than expected; inflation expectations have fallen.
  - From July MPC meeting, key policy rate cut by a cumulative 900 bps to 16 percent; de facto easing cycle began in April with a reduction in interest rate on overnight CDs by 700 bps cumulatively to 16 percent.
  - Envisage a further policy rate cut in December 2023; easing cycle in 2024 will continue if risks to external sustainability and inflation subside while maintaining appropriate real interest rates.
- Liquidity management:
  - Structural surplus of liquidity remains high; stock of overnight CDs amounted to UAH 490 billion as of end-October 2023.
  - Reserve requirement tightening (by a cumulative 20 percentage points since December 2022) and adjustment by maturity and currency helped contain growth in structural liquidity surplus, supported the primary market for government bonds, and induced banks to compete for term deposits.
  - Strategy: prudently manage liquidity while preserving space for banks to participate in government bond auctions to prevent monetary financing; continue close monitoring of liquidity conditions, timing and size of flows, and design measures as needed.

*Source: 1ukrea2023003 - 29.      Measures to enhance fiscal transparency and address fiscal risks remain an important*

### 46.      We continue to adjust the operational design of our monetary policy framework to

### 1ukrea2023003 - 46.      We continue to adjust the operational design of our monetary policy framework to

### Monetary policy operational design and instruments
- Effective April 7, we introduced three-month certificates of deposit at the KPR, where the volume of issuance was conditional on the stock and growth of banks’ term-deposits with maturity longer than 3 months.
- Outcomes observed:
  - Increase in the real rate of return (notwithstanding the easing cycle).
  - Increase in the total volume of hryvnia term deposits in the banking system.
  - Helped individuals preserve the value of their hryvnia savings and support FX market stability.
- Ongoing actions:
  - Continue to study the effect of this instrument amid the easing cycle and fine tune the parameters as needed to support bank competition and sustain a positive real return on hryvnia assets.
- October 26 operational adjustment:
  - Shifted from a corridor system to a floor system in view of abundant liquidity in the banking system.
  - Majority of interbank operations are liquidity absorptions, and at the overnight CD (the standing facility).
  - Shifting to a floor system aligned the de jure KPR with the de facto main overnight CD instrument, restoring the role of the KPR in operational design and increasing the effectiveness of communications around the KPR.
- Near-term and medium-term intentions:
  - Continue to ensure that the parameters on standing facilities are consistent with the appropriate monetary policy stance.
  - Over time, and consistent with the evolution of liquidity conditions, may consider introduction of instruments beyond an overnight maturity to achieve, among other objectives, an increase in the average maturity of our sterilization operations as well as eventually reverting to a two-way corridor.

### Exchange Rate Policies
- NBU FX operations and reserves:
  - NBU continues to be a net seller of FX (US$46.5 billion between February 24, 2022, and end-September 2023).
  - Supported by sizable official inflows, FX reserves have reached record highs.
- FX market developments:
  - Recalibration of FX controls and monetary policy actions aimed to improve the attractiveness of hryvnia assets have helped keep exchange rate expectations under control and ease pressure on the FX market.
  - In recent months, the spread between the official exchange rate and the exchange rate on the cash segment of the FX market has stabilized around 3-5 percent.
- Exchange rate regime transition:
  - NBU has embarked on a successful transition from the exchange rate peg to a regime of managed flexibility.
  - Preconditions for moving the exchange rate peg were met, including declining inflation and inflation expectations, high FX reserves and stability in the FX market.
  - Transition initiated from a position of strength, with the exchange rate moving in both directions in response to market conditions.
  - Continued close monitoring of the FX market to ensure external stability and safeguard FX reserves.
  - Intend to facilitate the functioning of the FX cash market to ensure a low and stable spread, including by easing access to noncash FX and increasing cash FX supply depending on market conditions.
- Reserves and program targets:
  - Intend to maintain adequate FX reserves through the course of the program.
  - FX reserves reached record levels as of September 2023, allowing comfortable meeting of end-June Quantitative Performance Criteria and end-September Indicative Target on net international reserves.
  - Requesting a modification to increase the QPC on the NIR floor for end-December 2023 and the IT for end-March 2024 by US$8.4 billion to US$24.9 billion.
- FX controls adjustment:
  - Plan to carefully adjust FX controls to support the economic recovery, while maintaining FX market stability and addressing national and international security considerations.
  - Will maintain generally the existing controls on FX transactions and continue to monitor and enhance effectiveness, but intend to selectively ease FX controls to meet the needs of the economy.
  - Selective easing expected to ease pressure on the FX cash market, anchor exchange rate expectations, and help eliminate the three remaining multiple currency practices over time.

### NBU Independence and governance
- Monetary financing and safeguards:
  - No monetary financing of the budget deficit in 2023.
  - NBU and MoF developed, in consultation with the IMF, a framework stipulating preconditions and procedures for short-term advances to accommodate temporary liquidity shortfalls for the duration of Martial Law.
  - Will avoid indirect forms of monetary financing outside core NBU functions (e.g., directed provision of liquidity to banks for purchase of government securities on the primary market).
  - Commit to refrain from using NBU profit for earmarked spending in 2024 and will direct this revenue category to the General Fund of the State Budget.
  - Direct financing of off-budget programs by the NBU will be avoided altogether.
- Institutional independence and governance enhancements:
  - Remain fully committed to upholding the independence and institutional effectiveness of the NBU.
  - Will ensure strong governance arrangements within the NBU.
  - Introduced 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, and will further strengthen safeguards to ensure timely fulfilment of the MoF's obligations to the NBU.
  - Continue adhering to profit retention rules and ensure distribution of NBU profits to the state budget takes place in line with procedures established by the NBU Law.
  - Acknowledge that costs on monetary policy implementation via liquidity absorption (interest expenses on NBU CDs) are necessary and justified to support macroeconomic stability.
- Financial reporting and European integration preparations:
  - Will improve the conceptual framework and content of the NBU’s financial reporting to align with European national central banks and the legal framework for accounting and financial reporting in the European System of Central Banks (ESCB), with IMF and other partners’ technical assistance.
- Unwinding wartime measures:
  - Intend to carefully unwind unconventional wartime measures when conditions permit, ensuring measures are well-targeted, clearly communicated and time bound.
  - Commitment to phase out war-time measures to strengthen monetary policy toolkit, safeguard NBU credibility and independence, and support eventual return to an inflation targeting framework.

### Financial sector stability, strategy, and reforms
- Emergency measures and system resilience:
  - Wide-ranging emergency measures have preserved financial stability.
  - Banks entered the war well-capitalized and liquid thanks to cleanup since 2014.
  - Majority of bank branches remained operational; online banking services available to clients with internet connectivity; non-cash payment system functioning normally; liquidity recovered for most banks.
  - Introduced “Power Banking” in late 2022: a network of over 2,000 bank branches capable of providing services during prolonged blackouts.
  - Licenses of eight small banks (around 4 percent of system net assets as of August-2023) have been revoked under Martial Law and one bank (also around 4 percent of system assets) was nationalized.
- Updated financial sector strategy:
  - 2021 financial sector strategy updated in consultation with IMF staff as a living document with periodic review, modification, and action plans with implementation milestones.
  - Key elements include:
    - (i) coordinated steps to safely unwind exceptional measures (aim to unwind most emergency prudential measures by end-March 2024 if conditions allow);
    - (ii) diagnostics to quantify bank asset values and NPL resolution priorities;
    - (iii) framework to safely address potential vulnerabilities;
    - (iv) 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.
  - Non-market sensitive parts of the strategy published in August 2023.
- Bank diagnostics and supervisory actions:
  - NBU undertaking detailed bank diagnostics to ensure prudent and consistent valuation of banks’ assets, informing triage and modalities of eventual balance sheet cleanup.
  - In line with Terms of Reference adopted January 2023, will:
    - (i) complete an independent asset quality review (AQR) once conditions have stabilized;
    - (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 will remain until after independent AQR findings have been 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.
- Fiscal and contingency planning:
  - Additional temporary tax on banks’ profit effective for 2024 will be introduced so it will not distort income structures, nor create financial stability risks or monetary transmission imbalances.
  - Announcement of permanent increase in CIT on banks' profits, after temporary measure expires, to provide planning stability and help banks prepare balance sheets.
  - NBU will take impact of tax into account in banks’ capital management plans.
  - NBU and Deposit Guarantee Fund (DGF) prepared contingency plans to respond to further potential high-impact events; Financial Stability Council approved related plans.
  - Continue focus on timely recovery of value from historical NPLs and assets of resolved banks whilst maximizing recovery of economic value.
- Bank rehabilitation and resolution framework (benchmarks and timelines)
  - DGF, MoF and NBU will prepare a bank rehabilitation framework in consultation with IMF staff (Structural Benchmark, proposed to be reset for end-December 2024) including:
    - (i) financial backstop mechanisms and improvements to the DGF’s financial position;
    - (ii) measures to strengthen operational readiness, including regularly updated bank recovery and contingency plans;
    - (iii) improving procedures to implement bank resolution tools and early intervention measures, including temporary administration for anti-crisis management;
    - (iv) alignment of the NBU’s frameworks for counterparty eligibility in monetary policy operations and for lender-of-last-resort operations with international best practice.
  - Interim steps:
    - DGF and NBU to prepare in consultation with IFI stakeholders:
      - (i) a diagnostic note by end-February 2024 to assess current bank resolution infrastructure; and
      - (ii) based on the diagnostic, a roadmap by end-April 2024 setting out the reform agenda to strengthen resolution and crisis-management capacity and to close key outstanding gaps by end-December 2024.
- State ownership and privatization strategy
  - All decisions will be consistent with overall strategy to reduce state ownership in the banking sector.
  - Any decision potentially increasing state ownership will be taken in consultation with IMF staff and be strictly limited to preserving financial stability and national security during Martial Law.
  - All banks with majority state ownership will remain under MoF responsibility and any nationalized non-systemic banks will be immediately transferred to the DGF for resolution (Proposed Continuous Structural Benchmark).
  - Planned steps:
    - Prepare and implement a framework to inform decisions on any additional banks coming under State control to preserve value, ensure effective operational management, and reach decisions on future of such banks.
    - Continue analysis on state of banking system and wartime developments; consider updates to general SOB strategy and those for individual SOBs prior to independent AQR; use AQR results to update strategies including with respect to privatization.
    - Review and update as necessary the 2012 draft law on SOB privatization in consultation with IFIs and submit it to Parliament by end-March 2024.
    - Develop strategies for the Ukrainian Financial Housing Company and Export Credit Agency by end-November 2024 to align with general targets of financial sector development.
- Alignment with international good practice and legal/regulatory reforms
  - Financial reporting:
    - Restore legislative obligations to submit financial statements and audit reports for financial institutions for the 2023 financial year, and for business entities located outside the occupied territories for the 2024 financial year.
  - Bank capital rules:
    - Undertaken gap analysis relative to the EU Capital Requirements Directive and Regulation.
    - Will close identified gaps in the regulatory capital structure by end-December 2023, and will close other gaps by end-December 2024.
  - Property valuations law:
    - State Property Fund (SPF) will consult with stakeholders and by end-March 2024:
      - (i) in coordination with the World Bank, develop provisions to improve draft amendments to the law registered in Parliament “On Valuation of Property, Property Rights and Professional Valuation Activities in Ukraine” (#7386) that close gaps with international valuation standards;
      - (ii) propose an implementation roadmap with transitional arrangements, supportive regulation/guidance, and steps to strengthen the profession including additional requirements and specialized licensing for valuation of banking assets, insurance assets and collateral.
  - Immovable property databases and indices:
    - NBU and Ministry of Justice will consult with stakeholders and prepare a detailed proposal by end-March 2024 to introduce:
      - (i) a publicly accessible database of real estate transaction prices that includes detailed metadata including structural parameters of primary and secondary market; and
      - (ii) residential and commercial property price indexes.
    - Based on the proposal, NBU will prepare a framework for development and annual publication of property price index forecasts.
  - Bank remuneration:
    - NBU will strengthen the framework for remuneration policies of banks by end-December 2023 to introduce requirements to limit variable compensation and payment mechanisms for senior bank management, aligning with EU standards (Articles 92-96 of Directive 2013/36/EU and Commission Delegated Regulation (EU) No 2021/923).
  - Virtual assets:
    - NBU and NSSMC will prepare an update of the legislation with input from IMF technical assistance and in consultation with IMF staff by end-June 2024 to align with international best practice while considering economic development goals and mitigating price and financial stability risks.

*Source: 1ukrea2023003 - 46.      We continue to adjust the operational design of our monetary policy framework to*

### 62.      We are fully committed to further strengthening banking supervision.

### 1ukrea2023003 - 62.      We are fully committed to further strengthening banking supervision.

### Banking supervision: governance, structure, and on-site oversight
- Governance and oversight actions in 2023:
  - Separated the related-parties unit from banking supervision.
  - Strengthened Supervisory Committee decision-making by implementing “supervisory panels” as a consulting body to the Committee to provide additional independent review by relevant subject matter experts.
  - Resumed scheduled onsite inspections for both banking and non-banking institutions, while ensuring NBU discretion on matters related to staff safety.
- Objectives of supervisory panels:
  - Foster challenge of recommendations of supervisory teams.
  - Promote horizontal communications among stakeholders.
  - Promote consistency in decision making and highlight issues needing special attention.
- Evaluation commitment:
  - Undertake a survey of the effectiveness of the new supervisory panels by end-September 2024 in consultation with IMF staff.
- Transition to risk-based supervision:
  - Prepare and implement a supervisory risk assessment methodology to inform supervisory engagement priorities (Structural Benchmark, end-June 2024).
  - Apply this methodology to all banks and prepare a supervisory action plan by end-December 2024.
  - Adjust organizational structure for bank supervision to leverage efficiencies during transition to risk-based approach.
  - Develop professional profiles and a multi-year training program for new hires to improve professional capacity of bank supervision.
- AML and banking supervision:
  - Continue strengthening oversight of banks and payment service providers.
  - Improved oversight of gambling businesses resulted in a ten-fold increase in tax collections from the gambling business in 2023 relative to 2022.

### Non-bank financial institutions (NBFIs) and financial markets
- Beneficial ownership:
  - NBU required all NBFIs (except credit unions) to disclose their owners and remedy opaque ownership structures since October 2021.
  - NBU will continue to monitor and take supervisory actions against NBFIs that do not meet this requirement.
- Legal and regulatory framework developments:
  - Legislation passed in December 2021–July 2023: Financial Services and Financial Companies (#1953), Insurance (#1909) and Credit Unions (#3254).
  - Most provisions to come into force in January 2024; NBU preparing implementing regulations.
  - Rules for insurance intermediaries apply from January 2025.
  - Solvency II will apply from January 2027.
  - NBU and DGF plan to initiate development of a deposit insurance framework for credit unions and a guarantee framework for life insurance companies after Martial Law is lifted and once required regulations are in effect.
  - Amendments submitted to the Law “On Compulsory Civil Liability Insurance of Land Vehicles Owners” (#8300) to strengthen governance of the Motor (Transport) Insurance Bureau of Ukraine (MTIBU); commit to ensure law adoption by Parliament by end-May 2024.
  - Once passed, the law will help improve state supervision of MTIBU and align with the European Motor Insurance Directive (2009/103/EC).
- Capital and reporting requirements:
  - NBU will increase capital requirements for financial companies by end-December 2023 with a six-month transition period for existing entities.
  - Submit draft legislation to Parliament to strengthen regulatory requirements for payments market participants by end-December 2023; ensure adoption of the law by end-May 2024.
  - Increase capital requirements for payment market participants aligned with the EU payment services directive (PSD2, 2015/2366) and international good practice by end-June 2024.
  - Prepare a supervisory risk assessment methodology by end-September 2024 that distinguishes between types of NBFIs to transition to risk-based supervision for NBFIs.
- Market oversight and regulatory effectiveness:
  - Enact legislation amending Law (#5865) on the National Securities and Stock Market Commission (NSSMC) to enhance powers, independence, institutional capacity, and cooperation mandate.
  - Aim to become a signatory of IOSCO’s multilateral MoU by end-December 2024 and fully implement other provisions of the law by end-December 2025.
  - Ensure draft NBFI regulations are subject to a public consultation process consistent with EU norms.
  - Exclude NBU regulations for NBFIs from the scope of the Law of Ukraine “On principles of state regulatory policy in the field of economic activity”, consistent with existing exemptions for other NBU regulations.

### Financial market infrastructure, insurance, and credit conditions
- Capital market infrastructure:
  - NBU, in consultation with key stakeholders, will analyze current capital market infrastructure and identify priority pathways to allow foreign investors direct access to marketable debt instruments beyond government securities.
- War risk insurance system:
  - NBU, Ministry of Economy, and Ministry of Finance will develop a concept note for a fully functional war insurance system by end-January 2024.
- Credit conditions and lending strategy:
  - NBU will prepare a comprehensive strategy to support resumption of lending, with due regard to financial stability, by end-May 2024.
- Responsible consumer lending:
  - Commit to have Law “On Amendments to Certain Legislative Acts of Ukraine on Improving State Regulation in the Field of Consumer Lending” (#9422) adopted by Parliament by end-2023 to align NBFI consumer lending with international standards and promote responsible price setting for consumer loans.

### Administrative procedures, laws, and assessments
- Postponement of Law on Administrative Procedures:
  - Postpone implementation of Law on Administrative Procedures (#2073–20) for the NBU, the DGF and the NSSMC until end-December 2024 due to wartime priorities.
  - Pre-implementation: conduct a comprehensive assessment of implications and adopt appropriate measures, including necessary legislative changes.
  - Assessment to be conducted by end-June 2024 by a specially established working group under the Financial Stability Council in consultation with IFIs.

### Asset recovery
- Commitment to recover value from former shareholders of failed banks:
  - Reconfirm commitment to continue efforts to recover value from assets of failed banks.
  - Abstain from any interference with current asset recovery strategies of the largest bank nationalized in 2016 and of the DGF.

### Governance, growth, and reconstruction strategy
- Need for high and sustained growth:
  - Emphasize need for unprecedented amounts of investment to restore the economy and standards of living.
  - Public sector role: increase efficiency and transparency of public sector governance to facilitate donor financing.
  - Private investment: ensure rule of law, independent anti-corruption institutions, and level playing field to attract investment and encourage return of migrants.
- Integrated strategy for recovery and reconstruction:
  - RDNA2 estimated US$411 billion for the total cost of recovery and reconstruction.
  - Near-term sectoral priorities: housing, utilities, social infrastructure, demining, transport, energy infrastructure and the private sector.
  - Commit to include reconstruction and recovery spending in program design while assessing debt sustainability, financing mix (i.e., grants and concessional financing), absorption capacity, and treatment of public guarantees.
  - Use budgetary processes for financing reconstruction in a transparent manner following principles of budget unity, coherence, and predictability with a strong gatekeeper role of the MOF.
- Transparency and accountability measures:
  - Use digital technologies for the full cycle of public investment projects.
  - Conduct comprehensive audits and performance audits of selected projects; timely publish audit reports.
  - Integrate mechanisms to prevent and identify corruption risks; refer cases to anti-corruption institutions as appropriate.
  - NABU and the State Agency for Restoration and Development to continue cooperation and exchange of information to prevent and detect corruption.

### Competition policy and anti-monopoly reform
- Anti-Monopoly Committee of Ukraine (AMCU):
  - Enacted amendments in September to strengthen AMCU legal framework.
  - Plan to continue improving AMCU’s legal framework and institutional capacity to ensure independence and stronger enforcement powers.

### Anti-corruption, asset declarations, and institutional strengthening
- Asset declaration system:
  - Law enacted in October restores obligation of public officials (not directly involved in mobilization and war efforts) to submit and disclose asset declarations and reinstates NACP function to examine and verify declarations.
  - Restores full public access to asset declarations (subject to prescribed exemptions on personal security).
  - NACP enhanced the asset declaration system to allow automatic populating of information from linked databases and registers (including real estate, vehicles, income, shares, corporate rights, and beneficial ownership).
  - Structural Benchmark: NACP to support filing; ensure submissions by end-January 2024 as per the enacted law and monitor truthful, complete and accurate submissions.
  - NACP to maximize technological solutions and adopt a risk-based approach toward verification.
- Strengthening anti-corruption institutions:
  - SAPO reforms:
    - Legislation to improve selection procedures of SAPO head and key officials with decisive vote of independent experts with international experience.
    - Strengthen capacity to regulate organizational activities and designation as a separate legal entity within the Prosecutor General’s Office.
    - Establish mechanisms for discipline and accountability of SAPO leadership, including performance evaluation and periodic external audit by independent experts with international experience.
    - Enhance procedural autonomy in prosecuting corruption cases via amendments to the criminal procedural code (Structural Benchmark, end-December 2023).
  - NABU external audit:
    - External audit of NABU’s effectiveness with participation of three independent experts with international experience to be completed and report published (Proposed Structural Benchmark, end-September 2024), following one year from March 2023 appointment of its new head.
    - Develop plan for NABU to implement wiretapping powers in the post-Martial Law period, including resources, equipment and technological solutions.
    - Ensure NABU access to independent and competent forensic experts to investigate complex corruption schemes.
  - High Anti-Corruption Court (HACC):
    - Twenty-four new vacancies announced in September: 15 at first instance and 9 at appellate level.
    - Ensure open and competitive selection and adequate provisioning for staffing and office needs.
    - Reconstitute the Public Council of International Experts with nominations from international and foreign organizations; complete final appointments by end-July 2024.
    - Amendments to the procedural code to rationalize matters to be heard by one HACC judge or a panel of three HACC judges (Proposed Structural Benchmark, end-March 2024).

### AML/CFT framework and beneficial ownership
- AML/CFT framework objectives:
  - Prevent, detect and deter laundering of proceeds of corruption through effective risk-based AML/CFT supervision.
- Legislative and supervisory actions:
  - Amended AML/CFT law in October to re-establish obligations of financial institutions to implement enhanced due diligence measures on politically exposed persons (PEPs) on a risk-based approach consistent with FATF standards.
  - Did not include a government-issued PEP registry with names due to inconsistency with FATF standards.
  - NBU to conduct a thematic inspection of financial institutions’ compliance with enhanced customer due diligence on PEPs by end-June 2024 after resuming scheduled inspections and adopting AML/CFT amendments regarding PEPs.
  - NBU to issue guidance for financial institutions and other covered non-bank institutions by end-August 2024, consistent with FATF standards, for using risk-based approach regarding PEPs, including relevant case examples.
- Capacity building and beneficial ownership:
  - Commit to invest in building capacity of new and existing NBU staff to improve organizational performance and responsiveness to AML/CFT changes and challenges.
  - Improve effectiveness of beneficial ownership regime to enhance transparency in public procurement, detect conflicts of interest through transparent ownership structures, and prevent misuse of companies.

### Judicial reforms and rule of law
- Constitutional Court and High Council of Justice:
  - Law strengthening vetting process for Constitutional Court candidates approved in August.
  - Establish six-member Advisory Group of Experts (three members nominated by international partners) and proceed with open competition for Constitutional Court vacancies.
  - Complete appointment of remaining vacancies of the High Council of Justice through open and transparent proceedings by the Ethics Council.
- Administrative court reform:
  - Enact a law to establish a new court to hear administrative cases against national state agencies (e.g., NBU, NABU, NACP) by judges properly vetted for professional competence and integrity with decisive and crucial vote of independent experts with international experience (Proposed Structural Benchmark, end-July 2024).

*Source: IMF staff summary of Ukraine program text (excerpts provided).*

### 76.      We intend to conduct a new Governance and Corruption Diagnostic with IMF technical

### We intend to conduct a new Governance and Corruption Diagnostic with IMF technical assistance, after Martial Law has been lifted.

### Governance and Corruption Diagnostic
- Intend to conduct a new Governance and Corruption Diagnostic with IMF technical assistance after Martial Law has been lifted.
- The published report will:
  - assess corruption vulnerabilities and governance weaknesses linked to key state functions; and
  - lay out future reforms in a post-war scenario.
- In light of the Anti-Corruption Strategy approved by the Rada in June 2022, the NACP will publish annually a report on its implementation.

*Corporate Governance in SOBs and SOEs*

### Corporate governance in state-owned banks (SOBs)
- Commitment to strengthen governance of SOBs and ensure operation on a professional and commercial basis without political interference on operational matters.
- Actions and timetable:
  - Appointed a fresh slate of independent supervisory board members to the SOBs in the first half of 2023.
  - NBU is applying its fit and proper assessment framework to selected candidates.
  - Upon completion of this selection cycle, authorities will assess effectiveness of the new procedures and make minor adjustments in consultation with IFI stakeholders.
  - Implement a procedure for conducting performance assessments for all SOBs in 2024.
  - First performance assessment for each bank will be conducted in early 2025 (based on 2024 performance).
  - In August 2025, the MoF will publish key findings of its first annual assessment, together with Cabinet’s proposed actions to address the findings.

### Corporate governance in SOEs
- Legislative and institutional reforms:
  - Draft law #5593-D to bring SOE corporate governance broadly in line with OECD Guidelines on Corporate Governance of SOEs and to mitigate fiscal risks will be adopted by early 2024.
  - #5593-D aims to establish:
    - a regular independent evaluation procedure of SOE supervisory boards;
    - clear criteria for early supervisory board dismissal;
    - strengthened accountability and broadened powers of supervisory boards, including ultimate authority to appoint and dismiss CEOs and set CEO remuneration (based on the state’s remuneration policy).
  - During Martial Law and 12 months thereafter, but not for a period of more than 3 years, a minimum level of SOE dividends will be set in #5593-D.
  - Once #5593-D is adopted, follow-up secondary legislation will operationalize the law, including:
    - operationalization of SOEs’ financial planning process and financial indicators consistent with the gatekeeper role of the MoF;
    - revamped nomination process and effective independent evaluation procedure for SOE supervisory boards, consistent with OECD standards.
  - The legal framework established by #5593-D shall not be applicable to state-owned banks.

- Policy sequencing and further steps (in close consultation with international partners):
  - (i) Passing the SOE corporate governance law;
  - (ii) Implementing related secondary legislation, including establishing a methodology for and subsequently conducting regular independent evaluations of SOE supervisory boards;
  - (iii) Interim step: assessing the financial conditions and fiscal risks of the SOEs in the state ownership policy by end-March 2024;
  - (iv) Producing a comprehensive state ownership, dividend policy and privatization strategy (Proposed Structural Benchmark, end-August 2024).
- Additional commitments:
  - Assess the financial viability of key SOEs as input to developing a framework to deal with quasi-fiscal costs, including legacy Public Service Obligations (PSOs).
  - Explore options to strengthen SOE management, including centralized modes and defining roles and mandates of MOF, MOE, CMU, and SPFU.

### Energy sector corporate governance (specific SOEs)
- GTSO (Gas Transmission System Operator):
  - Committed to implement critical corporate governance reform at the GTSO.
  - Steps implemented:
    - (i) Transferring the GTSO shareholding from MGU to the Ministry of Energy on September 22; and adopting the new charter on October 27, developed and agreed with the NEURC in consultation with the Secretariat of the Energy Community (end-July 2023 Structural Benchmark, not met).
    - (ii) Selection and appointment of a supervisory board for the GTSO (Structural Benchmark, end-October 2023).
  - Commitment to ensure an independent evaluation of the GTSO supervisory board one year after its appointment.
  - Adopt draft law #6133 that allows for a special regime of operations for GTSO to reduce operational expenditures and maintenance for non-critical gas transmission purposes.

- Other critical energy SOEs:
  - Seat a seventh member on Naftogaz’s and Ukrenergo’s supervisory boards.
  - Launch an independent evaluation of their supervisory boards in early 2024 and conclude it by end-June 2024.

### Energy sector reforms and short-term crisis management
- High-level reform objectives once conditions allow:
  - Restore and enhance competition in wholesale and retail gas markets.
  - Ensure sustainability and reduce quasi-fiscal liabilities via gradual increases in gas and electricity tariffs to cost recovery, while allocating adequate and well-targeted resources to protect vulnerable households.
- Immediate priorities to contain war impact:
  - Options include tariff increases, securing external financing, and providing transparent and exceptional direct budget support pending available budgetary resources.
- Specific short-term points and numeric commitments:
  - For the 2024/25 heating season, up to 2 bcm of additional gas imports could be required under the baseline, but the amount is expected to be lower from expanded production capacity by Naftogaz.
  - Naftogaz has secured additional financing for gas imports through the EBRD and bilateral donors.
  - If Naftogaz faces a liquidity shortfall, PSO compensation in 2024 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 2024.
  - Potential spending pressure from gas imports and PSO compensation will be accommodated through an adjustor on fiscal balance targets, subject to the above assessment, available financing, and capped at UAH 60 billion (about 1 percent of GDP).
  - GTSO revenues have been impacted by low tariffs, large unauthorized gas offtakes, payments to Naftogaz, and a drop in transit revenues since May 2022.
  - GTSO is reducing expenditures (including on investment) to maintain liquidity and will rightsise the system and identify alternative sources of supply once corporate governance reforms are finalized.
  - District Heating Companies (DHCs) have accumulated a significant stock of arrears to Naftogaz before and since the start of the war. Interim measure:
    - Establish the stock of arrears and financial condition of DHCs through a desk review by a reputable audit firm, distinguishing arrears before and after February 2022 (Proposed Structural Benchmark, end-June 2024).
    - Develop a new tariff methodology to address the issue comprehensively once war-related pressures on the budget subside.

### Program monitoring and structural benchmarks
- Program implementation in 2024 will be monitored through quarterly reviews via quantitative performance criteria, indicative targets, and structural benchmarks.
- Authorities commit to provide the IMF staff all data needed for program monitoring, including data and information detailed in the attached TMU.
- Monitoring instruments include a continuous performance criterion on the non-accumulation of external payments arrears and standard continuous PCs.
- Timing of reviews:
  - Third and fourth reviews are expected on or after February 29, 2024, and June 15, 2024, respectively, based on QPCs for end-December 2023 and end-March 2024 and corresponding structural benchmarks.
- Selected structural benchmarks and timings (as stated):
  - Adopt SOE state ownership policy, dividend policy and privatization strategy — SOE Corporate Governance — End-August 2024 (Structural Benchmark).
  - Assess the financial conditions and fiscal risks of SOEs in the state ownership policy by end-March 2024.
  - Determine the stock of arrears and assess financial conditions of DHCs through a desk review by a reputable audit firm — Energy — End-June 2024.
  - Launch and conclude independent evaluations of Naftogaz’s and Ukrenergo’s supervisory boards — conclude by end-June 2024.
  - Prepare a comprehensive state ownership, dividend policy and privatization strategy — Proposed Structural Benchmark, end-August 2024.
  - Finalize calculations for PSO compensation and gas import needs — end-August 2024.
  - Implement procedure for performance assessments of all SOBs in 2024; first assessments in early 2025 and MoF to publish findings in August 2025.

*Source: IMF staff report excerpt (content unit 1ukrea2023003).*

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

### 1ukrea2023003 - 1. This Technical Memorandum of Understanding (TMU) sets out the understandings between

### Overview
- Purpose: 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), and methods for assessing program performance and information requirements (¶1–2).
- Quantitative performance criteria and indicative targets are shown in Table 1 of the MEFP; definitions of targets and adjustors are in Section I; official exchange rate in Section II; reporting requirements in Section III (¶2).

### Exchange rates and accounting conventions
- Official exchange rate of the Ukrainian hryvnia to the U.S. dollar: 36.5686, set by NBU as of March 13, 2023 (¶3).
- Reference exchange rates as of March 13, 2023 (¶3):
  - Swiss Franc: 0.9107 Swiss Franc per U.S. dollar
  - Euro: 0.933 euro 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
- SDR accounting exchange rate: 0.748641 SDR per U.S. dollar (¶3).
- Official gold holdings valuation: 1,902.6 dollars per fine ounce (¶3).
- These accounting exchange rates are kept fixed over the program period; program exchange rate may differ from the actual market rate; program exchange rates do not imply a policy target exchange rate (¶3).

### Definitions of consolidated/general government and reporting obligations
- 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; and special accounts which provide resources to key spending units (¶4).
- Budget of the general government comprises: (i) the state budget; (ii) all local government budgets; and (iii) if not already included in (i), budgets of extra budgetary funds listed above, any other extra budgetary funds included in monetary statistics compiled by the NBU, and special accounts (¶4).
- Government obligation: inform IMF staff immediately of creation or pending reclassification of any new funds, programs, or entities (¶4).

### Definition of debt (consistent with Guidelines on Public Debt Conditionality)
- Debt defined as a current (not contingent) liability created under contractual arrangement requiring future payments in assets or services; includes principal and/or interest obligations (¶5a).
- Primary forms of debt include (¶5a):
  - Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements).
  - Suppliers’ credits (deferred payment contracts).
  - Leases (debt equals present value at inception of all lease payments expected during the 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 (¶5b).
- Failure to make payment on obligations not considered debt under this definition (e.g., payment on delivery) will not give rise to debt (¶5b).

### GDP and territorial scope
- 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 (¶6).

### External financing definitions
- External financing defined in Table B and includes (¶7):
  - Budget support loans and grants: unearmarked financial support for general government financing from official multilateral creditors (e.g., World Bank, European Commission) and official bilateral creditors (¶7a).
  - Project support loans and grants: earmarked support for specific projects, including financing from official multilateral creditors (e.g., European Investment Bank, World Bank Group, European Bank for Reconstruction and Development) and official bilateral creditors (¶7b).

### Defense expenditures
- Defense expenditures include expenditures of the defense and security sector pursuant to the Law of Ukraine “On National Security of Ukraine” and include total amounts of all current (including goods and services, wage bill, social payments, etc.) and capital expenditures, including expenditures through the state budget general fund (¶8).

### Own revenues of budgetary institutions
- Defined in Item 15, Part 1, Article 2 of the Budget Code: revenues received by budgetary institutions for payment for provision of services, performance of works, targeted activities, grants, gifts, charitable contributions, proceeds from sale of products or property and other activities in the prescribed manner (¶9).

### Proceeds of sales of confiscated Russian assets and related accounting
- Proceeds of sales of confiscated Russian assets or bank account balances, including amounts directed toward the Fund for the Liquidation of the Consequences of the Armed Aggression, are recorded below the line as deficit financing sources with counter-entry into deposits of the Treasury Single Account (¶10).

### Definition of overdue accounts payables (domestic arrears)
- Arrears defined per Order of the Ministry of Finance No. 372 dated April 2, 2014: amount of payments due on the 30th day after the deadline for mandatory payment under the legal contract; if no deadline specified, 30th day after confirmation of goods received/works done/services rendered (¶11).
- Budgetary arrears on social payments and wages: all arrears of the consolidated budget on wages, pensions, and social benefits of the central or local governments; timeframe for wage arrears follows the general 30-day rule; information on arrears in security and defense sector can be presented in aggregated form due to Martial Law (¶11a–b).
- Wages include all forms of remuneration for standard and overtime work in all subcategories, including defense and security service (¶11b).
- Arrears of social funds (Pension and Unemployment Fund of Ukraine): arrears with regard to all insurance benefits of these funds measured as payments not executed at the 30th day after the deadline; unpaid pensions to individuals residing in territories that are or were in direct combat zones and temporarily occupied by Russia are excluded (¶11c and note).

### Net International Reserves (NIR) — Quantitative Performance Criterion
- Definition: NIR of the NBU are the dollar value of the difference between usable gross international reserve assets and reserve-related liabilities to nonresidents, evaluated at program exchange rates (¶12).
- Usable gross international reserves comprise all readily available claims on nonresidents in convertible foreign currencies consistent with BPM6 and SDDS (Table 6.1, item A) (¶13).
- Exclusions from usable reserves include, inter alia (¶13):
  - Assets denominated in foreign currencies held at or claims on domestic institutions; foreign currency claims of the NBU on domestic banks; NBU deposits held at the Interbank Foreign Currency Exchange Market and domestic banks for trading purposes.
  - Any precious metals or metal deposits other than monetary gold and gold deposits.
  - Any assets corresponding to claims of commercial banks in foreign currency on the NBU, reserve assets that are encumbered, pledged as collateral (unless included in foreign liabilities or excluded), or frozen.
  - Reserve assets not readily available for intervention because not fully under NBU control or lacking quality/liquidity limiting marketability at book price.
- Reserve-related liabilities comprise (¶14):
  - 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 sale of foreign currency or other reserve assets (notional value of commitments, not market value).
  - All foreign exchange liabilities of the NBU to resident entities that are not already excluded from reserve assets, excluding foreign exchange liabilities to the general government or related to deposit guarantees.
- NIR adjustors (¶13–14 and following bullets):
  - Downward adjustment by the full amount of cumulative shortfall in external budget support financing disbursements (defined in paragraph 7) relative to the baseline projection (Table B).
  - Downward adjustment by the full amount of cumulative shortfall in net issuance (gross issuance minus redemption) of central government’s domestic foreign exchange securities relative to baseline (Table C).
  - Symmetric adjustor for conversion of non-reserve currency provided under a central bank swap into a reserve currency via outright sale: NIR targets adjusted upward by the amount converted at time of conversion; adjusted downward by amount of reserve currency (principal and interest) when NBU repays the non-reserve currency provided under a swap.
  - Symmetric adjustor for use (draws) of reserve currency provided under a central bank swap with maturity over 1 year: NIR targets adjusted upward by the amount used with maturity over 1 year; adjusted downward when NBU repays these amounts.

### Components of NIR (Table A summary labels)
- Table A lists types of foreign reserve assets/liabilities and corresponding NBU balance sheet and memorandum account codes for:
  - International reserves (monetary gold; foreign exchange in cash; demand deposits at foreign banks; short-term time deposits at foreign banks; long-term deposits at foreign banks; SDR holdings and Reserve Position in the IMF; securities issued by nonresidents) (¶Table A).
  - Short-term liabilities to nonresidents (correspondent accounts of nonresident banks; funds borrowed using repos; short-term deposits of banks; operations with nonresident customers; operations with resident banks; use of IMF credit) (¶Table A).
- Note: definitions will be adjusted to reflect changes in accounting classifications introduced during the program; definitions correspond to the system of accounts in existence on October 31, 2022; authorities will inform staff before introducing changes to Charts of Accounts and reporting forms (Table A notes).

### Ceiling on General Government Direct Borrowing from the NBU (Indicative Target)
- Definition: General government direct borrowing from the NBU, net of redemptions and repayments, equals the cumulative change in 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. Stock of government securities held by the NBU measured at face value as reported on NBU balance sheet. Changes exclude securities acquired as collateral under NBU loans and exclude loans 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 (¶15).
- Additional precondition: Activation of monetary financing requires drawing down of government deposits (consistent with ¶38 of MEFP); criteria to be set out in discussion between NBU and Ministry of Finance (¶16).

### Adjustors for the ceiling on borrowing from the NBU
- If shortfall in external financing (Table B) and primary issuances on government bonds (measured at face value, excluding short-term issuances with primary maturities less than 3 months) during the 3-month period prior to request for monetary financing exceed 132 percent of actual redemptions over the same period, then the ceiling on general government borrowing from the NBU, net of redemptions and repayments, will be adjusted upward by the smaller of:
  - the amount of the shortfall in external financing adjusted for additional primary issuances of government bonds; or
  - a cap on general government borrowing from the NBU equivalent to gross borrowing of UAH50 billion every quarter (¶17).
- The ceiling resets every quarter (i.e., September 30, 2023 for the December 31, 2023 target, and December 31, 2023, March 31, 2024, June 30, 2024, and September 30, 2024 for the 2024 targets) and is not carried over between quarters (¶17).
- The amount of the shortfall in external financing is assessed as the total cumulative shortfall from end-March 31, 2023 for 2023 targets and end-December 2023 for 2024 targets, measured on the last day of the previous month. Projected redemptions are shown in Table D (¶17).

### Overall cash balance of the general government excluding budget support grants (Indicative Target)
- Definition: Overall cash balance of general government excluding budget support grants is defined as the balance measured in ¶19, adjusted by the amount of budget support grants (Table B) recorded above the line in non-tax revenues. Measured on a cumulative basis starting January 1 of a calendar year. For program computations, a positive number is surplus and negative number is deficit (¶18–19).
- Measurement of overall cash balance (net financing flows, excluding valuation changes) includes (¶19):
  - Total net treasury bill sales (in hryvnias and foreign currency) as per 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 redemption of principal. Excludes bonds issued to recapitalize Naftogaz and other SOEs (including State Housing Financial Corporation) (¶19 bullet 1).
  - Other net domestic banking system credit to general government as measured by monetary statistics from 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 by entities not reflected in monetary statistics (¶19 bullet 2).
  - Total receipts from privatization (including change in stock of refundable participation deposits and sale of nonfinancial assets) and proceeds from uncompensated seizures (¶19 bullet 3).
  - Total proceeds from sales of confiscated Russian assets and bank account balances (¶19 bullet 4).
  - Difference between disbursements and amortizations on any bond issued by general government or NBU to nonresidents for purposes of financing the general government (¶19 bullet 5).
  - 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) (¶19 bullet 6).
  - Net sales of SDR holdings in the IMF’s SDR department (¶19 bullet 7).
  - Net change in general government deposits in nonresident banks or other nonresident institutions (¶19 bullet 8).
  - Net proceeds from any promissory note or other financial instruments issued by the general government (¶19 bullet 9).

*Source: Technical Memorandum of Understanding between the Ukrainian authorities and IMF staff (excerpts).*

### 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

### Measurement rules for general government balance and deposits
- All flows to/from the budget in foreign currency (including from the issuance of foreign currency denominated domestic financial instruments) are accounted for per paragraph 3 of this TMU.
- Financing changes resulting from exchange rate valuation of foreign currency deposits are excluded from the computation of balance.
- Government deposits in the banking system exclude VAT accounts used for electronic administration and escrow accounts of taxpayers used for customs clearance.

### D. Floor on Non-Defense Cash Primary Balance of the General Government excluding Budget Support Grants (Quantitative Performance Criterion)
- Definition:
  - Non-Defense Cash Primary Balance of the General Government excluding budget support grants = Overall Balance of the General Government excluding budget grants (per 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 January 1st of each calendar year.
- Adjustors (affecting the floor on both the overall cash balance excluding grants and the Non-Defense Cash Primary Balance):
  - Upward adjustment by the full amount of any increase above the projected stock of budgetary arrears in state budget and social funds (definition excludes domestic arrears in territories that are or were in direct combat zones and temporarily occupied by Russia).
  - Automatic downward adjustor equal to the full amount of any shortfall in cumulative proceeds from external budget support loans (in hryvnia evaluated at program exchange rates) relative to program projections.
  - Automatic downward adjustor corresponding to the full amount of government bonds issued for bank recapitalization and DGF financing, up to a cumulative maximum amount to be set in future reviews; amount included in the targets is zero.
  - Automatic upward adjustment corresponding to the full amount of profits transferred by the NBU in excess of UAH 71.6 billion in 2023 and UAH 17.7 billion in 2024.
  - Automatic downward adjustment to accommodate gas purchases, PSO compensation and transfer to GTSO up to a cumulative maximum amount of UAH 60 billion in 2023 and UAH 60 billion in 2024, conditional upon availability of financing.
  - For test dates in 2023: automatic downward adjustor up to a cumulative maximum amount of UAH 25.8 billion corresponding to receipts from sales of confiscated Russian assets and transfers of bank accounts; for test dates in 2024 the cumulative maximum downward adjustment is UAH 10 billion.
    - The balance of the Fund for the Liquidation of the Consequences of the Armed Aggression stood at UAH 25.2 billion as of November 1, 2023.
    - For the period of 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)
- Measured on a cumulative basis starting January 1st of each calendar year.
- Includes total tax revenues and fees as defined by national tax legislation, including pension fees imposed on certain transactions, excluding Social Security Contributions tax.
- Cumulative targets are set out in Table 1 of the MEFP.

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

### G. Ceiling on the General Government Domestic Arrears (Indicative Target)
- Ceiling derived from definition in paragraph 11 of this TMU and reporting format in paragraph 78.
- Target is cumulative starting January 1st of each calendar year; covers arrears of the state budget (general and special funds) and social funds.
- 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 contractual terms (taking into account any contractual grace periods).
  - Excludes arrears on external financial obligations subject to rescheduling.
  - “External” is debt payments to non-residents.

### I. Ceiling on Publicly Guaranteed Debt (Quantitative Performance Criterion)
- Definition and ceilings:
  - Applies to 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) and applies to cumulative guarantees issued from January 1, 2023, including guarantees to priority sectors.
  - For test dates in 2024, ceiling = UAH 47.9 billion.
  - Program exchange rates apply to all non-UAH denominated debt.
  - Excludes guarantees for NBU borrowings from IMF.
- Automatic upward adjustor for guarantees signed for selected donor-financed projects:
  - For 2023: eligible projects list includes working capital loan to UkrEnergo; loans to modernize electricity grid and substations; loan to Ukrainian Railways for emergency support; loans to Ukrhydroenergo for emergency restoration of hydropower plants; loan to Ukrenergo for special capital structure support; loan to Naftogaz for additional procurement of natural gas; loan to Ukrhydroenergo for installation of hybrid systems for electricity production.
    - Adjustor capped at UAH 44.82 billion in 2023 and to be discussed in program reviews.
  - For 2024: eligible projects list includes loan to UGV to purchase equipment for gas extraction; loan to Naftogaz for additional procurement of natural gas; loan to Ukrhydroenergo for emergency restoration of hydropower plants; working capital loan to Ukrenergo; loan for Boryspil International Airport for reconstruction of flight zone 2; loan to Ukrenergo for improving the efficiency of electricity transmission.
    - Adjustor capped at UAH 40.03 billion in 2024 and to be discussed in program reviews.

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

### III. OFFICIAL EXCHANGE RATE — A. Determination of the Official Exchange Rate
- Official hryvnia/USD exchange rate was UAH/USD 36.5686 as set by the NBU, effective 9am on July 21, 2022, until October 3, 2023.
- Since October 3, 2023, the NBU is transitioning to a regime of managed [regime text truncated in source].
- Official exchange rate against USD is determined based on series of transactions in the interbank FX market.
- Until more observations determine a new trend, the de facto exchange rate arrangement remains classified as stabilized.
- Official exchange rates for other currencies are determined by the NBU based on the official USD rate and cross rates.
- Official exchange rates are published daily on the NBU’s website no later than 3:30 pm of the day of calculation and take effect the next business day.
- Ukraine's de jure exchange rate arrangement is floating.

### IV. REPORTING REQUIREMENTS — A. National Bank of Ukraine (NBU)
- Frequency and timeliness highlights:
  - Monthly sectoral balance sheets for the NBU and other depository corporations (banks) per 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: daily operational data on stock of net and gross international reserves, at both actual and program exchange rates; full breakdown of NBU accounts included in net international reserves.
  - Monthly: balance data on stock of net and gross international reserves and flows affecting them by the 20th of the following month; data on currency composition of reserve assets and liabilities by the 25th of the following month.
  - Daily: total foreign exchange sales (including nonresidents and interbank client sales), approved foreign exchange demand in interbank market (including Naftogaz purchases), official foreign exchange interventions and intervention quotations, results of any FX auctions.
  - Daily: balances held in analytical accounts 2900 “Accounts payable per transactions for the foreign exchange, banking and precious metals purchase and sale on behalf of banks’ clients.”
  - Daily (via NBU website): holdings of domestic government securities, information on primary auctions and secondary market sales.
  - Monthly: report on government securities holdings broken down by currencies and by holders (non-resident investors, resident non-bank, resident banks further broken down by bank group).
  - Daily: transactions (volumes and yields) on secondary market treasury bills (including OTC and breakout for any NBU transactions).
  - NBU financial statements (income and expenses, balances on general reserves, calculations of profit distribution to the budget) for the current and, if available, projections for the following two years, as approved by the NBU’s Board — IMF to be notified immediately of any update.
  - Daily and monthly: data on NBU financing operations of banks (including swaps or refinancing) and operations of mopping up liquidity (including CDs issuance); monthly information on collateral pledged to NBU for loans (by bank and loan type, collateral type, haircut, currency).
  - Monthly: bank-by-bank information on NBU refinancing, broken down by operations with settlement and maturity dates, collateral pools broken down by asset types and securities (values before and after haircuts); identify banks under temporary administration or liquidation.
  - Monthly (no later than 30 days after month end; end-of-year data: no later than 41st day): core FSIs for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group.
  - Daily and monthly (monthly no later than the 25th day after report month; end-of-year: 41st day): depository corporations surveys, including domestic claims, NBU loans and liabilities with banks, detailed banking sector loans to general government (by central/state government, local budgets, DGF; national and foreign currency; by loan and security), balances of government funds held at the NBU (e.g., Single Treasury Account account 3240 L, Treasury foreign currency account 3513 L), and computation of Target on General Government Borrowing from the NBU based on monthly reporting data.
  - Monthly: projections for external payments falling due in next 12 months; actual settlement data for external obligations (principal and interest, public and private sectors) provided quarterly within 80 days following quarter end.
  - Quarterly: stock of short- and long-term external debt for public and private sectors; external arrears reported continuously.
  - Daily: data on foreign exchange export proceeds and foreign exchange sales; import transactions for goods and services; amounts of foreign exchange transferred from abroad to 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 for physical persons; sales and purchases of foreign exchange cash by individuals (incl. banks, exchange offices, UkrPoshta).
  - Weekly: volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons.
  - Monthly: data on certain transfers of non-cash FX from Ukraine to benefit non-residents; aggregated data on number and amounts of e-limits granted to legal entities and physical individuals and on transfer and purpose of foreign exchange outside Ukraine within 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; deposits aggregated for overall banking system (excl. the NBU) broken down by households and legal entities, maturity, and by national and foreign currency; loans aggregated similarly.
  - Daily: deposits and credits aggregated for overall banking system (excl. the NBU) without deposits and credits of banks in liquidation starting from beginning of 2014, broken down by households and legal entities and by national and foreign currency.
  - Weekly: foreign assets and foreign liabilities (broken down by domestic and foreign currency) for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group.
  - Monthly: foreign assets for individual banks in those groups 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, 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 to be provided.

*Source: Excerpt from TMU and reporting requirements as provided in the content unit.*

### 44. The NBU will provide, on a daily basis, bank-by-bank data for the largest 35 banks on the

### 1ukrea2023003 - 44. The NBU will provide, on a daily basis, bank-by-bank data for the largest 35 banks on the

### NBU — Daily and Monthly Reporting Requirements (bank-by-bank and aggregated)
- Daily (bank-by-bank for largest 35 banks):
  - liquidity ratio
  - amounts of cash and cash equivalents
  - available funds in NBU accounts (excl. reserve requirements)
  - correspondent accounts with well-known international banks (excl. encumbered accounts)
  - deposits from customers
- Daily (bank-by-bank for State Participation Group, Foreign Banking Group, and Private Capital Group banks):
  - total assets and liabilities
  - loans and claims (by households, legal entities, and banks)
  - foreign exchange net open position
  - Data reported by domestic and foreign currency.
  - Deposits reported by households and legal entities and by maturity (current accounts, saving accounts, and time deposits).
- Aggregated sectoral reporting:
  - For aggregate banking sector and groups of banks, deposits and credits excluding banks in liquidation since 2014.
- Monthly (bank-by-bank):
  - liquidity coverage ratio in all currencies and in foreign currency.
- Daily (aggregated to IMF):
  - aggregated data on main currency flows, including government foreign receipts and payments by currencies and interbank market operations by currencies.
  - daily information on exchange market transactions including the exchange rate.
- Monthly (to IMF, individual bank level):
  - reserve requirements, including breakdown between reserve requirements fulfilled by reserves and that by government securities.
- Monthly (bank-by-bank for State Participation, Foreign Banking, Private Capital groups):
  - average interest rate on deposits to customers (by domestic and foreign currency; by non-financial corporations and households; by maturity—demand and time accounts).
  - Weekly (after Martial Law is cancelled): average interest rate on interbank borrowings (by domestic and foreign currency; by maturity—overnight, 1–7 days, and over one week).
- Monthly (agreed format; entire sector and bank-by-bank for the three bank groups):
  - risk weighted assets and other risk exposures (for ratio H2 and H3 calculation), including excess of long-term asset to funding and foreign exchange open position
  - total regulatory (Tier 1 and Tier 2) and core (Tier 1) capital
  - capital adequacy ratio for total regulatory (H2) capital and core capital (H3)
  - loans and claims by maturity buckets for households, legal entities, and banks in domestic and foreign currencies
  - deposits by maturity buckets for households, legal entities, and banks in domestic and foreign currencies
  - foreign exchange net open position, split between total foreign exchange assets (long position) and foreign exchange liabilities (short position), and between on- and off-balance sheet.
- Monthly (agreed format; entire sector and bank-by-bank for the three bank groups):
  - 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; borrower classification categories)
  - collateral for loans and claims (by type of collateral; by borrower type and currency; by borrower classification categories)
  - provisions on loans and claims (by borrower type and 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)
  - average interest rate on new loans to customers (by non-financial corporations and households)
  - accrued interest on loans (by domestic and foreign currency)
  - securities and debt financial instruments, with government securities reported separately (by domestic and foreign currency).
- Monthly (bank-by-bank for the three bank groups):
  - 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; by borrower type and currency; by borrower classification categories)
  - provisions on loans and claims on related parties (by households, legal entities, and banks in domestic and foreign currencies, and by borrower classification categories).
- Monthly (aggregate, bank-by-bank, and by region):
  - loans and provisions (by households and legal entities, domestic and foreign currencies, by debtor classification categories, and by asset class, e.g., corporate and retail)
  - deposits (by households and legal entities, and domestic and foreign currencies)
  - due from banks (by domestic and foreign currencies).
- Monthly (entire sector and bank-by-bank for the three bank groups):
  - nonperforming loans (NPLs), including migration from NPLs to performing loans (PLs); migration from PLs to NPLs; form of NPL repayments (cash, loan sales, collateral sales, etc.); write-offs; and other factors (e.g., exchange differences and revaluations) (and compared with banks’ respective timebound plans for reducing NPLs once these are approved).
- Monthly (entire sector and bank-by-bank by bank groups):
  - cumulative income statements, including total revenues; interest revenues (from loans to households, loans to legal entities, interbank loans, placements with the NBU, securities); revenues from fees and commissions; total expenses; interest expenses (on deposits to legal entities, deposits to households, interbank borrowing, borrowing from NBU, securities issued); fees and commissions paid; salaries and other staff compensation; other operational expenses; net earnings before loan loss provisions; loan loss provisions; net earnings after loan loss provisions; taxes paid; and net earnings.
- Upon request:
  - banks’ net expected outflow of cash for a 30-day period.
- Monthly (bank-by-bank):
  - amount by which the State Participation Group, Foreign Banking Group and identified Private Capital Group banks' regulatory capital has been increased; disclosure of instrument or transactions by which regulatory capital has been increased (e.g., capital injection, conversion of subordinated debt to equity, etc.)
- Monthly (once a month):
  - inform IMF of any regulatory and supervisory measures against banks violating NBU regulations on capital adequacy, liquidity ratio, large exposures, and related or connected lending, as well as decisions on declaring a bank problem or insolvent, including banks whose license has been revoked without declaring the bank insolvent.
- Continued provision:
  - detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter.
- Informational responsibilities:
  - 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; provide information on outstanding interest and principal payments.
  - inform IMF staff of any changes to reserve requirements for other depository corporations.
  - communicate (electronically) any changes in accounting and valuation principles applicable to balance sheet data and notify staff before introducing changes to the Charts of Accounts and reporting forms of both the NBU and commercial banks.
- Internal controls and audits:
  - NBU Internal Audit Department to provide an assurance report to the Fund, no later than six weeks after each test date, confirming that (i) the monetary data are in accordance with program definitions and have been verified and reconciled to accounting records; and (ii) that there have been no changes to the chart of accounts or valuation methods that would impact the data reporting.
  - provide the IMF with a copy of the annual management letter from the external auditor within six weeks of completion of each audit (remain in effect for the duration of the arrangement and for as long as credit remains outstanding).
- Monthly and annual government securities reporting:
  - Monthly, provide to IMF and the Ministry of Finance data on the monthly coupons and principal to be paid for the period till the end of current and next year (in hryvnia and foreign currency, separately) on the outstanding stock of government securities held by NBU and the public (broken down by resident banks, resident non-bank; and non-resident investors).
  - Data on resident banks further broken down by bank group (State Participation, Foreign Banking, and Private Capital) and include ISIN-level.
  - Annually, 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) — Monthly Reporting
- Monthly (DGF):
  - total number and volume of household deposits broken down in groups by deposit size; data reported bank-by-bank for the largest 35 banks and on aggregate for the remaining banks.
  - bank-by-bank for all banks: amount of insured deposits and total household deposits (by domestic and foreign currency) in an agreed format.
  - bank-by-bank: total insured deposits and remaining insured deposits to be paid by the DGF for banks under liquidation and under provisional administration (by domestic and foreign currency) in an agreed format.
  - financial position of the DGF, including cash balance, bond holdings, credit lines, and loans (in an agreed format).
  - financing arrangements of the DGF, including contracted financing from MoF (in an agreed format).
  - one-year forecast of amount and type of financial resources expected from MoF, NBU and other entities; amount expected to be paid out to insured depositors in banks in liquidation; amount of asset recoveries expected by DGF (in an agreed format).

### Ministry of Finance — Reporting and Timelines
- Monthly (no later than 25 days after the end of the month):
  - consolidated end-month balances of other non-general government entities, including SOEs, holding accounts at the Treasury.
  - Treasury: 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); data on government foreign exchange deposits; 10-day and monthly basis data on execution of the state, local, and consolidated budgets on the revenue side and revenues from social security contributions, including by oblast breakdown; monthly data on funds deposited with the Single Treasury Account on registration accounts of entities not included in the state sector; balance of funds as of the 1st day of the month on account #3712 “accounts of other clients of the Treasury of Ukraine;” inflow to the State budget from placing Treasury or any other liabilities to households in foreign and domestic currency and their redemption.
  - monthly information on amounts and terms of all external debt contracted or guaranteed by the central government, including external and domestic credit to key budgetary spending units and 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).
  - monthly data on 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.
- Monthly and quarterly Treasury reports (electronic):
  - continue to provide 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.
  - final fiscal accounts at the end of each fiscal year, no later than March of the following year; reports to provide expenditure data by programs and key spending units, and based on standard functional and economic classifications.
  - quarterly reports to contain standard information on budget expenses to cover called government guarantees.
- Public wage bill and program reporting:
  - report data on the public wage bill (excluding SOEs) in line with an agreed template, including all payment categories, including defense wages.
  - provide quarterly Treasury reports on expenditure under the medical guarantee program by economic classification.
- Quarterly:
  - report information on municipal borrowing and amortization of debt in agreed format.
  - 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.
- Monthly (no later than on the 1st day of the second subsequent month):
  - data on the stock of all budgetary arrears, including separate line items for wages, pensions, social benefits accrued by social funds, energy, communal services, and all other arrears on goods and services and capital expenditures.
  - Treasury to report monthly data on accounts payable for state and local budgets (economic classification of expenditures).
  - Pension Fund to provide monthly reports on net unpaid pensions to individuals who resided or continue to reside in territories that are or were in direct combat zones and temporarily occupied by Russia. The provided information will include defense and law-enforcement.
- Quarterly (no later than 25 days after the end of the quarter):
  - provide in electronic form data on the outstanding stock of domestic and external debt of the state and local budgets (including general and special funds)
  - monthly forecasts of planned and actual external debt disbursement, amortization, and interest payments (including general and special funds), broken down by creditor categories and currency as agreed with Fund staff; report accumulation of any budgetary arrears on external and domestic debt service.
- Semi-annual (no later than 25 days after the end of Q2 and Q4):
  - disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements.
- Monthly (no later than 25 days after the end of the month):
  - data on external and domestic credit to key budgetary spending units and 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).
- Monthly and weekly coordination with NBU:
  - together with NBU, monthly provide information about redemptions of domestic bonds and bills in favor of residents (banks, non-banks) and non-residents.
  - together with NBU, weekly provide information on face value of government bonds redeemed and face value of government bonds placed during the week.
- Quarterly (no later than 50 days after the end of each quarter; Pension Fund monthly):
  - data on approved budgets and quarterly operational data (daily for the Pension Fund only) on revenue, expenditures, arrears, and balance sheets of the Pension Fund, Employment Fund, and any other extra budgetary funds managed at the state level (detailed breakdowns expected).
  - any within-year amendments to the budgets of these funds reported within a week after their approval.
  - annual financial statement including final fiscal accounts of those funds at the end of each fiscal year, no later than April of the following year.
- Decomposition of own revenues:
  - 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 (budget treasury code 25020000) no later than 25 days after the end of the quarter.

*Source: Extracted reporting and data-provision obligations as specified in the provided IMF document.*

### 85. The Ministry of Finance will provide, no later than 15 days after the end of each month,

### 1ukrea2023003 - 85. The Ministry of Finance will provide, no later than 15 days after the end of each month,

### Fiscal reporting and government fiscal risks
- 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, including:
  - the upfront impact on the cash balance of the general government of the recapitalization of banks and SOEs;
  - costs associated with the payment of interests;
  - respective changes as a result of supplementary budgets.
- The Ministry of Finance will provide quarterly performance reports for the Fund for Entrepreneurship Development.
- The registry of fiscal risks will be made available to IMF staff semi-annually or, if available, sooner.

### Tax administration reporting and tax relief transparency
- The State Tax Service (STS) and State Customs Service (SCS) will provide quarterly listings, no later than two months after the end of the quarter, of all tax exemptions granted, specifying:
  - the beneficiary to whom the exemption was provided;
  - the duration; and
  - the estimated subsequent revenue loss for the current fiscal year.
- Revenues foregone explicitly include losses from the simplified tax regime by groups of beneficiaries.

### VAT refunds and tax arrears reporting
- The STS will provide monthly information on VAT refunds no later than 25 days after the end of the month 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).
- The STS will continue to provide monthly reports 1.P0 on actual tax revenue and 1.P6 on tax arrears, inclusive of deferred payments, interest and penalties outstanding, no later than 25 days after the end of each month. Reporting detail includes:
  - Total stock, o/w Principal, Interest, Penalties;
  - Tax Arrears of Taxpayers Undergoing Bankruptcy Procedures;
  - Total Tax Arrears net of Taxpayers in Bankruptcy;
  - Taxes from Code 11010000 to 31020000.

### Tax appeals and program lending data
- The STS will provide quarterly information, no later than 25 days after the end of each quarter, on:
  - the number of tax appeals and the associated disputed amounts received by the STS in each reporting period;
  - the number of internally resolved appeals indicating the number of appeals resolved in favor of the controlling body, in favor of taxpayer and partial satisfaction.
- The Ministry of Finance will provide monthly information about the number and amount of loans under the 5-7-9 program as well as a breakdown by sectors of loans.

### SOEs, energy sector, and infrastructure reporting
- Naftogaz Group and the GTSO will each provide IMF staff monthly cash flow information in electronic form (in an agreed format), no later than the 25th of the following month. Naftogaz Group reporting will also include:
  - volumes and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households, heating utilities, budget institutions, and industries);
  - main revenue, expenditure, and financing items;
  - updated information on the company’s financial liabilities with a schedule of loan-by-loan interest and principal payments (monthly).
- The Ministry of Economy will provide consolidated information from the financial statements of the 10 largest SOEs on a quarterly basis, no later than 80 days after the end of each quarter, including:
  - (a) gross profit/losses;
  - (b) net financial results;
  - (c) subsidies received from the budget;
  - (d) guarantees granted from the budget;
  - (e) stock of debt, broken down by domestic and foreign;
  - (f) taxes and dividends paid;
  - (g) wage arrears; and
  - (h) other payment arrears.
- The Agency for the Restoration and Development of the Infrastructure of Ukraine will provide monthly reports on the execution of budgetary programs associated with road construction and maintenance, including borrowing (disbursements, interests, and amortization) in a format agreed with IMF staff.

### National accounts, price indices, and statistical revisions
- In case of any revisions of gross domestic product, the State Statistics Service will provide revised quarterly data on gross domestic product (nominal, real, deflator) and their components (economic activities, expenditure, income) no later than 10 days after any revisions have been made.
- National Accounts are compiled in accordance with the 2008 SNA; volume measures are annually chain linked and compiled using 2016 as the benchmark year. Quarterly GDP is compiled by Production, Expenditure and Income at current and previous years’ prices.
- Due to Martial Law effects since February 24, 2022, data coverage and quality have deteriorated: the SSSU releases data for only two sectors and one subsector of the core six sectors (industrial production, construction, and retail trade); agriculture and transportation data are available but not of sufficient quality to be published; wholesale trade data is missing.
- The GDP flash estimates are reported with a one month delay; sectoral monthly data are published on a quarterly basis, implying a five-month delay for the first data point.
- Price statistics notes:
  - CPI weights are updated annually; starting in 2022 the CPI basket includes owner-occupied housing.
  - Producer Price Indices (PPI) cover mining and quarrying, manufacturing, utilities and selected services activities, but PPI data and several deflators are not published due to limited reporting.
  - Housing price indices exist (launched 2016 and 2019) but are based on developer/agent surveys and have deficiencies; SSSU is expecting TA for hedonic regression methods and an import price index.

### Government finance statistics, monetary and external statistics
- Compilers are aware of GFSM 2001/2014 methodology; the Law "On Official Statistics" (2022) improved the legal framework.
- The Unified Chart of Accounts for the Public Sector has been introduced to ensure accumulation and disclosure for statistical purposes.
- Comprehensive annual GFS data are reported to STA, though the breadth of data submitted has been reduced in the last two years.
- Monthly monetary and financial statistics are compiled by the NBU and reported to the Fund using SRF forms (SRF 1SR, SRF 2SR, SRF 4SR). Since 2021 SRF 4SR includes non-banking financial services market participants and related administrative data.
- The NBU reports Financial Soundness Indicators (14 core and 11 additional FSIs for deposit takers monthly) following the FSIs Guide 2019; FSIs for real estate markets are monthly, FSIs for other financial corporations are quarterly.
- Quarterly BOP, IIP and EDS are compiled by the NBU following BPM6; EDS are reported to the World Bank. Reserve data template on International and Foreign Currency Liquidity is disseminated monthly within five banking days. Export-Import data are available one month after the end of the reference month.
- Direct Investment (DI) statistics have been improved, including reinvested earnings and inter-firm loans, with responsibility for publishing DI transferred from the SSSU to the NBU, though inconsistencies persist for earlier periods.

### Social assistance reporting
- The Ministry of Social Policy will collect and submit quarterly data to IMF staff on social assistance programs (including IDPs) in an agreed excel format 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.

### IMF relations, safeguards, and financial data highlights
- Membership status: Joined: September 3, 1992. On September 24, 1996, Ukraine accepted obligations of Article VIII, Sections 2, 3 and 4.
- SDR Department: Net cumulative allocation 3,237.66 SDR Million 100.00 %Allocation; Holdings 218.03 SDR Million 6.73 %Allocation.
- Outstanding Purchases and Loans: Stand-by Arrangements 1,937.50 SDR Million 96.31 %Quota; Emergency Assistance 2,011.80 SDR Million 100.00 %Quota; Extended Arrangements 4,803.69 SDR Million 238.78 %Quota.
- Latest Financial Arrangements (EFF): Date of Arrangement 03/31/23; Expiration Date 03/30/27; Amount Approved (SDR million) 11,608.25; Amount Drawn (SDR million) 2,675.73.
- Outright Loans (RFI): Commitments 10/07/22 and 03/09/22; Amount Approved 1,005.90 SDR Million each; Amount Drawn 1,005.90 SDR Million each.
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Forthcoming Principal: 2023 373.67; 2024 1,779.71; 2025 1,736.42; 2026 1,497.59; 2027 912.84.
  - Charges/Interest: 2023 183.96; 2024 644.82; 2025 491.23; 2026 365.22; 2027 280.37.
  - Total: 2023 557.63; 2024 2,424.53; 2025 2,227.65; 2026 1,862.81; 2027 1,193.21.
- Exchange rate and FX measures:
  - On February 24, 2022, following Russia’s invasion, Ukraine stabilized its exchange rate.
  - The official exchange rate of the hryvnia against the U.S. dollar (USD) was UAH/USD 36.5686 as set by the NBU, effective 9am on July 21, 2022, until October 3, 2023.
  - Effective October 3, 2023, the NBU allowed more flexibility in the exchange rate; until a new trend is determined, the de facto arrangement remains classified as stabilized. Ukraine's de jure exchange rate arrangement is floating.
  - Exchange restrictions under Resolution No. 18 include limitations on specific cross-border payments and transfers, notified to the IMF Executive Board as taken solely for national or international security reasons.
  - Ukraine maintains three multiple currency practices subject to Fund approval under Article VIII, Section 3, relating to potential spreads of more than 2 percent between certain exchange rate measures and auction outcomes.
- Safeguards: A 2023 update safeguards assessment of the NBU found adaptation to the war but noted monetary financing risks to NBU’s financial autonomy and the need to strengthen governance practices; recommendations are being implemented.

*Source: IMF staff report informational annex (December 4, 2023).*

### 2015. Strengthening data collection through Enterprises Surveys is essential to improve data quality

### 1ukrea2023003 - 2015. Strengthening data collection through Enterprises Surveys is essential to improve data quality

### II. Data Standards and Quality
- Ukraine is a subscriber of the Special Data Dissemination Standard since January 10, 2003.
- The Data ROSC was published on August 19, 2003.
- Areas identified as needing improved data quality: DI, Services (especially travel and construction services), compensation of employees, personal transfers, and assets abroad.
- Table of Common Indicators Required for Surveillance (snapshot of reporting):
  - Exchange Rates: Date of latest observation 10/31/2023; Date received 11/01/2023; Frequency D; Frequency of reporting D; Frequency of publication D.
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 10/31/2023; Date received 11/06/2023; Frequency D; Frequency of reporting W; Frequency of publication W.
  - Reserve/Base Money: Date of latest observation 10/31/2023; Date received 11/02/2023; Frequency D&M; Frequency of reporting D&M; Frequency of publication M.
  - Broad Money: Date of latest observation 10/31/2023; Date received 11/02/2023; Frequency D&M; Frequency of reporting D&M; Frequency of publication M.
  - Central Bank Sectoral Balance Sheet: Date of latest observation 9/30/2023; Date received 10/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - Other Depository Corporations Sectoral Balance Sheet: Date of latest observation 9/30/2023; Date received 10/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - Interest Rates: Date of latest observation 10/31/2023; Date received 10/31/2023; Frequency D; Frequency of reporting D; Frequency of publication D.
  - Consumer Price Index: Date of latest observation 10/31/2023; Date received 11/09/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - Revenue, Expenditure, Balance and Composition of Financing—General Government: Date of latest observation 9/2023; Date received 10/26/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - Revenue, Expenditure, Balance and Composition of Financing—Central Government: Date of latest observation 9/2023; Date received 10/26/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation 10/31/2023; Date received 11/01/2023; Frequency D & M; Frequency of reporting D & M; Frequency of publication D & M.
  - External Current Account Balance: Date of latest observation 9/2023; Date received 10/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - Exports and Imports of Goods and Services: Date of latest observation 9/2023; Date received 10/2023; Frequency M; Frequency of reporting M; Frequency of publication M.
  - GDP/GNP: Date of latest observation Q4/2022; Date received 3/2023; Frequency Q; Frequency of reporting Q; Frequency of publication Q.
  - Gross External Debt: Date of latest observation Q2/2023; Date received 09/2023; Frequency Q; Frequency of reporting Q; Frequency of publication Q.
  - International Investment Position: Date of latest observation Q2/2023; Date received 10/31/2023; Frequency Q; Frequency of reporting Q; Frequency of publication Q.

### Macroeconomic Outlook during wartime
- Economic performance and drivers:
  - Real GDP returned to growth in annual terms in Q2 2023, reaching 19.5 percent after declining by 10.5 percent in Q1 2023.
  - NBU’s estimate: the economy is expected to grow by about 5 percent in 2023.
  - Key drivers of 2023 recovery: resilience of the economy, adaptation of businesses and households to wartime conditions, substantial budget support, stable energy situation, rebound in domestic demand, high crops, faster expansion of alternative export routes.
- Agriculture and exports:
  - Ukraine is to collect 60 million tons of grains in 2023, an increase of about 6 percent compared to 2022.
  - Expansion of alternative trade routes, including through the Danube ports, supported exports after unilateral withdrawal of Russia from the Black Sea Grain Initiative.
- Inflation and monetary policy:
  - Consumer inflation decelerated to 5.3 percent yoy in October.
  - Factors easing inflation: ample food supply due to higher harvests, increased production of food products, sustainable FX market situation, improved expectations, uneven consumer demand, reduced cost pressures.
  - NBU commitments: maintain appropriate monetary policy stance, keep inflation moderate, manage inflation expectations, safeguard exchange rate stability, maintain international reserves at comfortable levels.

### External Accounts and Reserves
- Current account:
  - In January–October 2023, the current account ran a deficit of USD 6.3 billion compared to a surplus of USD 7.3 billion in the corresponding period last year.
  - Widening of the goods trade deficit to USD 23.6 billion from USD 9.9 billion in January–October 2022.
  - Exports of goods decreased by 16.4 percent y/y.
  - Imports of goods grew by 18.7 percent y/y.
  - Significant amounts of international aid restrained further widening of the current account deficit.
- International reserves:
  - At the end of October, the level of international reserves reached $39 billion.
- External financing received:
  - Ukraine received USD 37.4 billion in grants and loans as part of envisioned official financing.

### Population Displacement and Migration
- Migration and displacement statistics as of end-September 2023:
  - 6.3 million Ukrainian migrants abroad.
  - 4.2 million people have temporary protection status in the EU.
  - About 3.7 million are registered as internally displaced persons (IDPs).
- Return intentions:
  - Research by Gradus: 63 percent of migrants abroad will return to Ukraine once economic factors, security, and housing improve.

### Fiscal Policies and Public Finance
- 2023 fiscal stance and financing:
  - Significant budget deficit in 2023 financed through international aid and domestic debt borrowing.
  - Expenditure policies aimed to accommodate core priorities and provide room for recovery and reconstruction.
- 2024 budget:
  - Approved on November 9th.
  - Expenditure envelope maintains high defense-related spending and allocates additional resources for war veterans and vulnerable households.
  - Budget deficit for 2024 expected to remain on the same level as in 2023.
  - Financing to rely largely on international donor support, domestic borrowing, and internal revenue mobilization.
- Domestic debt market and issuance:
  - Year-to-date rollover rate of 137 percent provided net financing to the budget of about US$3.4 billion (per end of October).
  - About 65 percent of gross UAH issuance raised through benchmark bonds that banks may use to meet NBU reserve requirements.
- Revenue mobilization and reforms:
  - Pre-war setup for taxpayers reinstated in August 2023.
  - Ministry of Finance, with IMF TA, developed a National Revenues Strategy (NRS) to be approved by the cabinet later this year.
  - Repeal of some Martial Law provisions to relaunch mid-term budget framework from 2024 and reinstate a fiscal rule ringfencing risks from state guarantees and limiting reasons for budget amendments.
  - Medium-Term State Debt Management Strategy updated and published at end of October.
  - Planned 2024 actions: enhance expenditure planning and the medium-term budget framework; SOEs stress-testing; fiscal risks assessment with IMF TA.

### Financing and Donor Support
- External support importance:
  - External support is essential to budget financing; many international partners assured continued support to restore debt sustainability and fully finance the program.
  - Despite declines since August, international financial aid remained sufficient to support FX balance and maintain FX reserves.
- IMF program and catalytic effect:
  - Envisioned catalytic effect fulfilled expectations: USD 37.4 billion in grants and loans received.
- Monetary financing:
  - No monetary financing of the budget deficit in 2023.

### Financial Sector Policies and Resilience
- Banking sector developments:
  - Banks experienced further inflows of client deposits (retail and corporate).
  - Increase in share of term retail deposits due to NBU measures.
  - Retail lending cumulative increase in the hryvnia retail portfolio since beginning of year was 16.4 percent by end of October.
  - Corporate lending in the hryvnia has been gradually recovering since June, driven by government support programs like “5-7-9” and also by lending outside these programs.
  - Income drivers: investments in government and NBU securities and corporate loan portfolios.
- Profitability and taxation:
  - The sector generated profits of over UAH 120 billion in the first months of 2023.
  - Parliament adopted a law temporarily increasing CIT from 18 to 50 percent on the profit of banks (to generate about 0.3 percent of GDP for 2024 deficit financing). The rate is to be subsequently cut to 25 percent for profits generated in 2024.
- Regulatory and supervisory measures:
  - NBU finalizing banking sector resilience assessment; preliminary results optimistic: only a few institutions may face a moderate need for capital increase.
  - NBU reinstated credit risk assessment requirements and improved approaches to assess solvency of legal-entity debtors; banks required to implement by 1 November 2023.
  - Starting 2024, banks must restart updating and submitting business recovery plans to NBU.
  - Non-core assets to be deducted from banks' capital in full; 100 percent of operational risk to be accounted for in capital adequacy ratios (vs current 50 percent).
  - NBU plans to introduce a new capital structure next year accounting for market risk while assessing capital adequacy.
  - Most banks have sufficient capital to meet these regulatory requirements despite the expected additional tax on bank profits.

### Governance Policies and Structural Reforms
- Anti-corruption and rule-of-law priorities:
  - Authorities committed to anticorruption and good governance as foundations for post-war growth and EU accession.
- Asset declaration and SAPO reforms:
  - Law on relaunching the asset declaration system adopted by Parliament; asset declarations for years 2021 and 2022 to be submitted by end of January 2024.
  - Draft law to enhance capacity and autonomy of the Special Anticorruption Prosecution Office (SAPO) registered; envisages SAPO as separate legal entity, improved selection procedures for SAPO Director and key officials, strengthened capacity, and mechanisms for discipline and accountability. Adopted in first reading; further strengthening before second reading by end of the year.
- NABU capacity:
  - Draft law to allow National Anticorruption Bureau (NABU) to hire 300 additional employees voted in first reading; expected to be adopted by the end of the year.

### Article IV Consultations and Authorities’ Views
- Authorities’ acknowledgments and priorities:
  - Thanked staff for in-depth report, constructive engagement, and re-opening of the Resident Representative office in Kyiv.
  - Agreed with staff’s assessment of severe impact of the invasion on human and physical capital, living standards, and rising poverty.
  - Authorities committed to ambitious reform agenda and two-phased policy implementation approach.
- Challenges highlighted:
  - Attracting large volumes of foreign capital and directing it to productive investments.
  - Addressing demographic challenges, creating conditions for migrants to return, and reintegrating war veterans into the job market.
  - Managing large-scale aid flows effectively.
  - Gradual relaxation of FX controls and transition to inflation targeting.
  - Need for stronger efforts to mobilize domestic revenues and implement fiscal structural reforms.
  - Difficulty in substantially reducing post-war defense spending due to security needs; additional spending pressures from de-mining and environmental damage remediation.
  - Risks to public sector recruitment from onerous asset declarations and recently adopted AML/CFT law; need for adequate training and re-training of civil servants amid brain-drain to donor organizations.
- Concluding position:
  - Authorities believe MEFP policies are adequate to achieve program objectives in updated baseline and downside scenarios, acknowledging high uncertainty.
  - Request completion of the Second Review and commit to maintaining close policy dialogue with the Fund.
  - Authorities remain strongly committed to full and timely implementation of policies under the EFF to pave the way toward EU accession.

*Statement by Mr. Vladyslav Rashkovan, Alternate Executive Director for Ukraine, December 11, 2023.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ukrea2023003.pdf_