## 1ukrea2024002-print-pdf

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---

### Executive summary — context and recent developments
- War impact and social outcomes:
  - Output remains 25 percent below pre-war levels.
  - Poverty rate has risen to nearly 30 percent.
  - Recent escalation: large-scale missile and drone attacks and targeting of energy infrastructure; around a half of generation capacity has been damaged or destroyed.
  - Mobilization law enacted in April lowered the draft age and strengthened registration requirements and enforcement.
- Key macro and program outturns:
  - Real GDP growth: 2023: 5.3 percent; 2023Q4: sequential growth slowed to 4.7 percent y/y; staff estimate for 2024Q1: 3.8 percent y/y.
  - Consumer prices: 3.3 percent y/y in May; NBU’s target range: 5+/-1 percent.
  - Current account balance: deficit of US$9.2 billion in 2023.
  - International reserves: US$42.4 billion as of end-April.
  - External financing needs for 2024: US$43 billion, requiring significant official donor support (US$33 billion).
  - Private credit expansion: 6.6 percent y/y in April; deposits: 23.4 percent y/y in April; NPLs: 36.1 percent as of April 1.
- Donor and EU/US support:
  - European Council approved a four-year €50 billion Ukraine Facility; €6 billion in bridge financing disbursed as of end-April.
  - United States approved a US$61 billion package in April, including US$7.8 billion in budget support.
  - Extraordinary returns from Russian frozen assets in Europe: €3 billion in 2024 to be channeled to Ukraine.
- Energy impacts and measures:
  - March–May attacks damaged or destroyed over 9 GW (around a half of generating capacity); destroyed capacity estimates: over 80 percent for TPPs and more than 40 percent for HPPs.
  - Electricity production dropped by around 11 percent y/y for April.
  - Authorities estimate total damage from spring attacks at over US$1 billion.
  - Average energy deficit for 2024 estimated around 10 percent, gradually decreasing over 2025, eliminated by early 2026 under current assumptions.
  - Household tariff increases: 60 percent on average as of June 1; in another section noted as up to 64 percent as of June 1, 2024.
- Program performance:
  - All end-March and continuous quantitative performance criteria (QPCs) were met.
  - Staff supports completion of the Fourth Review under the Extended Arrangement, enabling a purchase of SDR 1,669.82 million (83 percent of quota).

### Outlook and risks
- Near term:
  - Recovery expected to decelerate in 2024 due to energy infrastructure attacks and weakening sentiment.
  - Inflation projected to pick up moderately in H2 2024, including due to depreciation and base effects.
  - Fiscal deficit will remain large; FX reserves are projected to remain stable.
- Medium term:
  - Medium-term macroeconomic framework broadly unchanged.
- Baseline growth projections (selected):
  - 2024 projection downgraded to the lower end of the 2 .5–3.5 percent range from 3–4 percent at the Third Review.
  - 2025 growth lowered by 1ppt to 5.5 percent.
  - GDP growth in 2026 revised up slightly by 0.3ppt.
- Downside scenario (Exceptionally High Uncertainty):
  - Assumes a more intense war running into 2025, shock starting in 2024Q3.
  - Output contraction reaches 1.7   percent in 2024 compared with baseline growth of 2.5–3.5 percent.
  - Further contraction of 1 percent of GDP in 2025 due to persistent energy deficits.
  - Some FXI assumed to prevent excessive FX volatility and inflation pass-through.
- Risk assessment:
  - Risks remain exceptionally high; the risk of a prolonged war has risen since the Third Review.
  - Near-term external financing risks diminished following US package approval, but shortfalls or conditionality-linked delays could materialize.

### Policy focus and IMF recommendations
- Fiscal policy and financing:
  - 2024 Budget remains the short-term policy anchor; authorities should stand ready to respond to shocks in H2 2024.
  - Careful liquidity management to continue despite large external disbursements in March.
  - 2025 Budget will require measures to mobilize domestic revenue, strengthen tax administration (including customs and compliance), and advance MTBF and PIM reforms.
  - Committed external budget support needs to be disbursed promptly in 2024; external donor financing remains the main source of budget funding in 2024 (external financing US$38 billion including the Fund).
  - Domestic net bond issuance: about UAH 46.1 billion (almost US$1.2 billion) mobilized through end-May, implying an effective rollover rate of 132 percent.
  - External commercial debt restructuring should be completed on terms consistent with program parameters.
- Monetary and exchange rate policy:
  - Given still high real interest rates there is scope for further monetary policy easing in line with well-anchored expectations and global market conditions.
  - Allowing the exchange rate to adjust to absorb shocks will support external stability.
  - Continue judicious, staged FX liberalization consistent with the NBU Strategy and program objectives.
- Financial regulation and supervision:
  - Continued careful surveillance of the financial system; priorities include strengthening bank resolution and supervision, enhancing credit and capital markets infrastructure, undertaking an independent AQR when conditions allow, and unwinding crisis measures when appropriate.
- Governance and anti-corruption:
  - Progress on SOE corporate governance reform.
  - Authorities commit to advance critical anticorruption reforms including strengthening the criminal procedural code, creating a new high administrative court, and completing the first external audit of NABU.

### Program conditionality, structural benchmarks (SBs), and adjustments
- Performance on SBs:
  - End-March SB on concept note for the 5-7-9 Affordable Loan program met.
  - Continuous SB related to the banking system continues to be met.
  - End-April SB on amendments related to the High Anti-Corruption Court missed by two weeks; amendments subsequently enacted.
- Requested resets and modifications:
  - Reset/modify SB on tax privileges: from end-July to end-September 2024.
  - Reset/modify SB on District Heating Companies: from end-June to end-October 2024.
  - Reset SB on the new administrative court: from end-July to end-December 2024.
- New proposed SBs related to the Customs Code and Criminal Procedure Code.
- Staff supports authorities’ requests for modification of one QPC, resetting of one SB, modification and resetting of two SBs, and completion of the Fourth Review.

### Fiscal liquidity, QPCs, and indicative target outcomes (end-March 2024 highlights)
- Fiscal liquidity response Q1 2024:
  - Authorities relied on expenditure under-execution; tax and SOE dividend advances; net domestic financing amounting to US$0.7 bn in Q1; drawdowns of deposits.
  - From mid-March, official loan and grant budget support disbursements amounting to US$8.9 billion enabled rebuilding of buffers.
- Selected QPC/IT results (end-March 2024):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants: QPC Adjustor 135,0000 Adjusted QPC 135,000 Actual 241,901 Status Met.
  - Floor on tax revenues (excluding Social Security Contributions): 426,300...426,300507,992 Met.
  - Ceiling on publicly guaranteed debt: 47,9005,87953,7795,879 Met.
  - Floor on net international reserves (in millions of U.S. dollars): 28,400-13428,26631,408 Met.
  - Floor on the cash balance of the general government, excluding budget support grants: -344,4850-344,485-211,020 Met.
  - Ceiling on general government borrowing from the NBU: -9,5000-9,500-9,392 Not met (minor temporary miss due to fluctuation in accounts payable unrelated to budget execution).
  - Continuous PC ceiling on non-accumulation of new external debt payments arrears by the general government: 0...00 Met.

### Energy sector damage, response, and program links
- Damage and immediate response:
  - Severe damage: around a half of electricity generation capacity destroyed March–May (over 9 GW); estimated damages over US$1 billion.
  - Urgent repairs underway; affected energy companies relying mostly on working capital; donor support sought for equipment and decentralized generation.
- Measures to bridge deficits:
  - NEURC raised price caps to allow more energy imports by businesses at night.
  - Electricity tariffs for households increased by up to 64 percent as of June 1, 2024.
  - SOEs plan procurement of gas and diesel turbines (plans for up to 1 GW in 2024 and 4 GW in coming years).
  - Demand management: scheduled outages for firms and households during peak demand.
- Program conditionality:
  - DHC desk review and SB reset from end-June to end-October 2024.
  - GTSO preparing for zero-transit scenario at end-2024; draft law #6133 adoption by end-June.
  - Ensure functional independence of NEURC; adopt amendments to Law on NEURC by end-December 2024.

### Debt sustainability, financing assurances, and outlook
- Staff assessment:
  - Staff assesses debt sustainable on a forward-looking basis conditional on a credible restructuring process, adjustment policies, and financing assurances.
  - Cumulative baseline financing gap over the program period: US$121.9 billion (broadly unchanged from the Third Review).
  - Cumulative downside financing gap: US$140.7 billion.
- Financing and capacity-to-repay indicators (baseline):
  - Stock of total Fund credit expected to peak at 8.2 percent of GDP and 35.7 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 1.9 percent of GDP and 8.1 percent of gross reserves in 2024.
- Indicators under downside:
  - Outstanding credit to the Fund would peak at 9.1 percent of GDP in 2026 and 46 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 2.1 percent of GDP in 2025 and 10.4 percent of gross reserves in 2024.
- Debt treatment targets (updated indicative modeling):
  - Principal targets: Public debt should reach 65 percent of GDP by 2033 and GFNs should average 8 percent of GDP over 2028–33.
  - Complementary targets: Public debt should reach 82 percent of GDP by 2028.
  - Aim for flow relief from debt restructuring over 2024–27 of between 1–1.8 percent of GDP per year.
- Official creditors and CtR assurance:
  - CtR assurance group comprises G7 plus Belgium, Lithuania, the Netherlands, Poland, Slovakia, and Spain; assurance reaffirmed recognition of Fund’s preferred creditor status and undertaking to provide adequate financial support.

### National Revenue Strategy (NRS), tax policy, and excise enforcement
- NRS implementation (actions in 2024):
  - Submitted legislation to increase excise rates; launched 2024 taxpayer survey; reinstated post-clearance customs audits; criminalized large-scale customs fraud and smuggling.
- Tax exemptions reform:
  - Staff supports phased approach; reset SB on tax privileges from end-July to end-September 2024.
  - Phase 1: develop formal assessment methodology; Phase 2: apply to instruments targeting most significant tax expenditures first.
- Tobacco excise enforcement (Box 2 highlights):
  - Kantar Ukraine survey estimated illegal products accounted for around 22 percent of the tobacco market.
  - Indicative production/import analysis suggests substantial excise tax gap: estimated excise tax gap of UAH 17–31 billion.
  - Draft legislation (Law #11090) registered to raise excise rates to EU minima; track and trace systems needed (authorities expect operational by early 2026).
- STS and SCS reforms:
  - STS: CRM pilot launch, Digital Development Plan, data confidentiality measures, organizational restructuring by end-2024.
  - SCS: legal amendments to modernize Customs Code to be enacted by end-October 2024 (proposed SB); reinstated post-clearance audits; criminalization measures effective Jan 1, 2024 (excisable goods) and July 1, 2024 (other goods).

### Financial sector reforms, safety net, and market infrastructure
- Deposit Guarantee Fund (DGF) and governance:
  - Diagnostic to close material gaps by end-December 2024 as part of bank rehabilitation framework (SB).
  - Subcommittee to review DGF governance and prepare legislative proposals by end-March 2025.
- Capital markets and secondary market:
  - PFTS accounts for 68 percent of trade volumes, undercapitalized; authorities considering new exchange capitalized around US$0.5 million (30 percent state-owned banks, remainder private/IFI).
  - NBU to extend link to external CSD by end-July 2024; NSSMC to establish direct CSD link by end-July 2025.
- Bank supervisory and resolution actions:
  - Fit and proper framework updated in May to reflect wartime developments and sanctions; new unsuitable criteria defined.
  - Independent AQR to be completed once conditions stabilise; prohibition on capital distributions remains until AQR findings incorporated.
  - Bank rehabilitation framework to be prepared by end-December 2024.
- Financial inclusion and specialized banking:
  - Update financial inclusion diagnostics by end-July 2024 (best efforts with World Bank input).
  - Legislative draft for specialized/restricted banking license to be prepared by end-July 2024.

### Monitoring, TMU definitions, and reporting obligations
- TMU highlights:
  - Official program exchange rate for evaluations: 36.5686 (set by NBU as of March 13, 2023).
  - NIR definition and adjustors specified; NIR targets adjusted for shortfalls in external budget support and net issuance shortfalls of FX domestic securities.
  - Ceiling on general government direct borrowing from NBU: detailed definition and adjustors (e.g., gross borrowing cap equivalent to UAH50 billion every quarter in adjustor rules).
  - Floor on overall cash balance of general government excluding budget support grants defined and cumulative from Jan 1 each calendar year.
- Reporting timelines and data provision (selected):
  - NBU monthly SRFs no later than the 25th day of the following month; daily operational data on NIR; weekly and monthly FX market reporting obligations.
  - Ministry of Finance: monthly cash balance of general government no later than 15 days after month end; monthly stock of all budgetary arrears no later than 25 days after month end.
  - STS and SCS: quarterly listing of tax exemptions no later than two months after quarter end; monthly VAT refund reporting no later than 25 days after month end.
  - Naftogaz and GTSO: monthly cash flow information no later than the 25th of the following month.
  - DGF: monthly reporting on insured deposits and financial position; subcommittee governance reviews and timelines specified.

### Risk Assessment Matrix (RAM) — key risks and policy priorities
- External risks (examples):
  - Intensification of regional conflicts: Risk likelihood: High; Expected impact: High. Policy response: maintain macro policies, mobilize domestic financing, seek grant/concessional financing, update contingency plans.
  - Abrupt global slowdown: Risk likelihood: Medium; Expected impact: High. Policy response: prioritize spending, mobilize domestic financing, diversify external financing.
  - Commodity price volatility: Risk likelihood: High; Expected impact: Medium. Policy response: ration energy access to priority areas, expand gas production, secure alternative sources.
  - Shortfalls in external/domestic financing: Risk likelihood: High; Expected impact: High. Policy response: prioritize spending, diversify external financing, implement contingency plans.
- Domestic risks:
  - Social unrest: Risk likelihood: Medium; Expected impact: High. Policy response: maintain macro stability, explain policies, target transfers to vulnerable groups.
  - Loss of reform momentum: Risk likelihood: Medium; Expected impact: High. Policy response: adhere to governance reforms, implement critical reforms, mobilize domestic financing.
  - Loss of export/transit corridors: Risk likelihood: High; Expected impact: Medium. Policy response: urge partner resolution, diversify supply chains, accelerate reconstruction of transport routes.
- Cross-cutting priorities from RAM:
  - Maintain appropriate macroeconomic policies; mobilize domestic financing and prioritize spending; seek additional grant-based or highly concessional external financing; enhance contingency planning; continue governance, anti-corruption, and judicial reforms; diversify supply chains and export routes; target transfers to most vulnerable groups.

### Annex highlights — external sector, SRDSA, and realism assessment
- External sector assessment (selected):
  - NIIP: -6.0 percent of GDP in 2023.
  - Gross external debt: US$161.5 billion at end-2023 (90.6 percent of GDP); public sector share US$98.3 billion.
  - Current account balance: deficit of 5.2 percent of GDP in 2023.
  - GIR: US$40.5 billion at end-2023 (5.3 months of prospective imports; 124.2 percent of ARA metric); US$42.4 billion at end-April 2024 (5.6 months of prospective imports).
  - REER: depreciated by 5.6 percent in 2023; CA gap implies REER overvaluation of 22.3 percent in the CA model.
- SRDSA and debt dynamics:
  - Updated SRDSA finds high risks; debt unsustainable in pre-restructuring scenario.
  - With commitments, assurances, and a credible process to restructure external commercial debt, staff assesses debt sustainable on a forward-looking basis conditional on fiscal adjustment, concessional financing, and debt restructuring.
  - Pre-restructuring public debt trajectory (selected percent of GDP): 2023: 82.3; 2024: 97.3; 2025: 97.7; 2026: 96.8; 2027: 94.5; 2028: 92.0; 2029: 89.0; 2033: 73.5.
- Annex III Figure 5 (realism assessment):
  - Forecast track record indicates persistent optimism for debt-to-GDP; caution warranted given war shock scale.
  - Key debt drivers: primary deficit and weak recovery.
  - Three-year fiscal adjustment realism depends critically on war duration and speed of deficit reversal.

### Selected cross-cutting implementation timelines and numerical commitments
- Structural benchmarks and timelines (selected):
  - Submit to Parliament draft law to restore and strengthen Article 52 of the Budget Code: End-May 2023 (Met).
  - Adopt National Revenue Strategy: End-December 2023 (Met).
  - Develop methodology to assess effectiveness of tax privileges: modified and reset from End-July 2024 to End-September 2024.
  - Analyze debts and financial conditions of DHCs: modified and reset from End-June 2024 to End-October 2024.
  - Enact law to establish a new administrative court: reset from End-July 2024 to End-December 2024.
  - BDF supervisory board creation by end-September 2024; draft law to clarify board mandate by end-2024.
- Financing flows and projections (selected figures):
  - Cumulative baseline financing gap over program: US$121.9 billion.
  - Cumulative downside financing gap: US$140.7 billion.
  - Total official external financing assumed under baseline (excluding IMF): US$94.6 billion over program period.
  - External budget support disbursed since program start: US$45.1 billion; US$11.8 billion disbursed over January–May 2024; expected additional external budget support for rest of 2024: US$26.1 billion.
  - RDNA-3 estimate of reconstruction needs: US$486 billion over next 10 years (published February 15, 2024).

*Source: 1ukrea2024002-print-pdf — IMF staff report excerpts and accompanying MEFP/TMU.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Russia’s war in Ukraine continues to have a devastating social and economic impact.
- Output remains 25 percent below pre-war levels.
- Poverty rate has risen to nearly 30 percent.
- Recent escalation of conflict includes large-scale missile and drone attacks and targeting of energy infrastructure; around a half of generation capacity has been damaged or destroyed.
- A mobilization law enacted in April lowered the draft age and strengthened registration requirements and enforcement.

### Recent economic and program developments
- Real GDP growth:
  - 2023: 5.3 percent (0.3pp above Third Review projections).
  - 2023Q4: sequential growth slowed to 4.7 percent y/y.
  - Staff estimate for 2024Q1: 3.8 percent y/y.
- Inflation and monetary indicators:
  - Consumer prices: 3.3 percent y/y in May.
  - NBU’s target range: 5+/-1 percent.
- External sector and reserves:
  - Current account balance: deficit of US$9.2 billion in 2023.
  - International reserves: US$42.4 billion as of end-April.
  - External financing needs for 2024: US$43 billion, requiring significant official donor support (US$33 billion).
  - Forgone imports linked to border blockades: up to US$1.1 billion in 2024Q1 (NBU estimate).
- Donor and EU support:
  - European Council approved the four-year €50 billion Ukraine Facility and the underlying Ukraine Plan; €6 billion in bridge financing under the Facility disbursed as of end-April.
  - United States approved a US$61 billion package of military and financial support in April, including US$7.8 billion in budget support.
  - Extraordinary returns from Russian frozen assets in Europe: €3 billion in 2024 to be channeled to Ukraine.
- Credit and banking:
  - Private credit: expansion of 6.6 percent y/y in April.
  - Deposits: 23.4 percent y/y in April.
  - Nonperforming loans (NPLs): 36.1 percent as of April 1.
- Energy sector impacts:
  - Large-scale attacks (late March–May) damaged or destroyed over 9 GW (around a half of generating capacity).
  - Destroyed capacity estimates: over 80 percent for TPPs and more than 40 percent for HPPs.
  - Electricity production: dropped by around 11 percent y/y for April.
  - Authorities estimate total damage from spring attacks at over US$1 billion.
  - Average energy deficit for 2024 estimated around 10 percent, gradually decreasing over 2025, eliminated by early 2026 under current assumptions.
  - Household tariff increases: 60 percent on average as of June 1.
- Program performance and financing:
  - All end-March and continuous quantitative performance criteria (QPCs) were met.
  - Authorities request modifications of the end-June QPC on net international reserves (NIR) primarily due to revised assumptions on timing of US external financing.
  - Staff supports completion of the Fourth Review under the Extended Arrangement, enabling a purchase of SDR 1,669.82 million (83 percent of quota).

### Outlook and risks
- Near term:
  - Recovery expected to decelerate in 2024 due to recent attacks on energy infrastructure and weakening sentiment.
  - Inflation projected to pick up moderately in the second half of the year, including due to depreciation and base effects.
  - Fiscal deficit will remain large; FX reserves are projected to remain stable.
- Medium term:
  - Medium-term macroeconomic framework broadly unchanged.
- Risks:
  - Downside risks remain exceptionally high due to war-related uncertainties, potential spending and financing shocks, and social impacts of policies that may be required if shocks materialize.

### Policy focus and recommendations from the review
- Fiscal policy:
  - 2024 Budget remains the short-term policy anchor despite risks.
  - Authorities should stand ready to respond to potential shocks in the second half of the year.
  - Careful liquidity management to continue despite large external disbursements in March.
  - 2025 Budget will require measures to mobilize domestic revenue, strengthen tax administration (including customs and compliance), and advance medium-term budgeting and public investment management reforms.
- Financing:
  - Committed external budget support needs to be disbursed promptly in 2024 to maintain macroeconomic and financial stability.
  - External donor financing remains the main source of budget funding in 2024; net financing from the domestic market is also making an important contribution.
  - External commercial debt restructuring should be completed on terms consistent with program parameters.
- Monetary and exchange rate policy:
  - Given still high real interest rates there is scope for further monetary policy easing, in line with well-anchored inflation expectations and global market conditions.
  - Allowing the exchange rate to adjust to absorb domestic and external shocks will help support external stability.
  - Continue a judicious and staged approach to liberalizing FX controls in line with the National Bank of Ukraine’s (NBU) Strategy, ensuring consistency with the overall policy mix.
- Financial regulation and supervision:
  - Continued careful surveillance of the financial system to contain risks to stability.
  - Priorities: strengthen bank resolution and supervision; enhance credit and capital markets infrastructure; undertake an independent asset quality review when conditions allow; unwind crisis measures when appropriate.
- Governance and anticorruption:
  - Progress on SOE corporate governance reform.
  - Authorities commit to advance critical anticorruption reforms, including strengthening the criminal procedural code, creating a new high administrative court, and completing the first ever external audit of the National Anti-corruption Bureau (NABU).

### Program issues and structural benchmarks
- Performance and conditionality:
  - Progress on reform agenda robust; end-March structural benchmark (SB) on a concept note on the 5-7-9 Affordable Loan program met.
  - Continuous SB related to the banking system continues to be met.
  - End-April SB on amendments related to the High Anti-Corruption Court was missed due to a short legislative delay, though related amendments were subsequently enacted.
- Requested resets and modifications of SBs:
  - Reset and modify SB on tax privileges: from end-July to end-September 2024.
  - Reset and modify SB on the District Heating Companies: from end-June to end-October 2024.
  - Reset SB on the new administrative court: from end-July to end-December 2024.
- New proposed SBs:
  - Related to the Customs Code and Criminal Procedure Code.
- Financing assurances and debt restructuring:
  - Financing assurances are in place.
  - A credible process is underway with respect to the external commercial debt restructuring.

*Source: 1ukrea2024002-print-pdf - EXECUTIVE SUMMARY*

### 5.      Fiscal liquidity pressures eased substantially in mid-March following large external

### 5.      Fiscal liquidity pressures eased substantially in mid-March following large external

### Fiscal liquidity and budget implementation
- Q1 budget implementation was challenging due to a temporary drying up of external financing inflows.
- Authorities relied on:
  - expenditure under-execution;
  - tax and SOE dividend advances;
  - net domestic financing amounting to US$0.7 bn in Q1;
  - drawdowns of deposits.
- Strong corporate tax collections, largely reflecting a higher-than-expected yield from the one-time bank profit tax, provided additional support.
- From mid-March, official loan and grant budget support disbursements amounting to US$8.9 billion enabled a rebuilding of buffers.

### Monetary policy and exchange rate
- The National Bank of Ukraine (NBU) has continued with monetary easing while allowing the exchange rate to adjust.
- NBU actions and rationale:
  - Cited faster-than-expected disinflation, well-anchored expectations, stable FX market conditions, and positive external financing developments.
  - Cut the key policy rate (KPR) by 200 bps cumulatively since March.
  - Forward guidance indicated easing could continue if inflation and exchange rate risks remain contained.
  - Continued to refine the operational design of monetary policy to enhance transmission.
- Exchange rate and interventions:
  - The exchange rate has shown increasing flexibility to external shocks.
  - Interventions remain sizable given the structural supply deficit in the FX market.

### Program performance under the arrangement
- Quantitative and continuous performance:
  - All end-March 2024 and continuous QPCs were met and all but one of the end-March 2024 ITs were met.
  - A temporary fluctuation in accounts payable unrelated to budget execution led to a minor and temporary miss of the IT on the ceiling on general government direct borrowing from the NBU.
- Structural conditionality:
  - End-March 2024 SB met to develop a concept note on the 5-7-9 Affordable Loan program.
  - Amendments to the procedural code on adjudication by the High Anti-Corruption Court (HACC) were enacted; the end-April SB deadline was missed by two weeks due to legislative delays.
  - Continuous SB related to the banking system continued to be met.

### Quantitative Performance Criteria and Indicative Targets (end-March 2024) — selected table entries
- I. Quantitative Performance Criteria
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (- implies a deficit): QPC Adjustor 135,0000 Adjusted QPC 135,000 Actual 241,901 Status Met
  - Floor on tax revenues (excluding Social Security Contributions): 426,300...426,300507,992 Met
  - Ceiling on publicly guaranteed debt: 47,9005,87953,7795,879 Met
  - Floor on net international reserves (in millions of U.S. dollars): 28,400-13428,26631,408 Met
- II. Indicative Targets
  - Floor on the cash balance of the general government, excluding budget support grants (- implies a deficit): -344,4850-344,485-211,020 Met
  - Ceiling on general government arrears: 2,000...2,0001,514 Met
  - Floor on social spending: 130,000...130,000142,139 Met
  - Ceiling on general government borrowing from the NBU: -9,5000-9,500-9,392 Not met
- III. Continuous performance criterion
  - Ceiling on non-accumulation of new external debt payments arrears by the general government: 0...00 Met

### Outlook and risks — baseline and downside
- Baseline assumptions:
  - Continues to assume the war will wind down by end-2024, but evolution remains subject to exceptionally high uncertainty.
- Growth projections:
  - 2024 projection downgraded to the lower end of the 2 .5–3.5 percent range from 3–4 percent at the Third Review.
  - 2025 growth lowered by 1ppt to 5.5 percent.
  - GDP growth in 2026 revised up slightly by 0.3ppt.
- Inflation and current account:
  - End-year inflation projection now at 8 percent (½ppt below the Third Review).
  - Current account deficit expected at US$10.6 billion in 2024 (5.8 percent of GDP).
  - Reserves expected to end the year at US$41.8 billion (5.5 months of imports, 113.7 percent of the ARA metric).
- Medium-term outlook:
  - Medium-term baseline broadly unchanged; growth beyond 2026 envisages gradual recovery supported by structural reforms and EU accession path.
  - Medium-term inflation outlook unrevised.
- Downside scenario (Exceptionally High Uncertainty considerations):
  - Assumes a more intense war running into 2025, with the shock now assumed to start in 2024Q3 compared to 2024Q2 in the Third Review.
  - Output contraction reaches 1.7   percent in 2024 compared with baseline growth of 2.5–3.5 percent.
  - Further contraction of 1 percent of GDP in 2025 due to persistent energy deficits.
  - Inflation higher in 2024 compared to baseline in part due to higher assumed depreciation and supply side shocks; overall inflation outlook unchanged relative to Third Review due to offsetting factors.
  - Given reserve buffers, some FXI is assumed to prevent excessive FX volatility and inflation pass-through.
  - Downside continues to anticipate added donor financing relative to the baseline for the duration of the war, commensurate with that at program approval.
- Risk assessment:
  - Risks to the outlook remain exceptionally high; the risk of a prolonged war has risen since the Third Review.
  - Near-term external financing risks diminished following US approval of the budget and military support package, but shortfalls or delays could materialize if conditionality to unlock disbursements is not implemented.
  - A prolonged and more intense war, absent additional external support, may require resorting to sub-optimal measures (e.g., cuts to public assistance or accumulation of expenditure arrears).

### Fund enterprise risk assessment
- Staff assesses significant and rising enterprise risks to the Fund from Ukraine’s Extended Arrangement under the Extended Fund Facility, primarily due to uncertainty around the duration and intensity of the war and its impact on financing assurances and debt sustainability.
- After assessing business, financial, strategic, and reputational risks, staff concludes enterprise risks of proceeding with the Fourth Review are lower than those of delaying.
- Staff assesses that all legal and policy requirements to proceed with the review are met at this stage.

### Policy discussions — Macro-fiscal policies and financing
- 2024 Budget anchors fiscal policy:
  - Budget provides allocation for a full year of defense operations while prioritizing other essential expenditure categories.
  - Reflects revenue measures identified at budget approval, including the extraordinary one-off tax on bank profits.
  - Budget envisages an overall deficit excluding grants of UAH 1,562 billion, or around 21 percent of GDP.
- Financing:
  - 2024 deficit excluding grants principally financed through external budget support from donors, amounting to US$38 billion (including the Fund).
  - Domestic financing also important: authorities mobilized about US$1.2 billion in net domestic bond issuance through end-May (an effective rollover rate of 132 percent).
  - Authorities extended maturities out to two and three years, lowering refinancing risks.
- Policy recommendations and risks:
  - Authorities should be prepared to seek offsetting savings and continue to tap the domestic bond market if budget execution risks materialize.
  - Authorities are identifying additional near-term revenue options based on a working group that met in February.

### Policy discussions — Tax policy alignment and revenue mobilization
- Alignment with EU requirements:
  - Laws to raise tobacco and fuel product excise tax rates to the EU minimums over 2024H2–2028 have been recently registered in parliament.
  - If adopted, additional revenues would begin accruing beginning in 2024H2, with yields rising over the transition period.
  - Improved tax administration—especially for tobacco products—is important for revenue realization.
  - Prompt completion of arrangements to introduce track and trace systems is needed to align with EU regulations.
- 2025 Budget and Budget Declaration (2025–27):
  - Budget Declaration expected to be approved by the Cabinet of Ministers in late-June and then submitted to Parliament.
  - 2025 budget development will need to accelerate domestic resource mobilization and contain expenditures within a tight envelope.
  - Revenue policies should continue aligning tax policies with EU requirements, phase out preferential VAT rates, and move ahead with environmental taxation reforms.
  - Prompt attention and interaction with the EU needed to avoid adverse impacts of the EU’s Carbon Border Adjustment Mechanism, which enters its definitive regime starting in 2026.
- Medium-term fiscal strategy:
  - Revenues-based fiscal adjustment, concessional financing, and debt restructuring are critical to restoring fiscal and debt sustainability.
  - Targeted increase in the tax-to-GDP ratio of 3–   4 percent of GDP during 2024–27 is appropriate.
  - Borrowing strategies should emphasize concessional financing and a cautious approach to returning to international capital markets.

### Box 2 — Issues in enforcement of excise taxation of tobacco products
- Key points on illicit tobacco and revenue loss:
  - Evidence of substantial illicit cigarette production in Ukraine.
  - Kantar Ukraine survey estimated illegal products accounted for around 22 percent of the tobacco market.
  - Indicative calculations using imports of key inputs to cigarette production suggest a wide discrepancy between production reported for tax purposes and production implied by imports.
  - Estimated excise tax gap of UAH 17–31 billion; overall tax gap could be larger if VAT noncompliance considered.
- Policy implications:
  - Strengthening enforcement of excise taxes will help maintain stability and raise revenue for priority expenditures.
  - Draft legislation (Law #11090) registered in Parliament would increase excise tax rates on tobacco products to EU minima if passed; enforcement must move in parallel to realize revenue potential.
  - Track and trace systems are needed to be compliant with EU norms; authorities expect to achieve this in early 2026.
  - A Prime Ministerial order in September 2023 directed intensification of efforts to combat illegal trade in excisable goods.
  - A working group chaired by the Economic Security Bureau of Ukraine and involving multiple agencies has been constituted to coordinate enforcement.
- Selected quantitative indicators and estimates:
  - Total cigarette consumption (billion): Actual 31.5; Kantar Ukraine Survey 37.0; Analysis w/ Inputs to Production 43.2
  - Of which illicit cigarettes, number of cigarettes (billions): ...8.1 14.8
  - Percent of total consumption (illicit): ...21.9 34.3
  - Excise tax per 1,000 cigarettes, 2023: 2,097.1 2,097.1 2,097.1
  - Estimated excise tax gap (UAH bn): ...17.0 31.1

*Source: IMF staff report (selected excerpts).*

### 17.      The authorities are advancing implementation of the national revenue strategy (NRS).

### 17.      The authorities are advancing implementation of the national revenue strategy (NRS).

### NRS implementation and recent actions
- NRS implementation plans are in place for tax administration, customs administration, and tax policy.
- Key actions taken so far in 2024 include:
  - submitting legislation to increase excise rates,
  - launching the 2024 taxpayer survey,
  - reinstating post-clearance customs audits,
  - criminalizing large-scale customs fraud and smuggling.
- Staff encouraged the authorities to consider mechanisms for reform oversight and recommended public outreach to seek buy-in for the reforms.

### Tax exemptions and tax policy reform
- Rationalizing tax exemptions and improving their targeting remains a near-term reform priority (MEFP ¶24).
- Staff supports a phased approach to assessing the effectiveness of existing tax privileges and to reset and revise the end-July SB.
  - The reset is proposed to move from end-July to end-September 2024 (SB, proposed to be modified and reset).
  - Phase 1: develop a formal assessment methodology for tax privileges and guidelines.
  - Phase 2: apply the new methodology to all relevant instruments, targeting the most significant tax expenditures first.
- Supported by IMF TA, the authorities are evaluating options to reform the hydrocarbon tax regime.

### Administrative reforms: State Tax Service (STS) and State Customs Service (SCS)
- Objectives for 2024: improve performance of SCS and STS and build public trust (MEFP ¶26–27).
- STS efforts include:
  - restructuring to align with the principle of functional organization and facilitate modern compliance risk management (CRM) practices;
  - prompt launch of STS’s CRM pilot;
  - a long-term Digital Development Plan for STS;
  - measures to ensure confidentiality and protection of taxpayer data to address integrity issues and advance EU alignment and major tax policy objectives.
- SCS reforms and actions:
  - preparing legal amendments to modernize the customs code in line with best practice, to be enacted by end-October 2024 (proposed SB);
  - important considerations: alignment with EU legislation, continued subordination of SCS to the Ministry of Finance, strengthening personnel integrity, and a merit-based and transparent process for leadership selection with integrity checks and meaningful participation of experts with international experience;
  - other reforms in 2024 include modernizing the framework to address administrative liability for violations of customs regulations and developing criteria to assess the impact of the SCS Anti-Corruption Program.

### Economic Security Bureau of Ukraine (ESBU) reform
- Authorities remain committed to timely adoption of legislation to reform the ESBU (end-June SB, MEFP ¶28).
- ESBU focus: major economic crimes, activities directed and coordinated by the CMU.
- Parliamentary progress: in April, Parliament passed the ESBU draft law in the first reading; the draft has been further strengthened following input from international partners and stakeholders.
- Key elements of the draft law:
  - open, transparent, and competitive selection of management and staff, including a decisive vote of independent experts with international experience who will play a role in re-attestation of existing staff;
  - the new ESBU Head will approve procedures for the re-attestation mechanism;
  - existing delineation between ESBU and NABU investigative powers will be maintained.
- Expected benefits: full relaunch of ESBU would help detect major financial and economic crimes and enhance analytical capacity to identify tax evasion (such as excise on tobacco, Box 2).
- Staff will initiate discussions on implementation plans following adoption of the law.

### Public Financial Management (PFM) and public investment management (PIM)
- Efforts to develop and implement the PFM reform agenda are progressing (MEFP ¶29, ¶37).
- Rationale: enhance management of scarce fiscal resources during the war, prepare for post-war reconstruction, and support EU accession.
- MTBF reforms will be based on identification of gaps in the pre-war MTBF.
- Action plan to implement the 2023 PIM road map is at an advanced stage.
- Near-term PIM and MTBF reforms—especially required changes to the Budget Code—should be implemented swiftly to guide the 2026 budget cycle.
- The government’s Strategic Investment Council has been established and is defining the government’s project pipeline for the 2025 Budget.

### Fiscal risk monitoring and the 5-7-9 program
- Authorities are implementing reforms to monitor and contain fiscal risks (MEFP ¶31–35).
- Fiscal Risk Statement included beginning with the 2024 Budget; authorities are compiling information on key risks to be included in the 2025–27 Budget Declaration.
- To reduce risks from the 5-7-9 program, the authorities prepared a concept note (end-March SB); several steps have already been implemented.
  - In line with the 5-7-9 concept note, authorities are working on reforms to strengthen the BDF’s governance framework:
    - creating a supervisory board by end-September 2024;
    - legislation to clarify the board’s mandate and ensure its independence by end-2024.
- Near-term measures in the concept note to contain losses from the 5-7-9 program include:
  - reducing bank margins under the program (implemented);
  - reducing the size of working capital loans (implemented);
  - reinstating state-aid rules (envisaged by end-June 2024);
  - further targeting the lower end of medium-sized enterprises (envisaged by end-June 2024).

### Monetary and exchange rate policy (overview from C. Monetary and Exchange Rate Policies)
- Monetary stance and operational framework:
  - NBU should continue easing while maintaining appropriately positive real interest rates.
  - Inflation fell further below the target range and inflation expectations are stable, creating scope for further easing beyond the 200 bps of cumulative cuts at the March, April, and June MPCs, while maintaining positive real rates.
  - Staff’s analysis suggests further easing in 2024 would be consistent with reaching the NBU’s inflation target by 2026 within its policy horizon and maintaining positive real rates.
- Operational framework:
  - Floor-based monetary policy operational framework remains appropriate given structural liquidity (MEFP ¶43).
  - In October 2023, the NBU shifted from a corridor to a floor system, aligning the KPR with the main overnight CD instrument and maintaining the 3-month CD linked to hryvnia term deposit growth.
  - Recent operational adjustments: changing limits for investment in 3-month CDs, reducing spreads between rates on 3-month CDs and overnight CDs, and reducing the spread between the KPR and the refinancing rate.
  - Recommendation: continue to monitor banks' behavior and transmission; consider introducing instruments beyond overnight maturity over time; authorities have requested IMF TA on this issue.
- FX liberalization and exchange rate guidance:
  - NBU should maintain a cautious approach to FX liberalization balancing risks to the outlook and the need to support recovery (MEFP ¶46).
  - The NBU eased a large bloc of FX controls in May; transactions now allowed include imports of services, repatriation of new dividends, and repayment of interest payments on old loans.
  - Continued cautious liberalization should remain anchored on the principles-based Strategy; close monitoring, including via bank-level data, is recommended to identify circumvention.
  - Existing FX controls restricting payments and transfers for current international transactions remain approved by the Fund under Decision No. 144 due to notification for reasons of national or international security.
  - The exchange rate should continue to serve as a shock absorber and adjust flexibly to external and domestic conditions; FX interventions should be appropriately calibrated to safeguard FX reserves and align with program objectives, including adherence to the NIR target.
- Safeguards and governance:
  - Authorities are implementing recommendations of the 2023 safeguards assessment (MEFP ¶49–52).
  - Progress underway: formalizing framework between NBU and MOF for potential monetary financing, improving MOF payment discipline to the NBU, and strengthening integrity of NBU’s framework for lending to banks.
  - Further progress needed on aligning appointment processes for NBU Council and Board members with best practices.

### Financial sector: safety net, markets, and inclusion
- Deposit Guarantee Fund (DGF) and governance:
  - Financial safety net capacity and governance being strengthened.
  - Diagnostic study identified material gaps to be closed by end-December 2024 as part of the bank rehabilitation framework (SB, MEFP ¶56).
  - A subcommittee of the Financial Stability Council, in consultation with IFIs, will review DGF governance and prepare legislative proposals to close gaps by end-March 2025.
- Secondary market functioning:
  - PFTS accounts for 68 percent of trade volumes, is undercapitalized, and owner will not infuse fresh capital.
  - Authorities considering establishing a new exchange to safeguard secondary market functioning; capital of around US$0.5 million will be partly provided by state owned banks (30 percent) and the remainder from private sources, including IFIs.
- Fit and proper framework:
  - NBU updated fit and proper framework in May to reflect wartime developments and sanctions.
  - New unsuitable criteria include direct employment by Russian or Belarussian owned entities or holding positions in parent companies owning shares in those entities, and increases in ownership of entities in those countries (excluding assets acquired as part of non-performing loan resolutions and other ‘unintentional’ acquisitions).
  - Non-compliance by managers or significant shareholders would result in non-compliance of the parent company and suspension of voting rights until compliance is restored.
- National lending development strategy:
  - Authorities approved a national lending development strategy in June 2024 to support credit growth (MEFP ¶62).
  - Strategy focuses on intensifying credit support for priority sectors and frontline territories via subsidized lending, loan guarantee and war risk insurance schemes; and developing credit infrastructure, legal tools, valuation standards, and the non-performing loans market.
  - Authorities emphasized new development finance initiatives will adhere to best practices to limit fiscal risks (MEFP ¶35).
- Financial inclusion and specialized banking license:
  - Authorities committed to:
    - updating financial inclusion diagnostics on a best efforts basis with World Bank input by end-July 2024;
    - encouraging financial institutions to better meet needs of vulnerable clients and reintegrate de-occupied territories;
    - preparing by end-July 2024 a legislative draft proposal for a new specialized and restricted banking license leveraging existing infrastructure such as the postal network.
  - These specialized banks will be subject to the law on Banks and Banking, will participate in the Ukraine deposit insurance scheme, and will have strict limits on lending and funding operations.
- Capital markets infrastructure:
  - NBU will extend its link to an external Central Securities Depository (CSD) by July 2024 to facilitate foreign capital access to municipal bonds and other reconstruction-related debt instruments.
  - National Securities and Stock Market Commission will establish a direct link between the CSD and foreign CSDs by end-July 2025 to expand foreign investors’ access.

### Governance and anti-corruption reforms
- Critical anticorruption reforms and new areas:
  - A law enacted in May to enhance efficiency of the High Anti-Corruption Court (HACC) allows adjudication by a single judge or panel depending on penalty severity (end-April SB—not met; implemented with short delay).
  - A list of high-level public officials was added as a criterion for adjudication by a panel, which may negatively affect judicial efficiency; authorities will monitor and implement corrective measures if warranted.
  - Legislative amendments to create a new high administrative court require further stakeholder consultation (SB proposed to be reset from end-July to end-December 2024).
  - Independent auditors nominated by international partners should be selected to conduct the first external audit of the NABU (end-September SB), assessing internal control mechanisms and safeguards against information leakages and vested interests.
  - Urgent reforms needed: NABU’s access to forensic experts, selection and training of additional NABU staff, appointment and resourcing for new anti-corruption judges, and legislative amendments on corporate criminal liability (MEFP ¶67).
  - With IMF AML/CFT capacity development support, the NBU is on track to issue guidance on risk-based approaches to customer due diligence for politically exposed persons (MEFP ¶68).
- SOE governance:
  - Authorities advancing implementation of SOE governance law (#3587-IX).
  - IMF staff coordinating with partners on the state-ownership strategy (end-October SB) to include dividend policy and privatization strategy (MEFP ¶71).
  - IMF technical assistance provided on key SOE financial indicators for planned bylaws to operationalize the SOE law.
  - MOF committed to prepare an assessment of financial conditions and fiscal risks of the largest SOEs by end-July (critical input for ownership strategy).
  - A framework for supervisory board assessment is being developed and will be applied to an independent evaluation of the supervisory boards of Naftogaz and Ukrenergo to be launched in October.
  - IMF staff emphasized decisive implementation of the SOE law and the importance of the MOF as gatekeeper for fiscal and debt sustainability risks.

*Source: 1ukrea2024002-print-pdf - 17.      The authorities are advancing implementation of the national revenue strategy (NRS).*

### 36.      The authorities are taking steps to address the recent large-scale energy attacks. The

### The authorities are taking steps to address the recent large-scale energy attacks.

### Energy-sector damage and immediate response
- Severe damage and destruction of around a half of electricity generation capacity during March-May (over 9 GW) has complicated stabilization and structural energy market reforms.
- Given the estimated US$1bn in damages, urgent repairs of the salvageable energy infrastructure are being undertaken by the affected energy companies.
- Support from international donors is being sought to provide needed equipment and financial resources, including for decentralized electricity generation.
- Preparations for the next gas heating season are underway, with the authorities expecting that domestic gas production will satisfy estimated consumption amid large and safe gas storage deeply underground.

### Measures to bridge current and prospective energy deficit
- Price and procurement adjustments:
  - In late May, the energy regulator NEURC substantially raised the price caps to allow more energy imports by businesses at night.
  - The authorities increased the electricity tariffs for households by up to 64 percent as of June 1, 2024, bringing tariffs closer to cost recovery levels and adjusting incentives for electricity usage during the heating season.
- Imports and generation plans:
  - Discussions are underway to increase energy import caps from the EU within technical limits.
  - SOEs plan to procure gas and diesel turbines to boost power generation over the medium-term (with e.g., plans for up to 1 GW of gas-fired energy generation in 2024 and 4 GW in the coming years).
- Demand management:
  - Scheduled and needed power outages for firms and households, especially during peak energy consumption, would help balance the energy system.

### Program conditionality and energy-related commitments
- The authorities are committed to the program’s energy-related conditionality (MEFP ¶74), including:
  - Desk review of the debts (arrears) and financial conditions of District Heating Companies (DHCs); the authorities requested more time and proposed modifying and resetting the SB from end-June to end-October 2024.
  - GTSO preparing financially and operationally for a scenario where the Gazprom transit contract expires at end-2024, including timely adoption of draft law #6133 by end-June.
  - Ensuring the functional independence of the National Energy and Utilities Regulatory Commission (NEURC), to support EU integration, attract FDI, decentralize power generation, and increase resilience to missile attacks.

### Debt sustainability strategy and financing framework
- Authorities’ announced strategy (March 24, 2023) entails restructuring official bilateral and external commercial claims to:
  - (i) restore sustainability;
  - (ii) preserve liquidity and reduce the financing gap during the program;
  - (iii) create conditions for private participation in post-war reconstruction.
- Program targets (updated indicative modeling):
  - Principal targets: Public debt should reach 65 percent of GDP by 2033 and GFNs should average 8 percent of GDP over 2028–33.
  - Complementary targets: Public debt should reach 82 percent of GDP by 2028.
  - Ukraine should aim to achieve flow relief from debt restructuring over 2024–27 of between 1–1.8 percent of GDP per year.
  - Any debt service payments on restructured instruments during the program period must be restricted and kept at token levels to respect comparability-of-treatment.
- Debtor-creditor developments:
  - Official bilateral debt: The Group of Creditors of Ukraine (GCU) committed to a 2-stage process; first step extended the debt standstill until 2027 (formally agreed in December 2023). A second-stage definitive treatment consistent with restoring sustainability will be completed before the final review of the EFF.
  - External commercial claims: Initial proposals prepared and discussions ongoing; a first set did not yield agreement in principle but discussions continue with an ambitious timeline to seek agreement by the time the standstill on these claims expires this August.
  - Ukraine does not have external arrears.

### Staff assessment of sustainability and safeguards
- Staff assesses that debt is sustainable on a forward-looking basis and that sufficient safeguards are in place for the Fund to proceed with financing, based on:
  - (i) a credible process in train for restructuring debt in line with program parameters; and
  - (ii) commitments under the program on adjustment policies and financing, including exceptional financing if the downside scenario materializes.
- Financing assurances:
  - The capacity-to-repay (CtR) assurance provided by a significant group of creditors/donors at program approval remains valid.
  - The CtR assurance group comprises countries in the G7 plus Belgium, Lithuania, the Netherlands, Poland, Slovakia, and Spain, who extended an assurance understood to (i) reaffirm recognition of the Fund’s preferred creditor status in respect of amounts currently outstanding to Ukraine, plus any purchases under the proposed extended arrangement; and (ii) further undertake to provide adequate financial support to secure Ukraine’s ability to service all of its obligations to the Fund.
  - Staff will continue outreach with members that indicate an interest in joining the CtR assurance.

### Financing outlook and key numbers
- The program remains fully financed. The cumulative baseline financing gap over the program period is estimated at US$121.9 billion, broadly unchanged from the Third Review.
- Drivers of the baseline financing gap update include:
  - Increased EC disbursements during the program period (€0.6 billion).
  - Fresh grant and loan financing from Serbia (€32 million) and the World Bank (US$20 million).
  - Revised exchange rate assumptions.
- The cumulative downside financing gap is projected to remain broadly unchanged at US$140.7 billion.
- Staff noted firm commitments through 2025Q2 and reconfirmed good prospects on financing for the remaining program period, consistent with restoring debt sustainability on a forward-looking basis under both baseline and downside scenarios.
- Indicators of capacity to repay the Fund (baseline):
  - Stock of total Fund credit expected to peak at 8.2 percent of GDP and 35.7 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 1.9 percent of GDP and 8.1 percent of gross reserves in 2024.
- Indicators under downside scenario:
  - Outstanding credit to the Fund would peak at 9.1 percent of GDP in 2026 and 46 percent of gross reserves in 2024.
  - Debt service to the Fund would peak at 2.1 percent of GDP in 2025 and 10.4 percent of gross reserves in 2024.

### Staff appraisal and policy implications
- Macroeconomic management:
  - The authorities have maintained macroeconomic stability; economic activity remained resilient through 2024Q1, disinflation has continued, and FX reserves remain adequate.
  - Significant headwinds remain: energy attacks, impact of mobilization, rising risks of a longer war, and potential delays in external financing.
- Program performance:
  - The authorities delivered a strong performance in the Fourth Review: all end-March and continuous QPCs were met.
  - Progress on the reform agenda has been robust, including meeting the SB for the concept note related to the 5-7-9 Affordable Loan program and implementing SB on legal amendments related to the High Anti-corruption Court (though with a short delay).
- Financing risks and budget guidance:
  - Timely disbursement of committed external financing remains critical to close financing gaps, maintain core state functions, and preserve stability.
  - The 2024 Budget remains the appropriate anchor for fiscal policies in 2024; authorities should start preparing a robust framework for the 2025 Budget while also preparing to respond to shocks.
  - If liquidity strains resume or adverse shocks materialize, decisive actions would be needed including through domestic resource mobilization.
  - Given still high spending needs and risks, the 2025 Budget will require impactful measures to mobilize domestic revenue and expenditure prioritization, supported by critical fiscal reforms.

*IMF staff report excerpt.*

### 51.      The authorities need to sustain the momentum of fiscal structural reforms to help

### The authorities need to sustain the momentum of fiscal structural reforms to help mobilize revenue and contain fiscal risks

### Fiscal structural reforms and revenue mobilization
- Advance tax policy and revenue administration reforms, anchored by the National Revenue Strategy.
- Near-term priority: strengthen tax and customs administration.
- Progress on enforcement issues, notably in tobacco excise, would have a powerful demonstration effect.
- Continue efforts to ringfence fiscal risks.
- Recent reforms to the 5-7-9 lending program and ongoing governance improvements to the Business Development Fund are welcome.
- Swiftly adopt the law to relaunch the ESBU to effectively address major economic crimes.
- Adopt amendments to the Customs Code in line with best practice in the coming months.

### External commercial debt treatment and debt sustainability
- Complete the external commercial debt treatment on terms consistent with program parameters to deliver debt sustainability in both the baseline and the downside scenarios.
- Such a treatment, along with fiscal adjustment and an appropriately concessional financing mix in the future, will be essential to:
  - create room for critical spending, and
  - bring debt and gross financing burdens to sustainable levels.

### Monetary policy and exchange rate framework
- Monetary policy easing should continue.
- The exchange rate should adjust to domestic and external shocks.
- Recent disinflation and well-anchored inflation expectations provide scope for further rate cuts.
- Enhance exchange rate flexibility to absorb shocks and limit excessive FX intervention to support resilience and safeguard FX reserves.
- Follow a careful approach to FX liberalization, in line with the NBU’s Strategy, to ensure consistency with the overall policy mix and macro stability while supporting the economic recovery.

### Financial system surveillance and reforms
- Continue careful surveillance of the financial system.
- The financial sector remains stable and liquid; reforms continue apace despite challenges under Martial Law.
- Priorities include strengthening bank resolution, supervision, and credit and capital market infrastructure.
- Begin diagnostic work soon to develop an appropriate policy response to the low level of financial inclusion.

### Energy sector response and resilience
- Continue urgent and comprehensive efforts to manage the impact from the recent devastating energy attacks.
- The recent electricity tariff increase for households can raise resources to help make the energy system more resilient, with the most vulnerable households protected to the extent possible, buying time for longer-term plans.
- Continue contingency planning.
- Efforts by all stakeholders, including international partners, will be critical to support stable electricity to Ukraine’s households and firms.

### Governance, anti-corruption, and EU accession priorities
- Further strengthen governance and tackle longstanding corruption to maintain public confidence in the rule of law and the EU accession path.
- Determined actions on deep governance reforms are needed to achieve sustained medium-term growth and pursue EU accession.
- Ensure robust implementation to preserve advances on an independent and effective anti-corruption infrastructure and prevent reform backtracking or interference by vested interests.
- Governance and anti-corruption reform priorities include:
  - strengthening the criminal procedural code, and
  - creating a new high administrative court.
- Complete the external audit of NABU promptly and leverage its results to enhance the bureau’s accountability and operational effectiveness.
- Sustain implementation of reforms to SOE governance to help contain fiscal risks.

*Source: IMF content unit (excerpt).*

### 57.      Staff supports the authorities' requests for modification of one QPC, resetting of one

### Staff supports the authorities' requests for modification, resetting, and completion of program reviews

### Program actions and staff recommendation
- Staff supports authorities' requests for modification of one QPC, resetting of one SB, modification and resetting of two SBs, and the completion of the Fourth Review under the Extended Arrangement.
- Staff recommends the completion of the financing assurances review.
- Rationale cited: authorities’ strong performance under the program, enduring commitment to maintaining appropriate policies, and commitments from donors—all providing confidence the program remains on track to meet its objectives.

### Structural benchmarks (high-level status summary)
- Table 5 lists 37 Structural Benchmarks across fiscal, monetary/exchange rate, governance/anti-corruption, financial sector, energy/corporate governance, SOE corporate governance, and PIM reform areas.
- Benchmarks met with timing indicated:
  - Examples of SBs marked "Met": Enact the second supplementary Budget 2023 (End-April 2023); Submit to Parliament draft law to restore and strengthen Article 52 of the Budget Code (End-May 2023); Prepare action plan feeding into National Revenue Strategy (End-May 2023); Prepare conditions-based strategy to move to a more flexible exchange rate (End-June 2023); Adopt the National Revenue Strategy (End-December 2023).
- Benchmarks "Not Met (implemented with delay)" include: Adopt the draft law on tax policy and administration (End-July 2023); Transfer the GTSO shareholding and adopt new charter (End-July 2023); Enact law to restore asset declaration and NACP verification (End-July 2023); Amend the AML/CFT Law to re-establish enhanced due diligence measures (End-September 2023).
- Several SBs were modified or reset with new timings explicitly noted (examples):
  - SB 24: Develop methodology to assess effectiveness of tax privileges — Timing modified and reset from end-July 2024 to End-September 2024.
  - SB 32: Analyze debts and assess financial conditions of District Heating Companies — Timing modified and reset from end-June 2024 to End-October 2024.
  - SB 36: Enact a law to establish a new court for administrative cases against national state agencies — Reset from end-July 2024 to End-December 2024.
- Some SBs are continuous or ongoing (e.g., SB 29: All systemic banks with majority state ownership will fall under MOF responsibility — Continuous).

### Macroeconomic baseline projections (selected indicators from Table 6)
- Nominal GDP (billions of Ukrainian hryvnias): 2021: 5,451; 2022: 5,239; 2023: 6,495; 2024: 6,538; 2025: 7,748; 2026: 7,485; 2027: 8,744; 2028: 9,718; 2029: 10,664; 2030: 11,678; 2031: 12,777; 2032: 13,966; 2033: 15,251; 2034: 16,654; 2035: 18,186.
- Real GDP (percent change): 2021: 1/3.4; 2022: -28.8; 2023: 5.0; 2024 (EFF 3rd Review Act.): 5.3; 2025: -4.2; 2026: -5.3; 2027: 5.5; 2028: 5.3; 2029: 4.5; 2030: 4.3; 2031: 4.2; 2032: 4.1; 2033: 4.0; 2034: 4.0; 2035: 4.0.
- GDP deflator (percent): 2021: 24.8; 2022: 34.9; 2023: 19.2; 2024: 18.5; 2025: 15.6; 2026: 11.7; later years trending to 5.0 by 2035.
- Consumer prices (period average): 2021: 9.4; 2022: 20.2; 2023: 12.9; 2024: 12.9; 2025: 6.4; 2026: 5.2; target/stabilize around 5.0 from 2030 onward.
- Unemployment rate (ILO; period average, percent): 2021: 9.8; 2022: 24.5; 2023: 19.1; 2024: 19.1; 2025: 14.5; 2026: 14.8; declines to 8.5 by 2035.
- Savings (percent of GDP): 2021: 12.5; 2022: 17.0; 2023: 10.8; 2024: 10.0; 2025: 11.9; 2026: 10.9; rises over time to 21.2 by 2035.
- Investment (percent of GDP): 2021: 14.5; 2022: 12.1; 2023: 16.3; 2024: 15.1; 2025: 17.6; 2026: 16.7; projected 24.5 by 2035.
- Public and publicly-guaranteed debt (percent of GDP): 2021: 50.5; 2022: 77.7; 2023: 82.9; 2024: 82.3; 2025: 94.0; 2026: 97.3; declines to 73.5 by 2035.
- Gross reserves (end of period, billions of U.S. dollars): 2021: 30.9; 2022: 28.5; 2023: 40.5; 2024: 40.5; 2025: 42.1; 2026: 41.8; 2027: 43.0; 2028: 48.0; 2029: 47.4; 2030: 46.1; 2031: 48.5; 2032: 52.7; 2033: 56.0; 2034: 59.2; 2035: 63.1.
- Months of next year's imports of goods and services: ranges from 4.5 (2021) to 5.6 (2035) with intermediate variation (e.g., 3.9 in 2022; 5.3 in 2023 and 2024; 5.4–5.7 in later years).

### Fiscal outlook and government finances (selected figures from Tables 7a/7b)
- General government overall balance (percent of GDP): 2021: -4.0; 2022: -15.6; 2023: -19.7; 2024: -19.6; 2025: -13.7; 2026: -14.2; improving to -1.0 by 2035.
- Fiscal balance, excluding grants (percent of GDP): 2021: -4.0; 2022: -24.8; 2023: -26.3; 2024: -26.1; 2025: -20.2; 2026: -20.9; improving to -1.6 by 2035.
- Revenue (billions of Ukrainian hryvnias): 2021: 1,990; 2022: 2,609; 2023: 3,583; 2024: 3,583; 2025: 3,376; 2026: 3,415; projected 7,413 by 2035.
- Tax revenue (billions of Ukrainian hryvnias): 2021: 1,825; 2022: 1,782; 2023: 2,139; 2024: 2,139; 2025: 2,651; 2026: 2,679; projected 6,853 by 2035.
- Expenditure (billions of Ukrainian hryvnias): 2021: 2,207; 2022: 3,426; 2023: 4,865; 2024: 4,865; 2025: 4,440; 2026: 4,479; projected 7,598 by 2035.
- Grants (billions of Ukrainian hryvnias): 2021: 148; 2022: 142; 2023: 542; 2024: 549; 2025: 849; 2026: 825.

### Balance of payments and financing (selected figures from Tables 8 and 9)
- Current account balance (percent of GDP): 2021: -1.9; 2022: 4.9; 2023: -5.5; 2024: -5.2; 2025: -5.7; 2026: -5.8; ranges to -3.4 by 2035.
- Goods exports (annual volume change, percent): 2021: 35.0; 2022: -44.4; 2023: -16.1; 2024: -15.6; recovery to positive growth thereafter (e.g., 18.5 in 2025; 8.0 by 2035).
- Gross international reserves (USD billions): repeated: 2021: 30.9; 2022: 28.5; 2023: 40.5; 2024: 40.5; see Macroeconomic projections above for later years.
- Gross external financing requirements (Table 9, selected):
  - Total financing requirements (A, billions of U.S. dollars): 2021: 20.3; 2022: 31.9; 2023: 39.6; 2024: 45.1; 2025: 29.1; 2026: 26.4; 2027: 22.5; 2028: 22.9; 2029: 25.8; 2030: 22.8; 2031: 24.5; 2032: 23.0; 2033: 22.8.
  - Total financing sources (B, billions of U.S. dollars): 2021: 20.0; 2022: 0.7; 2023: 9.3; 2024: 10.7; 2025: 9.9; 2026: 19.1; 2027: 16.1; 2028: 17.5; 2029: 20.3; 2030: 19.5; 2031: 20.7; 2032: 19.1; 2033: 19.4.
  - Net financing needs (C = A − B, billions of U.S. dollars): 2021: 0.3; 2022: 31.1; 2023: 30.3; 2024: 34.3; 2025: 19.2; 2026: 7.3; 2027: 6.4; 2028: 5.4; 2029: 5.5; 2030: 3.4; 2031: 3.8; 2032: 3.8; 2033: 3.5.
  - Official financing (D, billions of U.S. dollars) shown for multiple years (e.g., 2021: 1.0; 2022: 29.2; 2023: 39.9; 2024: 35.6; 2025: 20.4; 2026: 12.3; 2027: 5.7; 2028: 4.0; 2029: 7.9; 2030: 7.6; 2031: 7.2; 2032: 7.0; 2033: 7.3).
  - Memorandum: Gross international reserves and IMF composite metric percentages reported (e.g., Percent of the IMF composite (float): 2021: 104.4; 2022: 103.6; 2023: 113.2; 2024: 124.2; subsequent years in range up to 125.7).

### Monetary and banking sector indicators (selected figures from Table 10)
- Broad money (end of period, billions of Ukrainian hryvnias): 2021: 2,071; 2022: 2,501; 2023: 3,077; 2024: 3,077; 2025: 3,652; 2026: 3,505; 2027: 4,061; 2028: 4,548; 2029: 5,031; 2030: 5,510; 2031: 6,028; 2032: 6,589; 2033: 7,195.
- Credit to the economy (billions of Ukrainian hryvnias): 2021: 1,023; 2022: 991; 2023: 986; 2024: 986; 2025: 1,070; 2026: 1,065; 2027: 1,253; 2028: 1,481; 2029: 1,680; 2030: 1,896; 2031: 2,140; 2032: 2,472; 2033: 2,855.
- Base money (percent change, memorandum): 2021: 11.2; 2022: 19.6; 2023: 23.3; 2024: 23.3; 2025: 18.5; 2026: 13.8; later years moderating to 5.0 by 2035.
- Credit-to-GDP ratio (percent): 2021: 18.8; 2022: 18.9; 2023: 15.2; 2024: 15.1; projected 21.7 by 2033.

### Quantitative performance criteria and indicative targets (selected, Table 13)
- QPCs and Indicative Targets (end of period, millions of Ukrainian hryvnias unless indicated):
  - Floor on the non-defense cash primary balance of the general government, excluding budget support grants: Jun 2024 QPC Adjusted 135,0000; Actual 241,901 (Met); Proposed Jun 2024 rev. QPC 250,000; Jun 2025 proposed QPC 660,000 (and other interim values listed).
  - Floor on tax revenues (excluding Social Security Contributions): Adjusted 426,300; Actual 507,992 (Met); Proposed rev. targets include 880,400; 1,398,600; 2,042,250; further proposed targets listed including 485,000 and 850,000.
  - Ceiling on publicly guaranteed debt: 47,900 (with adjustor 5,879; Actual 53,779; Met).
  - Floor on net international reserves (in millions of U.S. dollars): 28,400 adjustor -134; Adjusted 28,266; Actual 31,408 (Met); Proposed targets listed for subsequent dates (e.g., 26,800; 25,300; 27,900; 28,800; etc.).
  - Indicative target floor on social spending: 130,000 adjusted; Actual 142,139 (Met); Proposed Jun 2024 target 262,500; Jun 2025 proposed 250,000, etc.
  - Continuous performance criterion: Ceiling on non-accumulation of new external debt payments arrears by the general government — target 0; Actual: 0 (Met).
- Extensive memorandum items report external project financing, external budget financing (e.g., External budget financing 9,267 in one cell; proposed flows for future quarters including 16,825; 12,936; 25,654; 25,745; etc.), budget support grants and loans, interest payments, NBU profit transfers, and cash balance projections (e.g., Cash balance of the general government, excluding budget support grants: -262.4; revised and projected levels such as -671.7; -1,046.6; -1,562.1; later intermediate values -212.2; -181.8; -363.6).

*Source: Excerpt from IMF staff report (content unit: 1ukrea2024002-print-pdf).*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Risk framework
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path.
- Relative likelihood: “low” = probability below 10 percent; “medium” = probability between 10 and 30 percent; “high” = probability between 30 and 50 percent.
- The RAM reflects staff views on source of risks and overall level of concern as of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

### External Risks
- Intensification of regional conflicts
  - Risk likelihood: High
  - Expected impact: High. Key points:
    - Further destruction of the capital stock, outward migration, internal displacement.
    - Recovery would stall; growth would fall sharply amid lack of confidence and high uncertainty.
    - Restrictions on port access and logistical challenges would curtail export recovery while import needs rise (defense, energy, infrastructure repair), widening fiscal and external financing needs.
    - Financing constraints may force authorities to resort to monetary financing, raising pressures on prices and the exchange rate; high inflation would 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 for 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
  - Risk likelihood: Medium
  - Expected impact: High. Key points:
    - 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.
  - Policy response:
    - Prioritize spending and seek additional revenue measures.
    - Mobilize domestic financing to plug financing gaps.
    - Diversify external financing sources and obtain financing that is grant-based or on highly concessional terms.

- Commodity price volatility
  - Risk likelihood: High
  - Expected impact: Medium. Key points:
    - High energy prices could further strain consumption and business activity and widen fiscal and external financing needs.
    - Low and/or volatile agricultural prices amid logistical costs could alter sowing decisions for future agriculture seasons.
  - Policy response:
    - Continue rationing access to energy to priority areas, and expand gas production.
    - Secure alternative sources and storage for gas through the heating season.
    - Target 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. Key points:
    - Shortfall or delay in external and/or domestic financing could result in larger financing gaps, financial repression, monetary financing, and sharp compression in spending, intensifying macro-financial risks and dampening the 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.
    - Implement contingency plans.

### Domestic Risks
- Social unrest
  - Risk likelihood: Medium
  - Expected impact: High. Key points:
    - Declining real incomes and worsening inequality could amplify social unrest, undermine national unity, result 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.
    - Consistently explain the rationale for policy measures.
    - Targeted transfers to most vulnerable groups within the existing budget envelope.

- Loss of reform momentum
  - Risk likelihood: Medium
  - Expected impact: High. Key points:
    - Poor governance, corruption, retrenchment of oligarchic interests, and lack of oversight on use of external funding could decrease incentives for reform, exacerbate financing gaps, reduce future external financing inflows, and lead to donor fatigue.
  - Policy response:
    - Adhere to governance reforms while maintaining recent progress made in strengthening anti-corruption and judicial institutions.
    - Implement critical reforms in other policy areas to support competitiveness and increase productivity.
    - Mobilize domestic financing and prioritize spending.

- Loss of export and transit corridors and EU restrictions for agricultural produce
  - Risk likelihood: High
  - Expected impact: Medium. Key points:
    - Loss of the Black Sea corridor would severely impact Ukraine’s balance of payments, exacerbate financing gaps and FX market pressures, and could undermine the nascent recovery.
    - Prolonged closure of other transit routes through central Europe would curtail exports and weigh on future farming decisions.
  - Policy response:
    - Urge partners for a quick resolution to minimize disruption to transit routes.
    - Diversify supply chains.
    - Accelerate reconstruction of Danube Deep Sea shipping lanes, repair of railroads with external financing and further expansion of the Black Sea corridor.

### Structural Risks
- Deepening geoeconomic fragmentation
  - Risk likelihood: High
  - Expected impact: High. Key points:
    - Broader conflicts, inward-oriented policies, and weakened international cooperation could lead to less efficient trade and FDI configurations, supply disruptions, protectionism, policy uncertainty, technological and payments systems fragmentation, rising shipping and input costs, financial instability, fracturing of international monetary system, and lower growth.
    - Ukraine is exposed as a trade dependent economy at the fault line of ongoing geopolitical tensions.
  - 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.

### Key cross-cutting policy priorities (from RAM)
- Maintain appropriate macroeconomic policies to safeguard macroeconomic and financial stability.
- Mobilize domestic financing and prioritize spending.
- Seek additional external financing that is grant-based or on highly concessional terms.
- Enhance and update contingency plans, including for the financial sector.
- Continue and adhere to governance, anti-corruption, and judicial reforms.
- Diversify supply chains, export routes, and trading partners.
- Target transfers to most vulnerable groups within the existing budget envelope.

### Annex II: External Sector Assessment — selected findings and statistics
- Overall assessment: The external position of Ukraine in 2023 was substantially weaker than the level implied by fundamentals and desirable policies.
- NIIP: marginally negative in 2023.
- Reserves: adequate, though donor financing remains critical to support reserves and stabilize the FX market.
- Public debt: 69 percent is external; continues to be assessed as unsustainable in the absence of a debt treatment, fiscal adjustment, and financing on sufficiently concessional terms.
- Key balance-sheet and flow figures (2023 / end-2023 unless otherwise noted):
  - NIIP: -6.0 (in percent of GDP)
  - Gross Assets: 108.7 (in percent of GDP)
  - Loan Assets: 0 (in percent of GDP)
  - Gross Liabilities: 114.7 (in percent of GDP)
  - Loan Liabilities: 54.3 (in percent of GDP)
  - Gross external debt: US$161.5 billion at end-2023 (90.6 percent of GDP)
  - Public sector share of gross external debt: US$98.3 billion
  - Gross assets: US$194 billion in 2023Q4 (currency and deposits = 70 percent of gross assets)
  - Gross liabilities: US$205 billion in 2023Q4 (loan and FDI liabilities = 76 percent)
  - Gross external debt rose by US$30.6 billion relative to end-2022, driven by increase in general government external loan liabilities, mostly to official creditors, including the Fund.
  - Currency composition of gross external debt: almost half US$-denominated; 38 percent euro-denominated.

- Current Account and REER (2023 / 2024Q1 highlights):
  - Current account balance (CAB): deficit of 5.2 percent of GDP in 2023 (from a surplus of 4.9 percent of GDP in 2022).
  - REER: depreciated by 5.6 percent in 2023.
  - CAB cyclically-adjusted: -8.7 percent of GDP after accounting for model cyclical factors, disaster and conflict shocks, and temporary increase in official budget grant financing.
  - CA norm: -2 percent of GDP.
  - CA gap: -6.7 percent of GDP (translating into a REER overvaluation of 22.3 percent in the CA model).
  - Contribution of policy gaps: -0.3 percent of GDP (primarily driven by fiscal balance gap).
  - External sustainability (ES) approach: stabilizing NIIP at 2023 level would require REER depreciation of 14.8 percent given negative CA gap (-4.5 percent of GDP).
  - REER approach: small CA gap of 0.1 percent of GDP, implying slight REER undervaluation of 0.2 percent.
  - Preferred approach: CA model is generally more informative and reliable than REER model; based on CA approach, Ukraine’s external position in 2023 was substantially weaker than level implied by fundamentals and desirable policies.

- Capital and financial accounts:
  - Financial account: deficit of 5.2 percent of GDP in 2022 to surplus of 11.4 percent of GDP in 2023 (driven by increase in government loan inflows, higher net FDI linked to reinvested earnings, normalization of trade credit outflows).
  - Financial account surplus improved in 2024Q1 y/y reflecting higher net portfolio investment and external loan financing.
  - CFM measures: restrictions on bank account withdrawals; restrictions on repatriation of proceeds from nonresident government debt redemptions (introduced April 2023); interest payment restrictions requiring minimum continuous holding period of 90 days for coupon payments (mid-May 2023).
  - NBU adopted a three-stage FX liberalization roadmap (June 2023); several easing measures introduced in May 2024.
  - Assessment: financial account projected to continue recording a surplus primarily on back of net FDI to support post-war recovery and reconstruction with donor support abating; gradual easing of FX controls expected to continue.

- FX intervention and reserves level:
  - Gross international reserves (GIR): US$40.5 billion at end-2023 or 5.3 months of prospective goods and services imports (124.2 percent of the ARA metric).
  - GIR: US$42.4 billion at end-April 2024 (5.6 months of prospective imports).
  - NBU net FX sales: US$25 billion in 2022 and US$ 28.6 billion in 2023.
  - Spread between official and cash UAH/USD rates reduced and stabilized within 1 percent by May 2024.
  - Exchange rate arrangements:
    - Ukraine’s inflation targeting regime was replaced by a hard peg to the US dollar at the start of the war.
    - On October 3, 2023, Ukraine transitioned to a managed flexibility exchange rate regime.
    - Ukraine's de jure exchange rate arrangement is floating, and the de facto exchange rate arrangement has been reclassified from stabilized to floating, effective October 3, 2023.
  - Assessment: donor financing projected to continue supporting GIR; uncertainty around duration and impact of war (including intensification of energy infrastructure attacks) is a significant risk to path of GIR. FX interventions expected to support NBU’s strategy of gradually increasing flexibility and moderate over time as FX market imbalances are addressed and NBU eventually returns to pre-war inflation targeting framework.

### Annex III: Sovereign Risk and Debt Sustainability Analysis — summary
- SRDSA continues to be based on a pre-restructuring baseline, complemented with a pre-restructuring downside scenario, maintaining prior program conventions.
- Analyses show debt is unsustainable without:
  - (i) sufficiently deep debt treatments,
  - (ii) fiscal adjustment,
  - (iii) financing on sufficiently concessional terms during and after the program.
- The program incorporates progress on these three fronts:
  - Authorities plan a revenue-based fiscal adjustment.
  - Official donors have provided commitments for exceptional financial support and assurances of a debt restructuring before the final review of the program.
  - A credible process is underway on the external commercial debt restructuring.
- Staff continues assessing public debt as sustainable on a forward-looking basis given these program elements.

*Source: Annex I. Risk Assessment Matrix; Annex II. External Sector Assessment; Annex III. Sovereign Risk and Debt Sustainability Analysis.*

### 1.      This annex updates the SRDSAs performed for the Third Review of Ukraine’s

### This annex updates the SRDSAs performed for the Third Review of Ukraine’s arrangement under the Extended Fund Facility

### Overall assessment
- The updated SRDSA continues to find an overall assessment of high risks, based on determinations of high risks in both the medium- and long-term horizons.
- Judgments aligned with the results of the mechanical tools and reinforced by high uncertainty.
- Debt assessed as unsustainable in a pre-restructuring scenario.
- Restoration of sustainability would require:
  - a deep debt operation,
  - substantial fiscal adjustment, and
  - exceptional financing from donors.
- With commitments under the program, assurances from official creditors, and a credible process for a private external debt restructuring, staff assesses debt as sustainable on a forward-looking basis.

### Scenarios and baseline assumptions
- SRDSA considers both baseline and downside scenarios in line with Fund policies for lending under exceptionally high uncertainty.
- Macroeconomic outlook revisions:
  - Real GDP growth in 2023 was somewhat stronger than anticipated.
  - 2024 projection revised down relative to the last SRDSA and is now expected at the lower end of the 2.5–3.5 percent range, mostly due to attacks on energy infrastructure.
  - Growth in 2025 revised down a bit; subsequent years little changed and remain consistent with a measured reconstruction, with real GDP returning to its pre-war level in 2030.
  - Inflation: 2024 projection slightly lowered; medium-term inflation outlook unchanged.
  - Downside scenario: materialization of the shock shifted to the third quarter of 2024.
- Financing assumptions:
  - Total official external financing assumed under the baseline (excluding the IMF) amounting to US$94.6 billion over the program period.
  - U.S. budget support for 2024 is being disbursed with an arrangement specifying conditions where amounts disbursed could be repaid in 40 years; staff treats this as a contingent liability risk.
  - After the program, no commitments from external donors; budget support disbursements from these partners expected to be lower, around US$5–12 billion per year.
  - Baseline envisages a return to market access only in 2029.
- Coverage:
  - Authorities represent a dispute on three debts with Russia: 2013 Eurobonds amounting to US$3 billion (ongoing UK legal proceeding) and two bilateral loans with Russia amounting to about US$0.6 billion.
  - Following Fund procedures for disputed claims, these debts have been excluded from the debt stock in this update to the DSA.
  - The exclusion does not change the mechanical results of the medium-term SRDSF tools or the finding that debt is unsustainable absent restructuring.
  - Pre-restructuring SRDSAs incorporate projected payments on Ukraine's GDP warrants consistent with projected growth paths over 2024–33 under a passive policy assumption.

### Debt and gross financing needs (GFN) trajectories
- End-2023 debt outturn estimate: 82 percent of GDP (reflects revised GDP data), slightly lower than in the last SRDSA.
- In both baseline and downside scenarios, debt-to-GDP ratios rise initially, then resume a downward trend over the medium run.
- GFNs: little changed in the baseline and somewhat lower in the downside, mainly reflecting revisions to local currency debt service.

### Debt sustainability, risk signals, and long-term outlook
- Staff concurs with mechanical tools that debt remains unsustainable in pre-restructuring baseline and downside scenarios, and that risks are high.
- Medium-term tools indicate risks at high levels; overall risk metrics from both tools are very high.
- Long-term risks assessed as high even if a successful debt restructuring delivers targets consistent with a return to debt sustainability, due to extremely high uncertainty and risks (including refinancing concessional debt on less favorable terms).

### Debt restructuring targets and complementary objectives (indicative modeling)
- Primary restructuring targets:
  - Public debt should reach 65 percent of GDP by 2033.
  - Gross financing needs should average 8 percent of GDP in the post-program period (2028–33).
- Complementary targets:
  - Bring public debt to 82 percent of GDP by 2028.
  - Achieve debt service flow relief on external obligations of 1–1.8 percent of GDP per year.
- Rationale for targets:
  - Realizing these savings would lower demands on local financial institutions to absorb government paper and create space for lending to support economic activity.
  - Containing local financial intermediaries’ government debt holdings would build an adequate liquidity buffer and promote resilience.

### Deficit financing after exceptional financing from debt restructuring (percent of GDP and memo in US$ billion)
- Overall balance:
  - 2023: -19.6
  - 2024: -14.2
  - 2025: -7.5
  - 2026: -4.9
  - 2027: -3.6
- Financing:
  - 2023: 19.6
  - 2024: 14.2
  - 2025: 7.5
  - 2026: 4.9
  - 2027: 3.6
- Of which:
  - External financing, net:
    - 2023: 16.5
    - 2024: 12.3
    - 2025: 7.0
    - 2026: 3.8
    - 2027: 0.4
  - Domestic bonds, net:
    - 2023: 2.8
    - 2024: 1.0
    - 2025: 1.7
    - 2026: -1.8
    - 2027: 2.0
  - Deposit financing, net (-=accumulation):
    - 2023: -0.9
    - 2024: 0.0
    - 2025: -1.2
    - 2026: 1.1
    - 2027: 0.0
  - Exceptional financing:
    - 2023: 0.0
    - 2024: 1.0
    - 2025: 1.7
    - 2026: 1.8
    - 2027: 1.6
- Memo: Exceptional financing in billion US dollars:
  - 2023: 0.0
  - 2024: 1.9
  - 2025: 3.2
  - 2026: 3.6
  - 2027: 3.5

### Staff forward-looking assessment and required conditions
- Staff continues to assess debt as sustainable in a forward-looking sense conditional on three ingredients:
  1. Fiscal adjustment (authorities’ plans incorporate a meaningful revenue-based fiscal adjustment to be implemented over the program).
  2. Substantial concessional financing (official bilateral donors have committed substantial concessional financing, agreed to a debt standstill during the program, and provided assurances to restructure their claims before the final review).
  3. Debt restructuring (staff assesses a credible process exists to restructure external commercial debt in line with targets consistent with a return to sustainability).

### Annex III. Box 1 — Ukraine: U.S. External Assistance in 2024 (key points)
- The Ukraine Security Supplemental Appropriations Act (USSAA) confirms US$7.849 billion of budget support in line with the program and attaches repayment provisions.
- USSAA instructs the U.S. President to reach a repayment arrangement with Ukraine for economic assistance under terms set by the President; the President may cancel repayments:
  - up to one-half can be cancelled at any time after November 15, 2024,
  - any remaining amounts after January 15, 2026.
- Operationalization:
  - Budget support provided through the World Bank’s PEACE project, which accepts funds as grants.
  - Ukrainian Ministry of Finance will record flows as grants in fiscal accounts and will not register the assistance as debt.
- Staff modeling:
  - Potential repayments are modeled as a contingent liability that could materialize after 40 years.
  - Budget support disbursed under this arrangement modeled as a grant (not included in the debt stock; no flows impacting GFNs).
  - If the contingent liability materializes and U.S. support converts to a loan:
    - public debt would rise by that amount;
    - in the most extreme situation where the contingent liability materializes this year, public debt-to-GDP would rise by about 5 percentage points in 2024, moderating to 3 percentage points by 2033.
  - Debt restructuring targets associated with restoring sustainability are invariant to the treatment of this arrangement; if contingent liability becomes actual, additional relief on Ukraine’s debt stock might be necessary to deliver the debt level target, though GFN impacts would be contained given no payments envisaged for 40 years.

### Risk of sovereign stress and DSA findings (summarized)
- Overall risk of sovereign stress: High.
- Medium-term risks: High; fanchart indicates very high uncertainty; GFN module finds persistently high financing needs are a major vulnerability.
- Near-term assessment: Not applicable (disbursing IMF arrangement).
- DSA Summary Assessment:
  - Sustainability assessment: Unsustainable in a pre-restructuring scenario.
  - Debt sustainability on a forward-looking basis contingent on strong policy commitments, financing assurances, and credible debt relief consistent with achieving GFNs averaging 8 percent of GDP over 2028–33 and public debt of 65 percent of GDP by 2033.
- Restoring medium-term external viability requires policy commitments and specific and credible safeguards, commitments, and exceptional financing from creditors and donors, including debt relief.

### Debt coverage, disclosures, and public debt structure (selected disclosures)
- DSA coverage includes:
  - central government direct debt;
  - domestic and external government-guaranteed debt (loans and bonds) extended to state-owned enterprises (SOEs);
  - debt of local governments;
  - Ukraine's liabilities to the IMF that are not included in central government direct debt.
- DSA does not include non-guaranteed domestic and external liabilities of SOEs or disputed debts.
- At end-2023:
  - debt held by external official creditors rose further reflecting substantial bilateral and multilateral financing disbursed in 2023.
  - domestic debt mostly held by residents and denominated in hryvnia.
  - share of FX debt expected to continue to rise based on expected official financing during the program, entailing currency risk.

### Pre-restructuring baseline scenario—selected trajectory numbers (percent of GDP unless indicated)
- Public debt (actual and projections):
  - 2023: 82.3
  - 2024: 97.3
  - 2025: 97.7
  - 2026: 96.8
  - 2027: 94.5
  - 2028: 92.0
  - 2029: 89.0
  - 2030: 85.4
  - 2031: 81.5
  - 2032: 77.6
  - 2033: 73.5
- Change in public debt:
  - 2023: 4.6
  - 2024: 15.0
  - 2025: 0.3
  - 2026: -0.8
  - 2027: -2.4
  - 2028: -2.4
  - 2029: -3.0
  - 2030: -3.6
  - 2031: -3.9
  - 2032: -4.0
  - 2033: -4.1
- Contribution of identified flows:
  - 2023: 10.0
  - 2024: 8.9
  - 2025: 1.0
  - 2026: -1.9
  - 2027: -2.1
  - 2028: -3.0
  - 2029: -3.5
  - 2030: -8.0
  - 2031: -4.0
  - 2032: -4.0
  - 2033: -3.8
- Primary deficit:
  - 2023: 15.7
  - 2024: 8.5
  - 2025: 3.1
  - 2026: 0.7
  - 2027: -0.1
  - 2028: -0.7
  - 2029: -1.0
  - 2030: -1.2
  - 2031: -1.4
  - 2032: -1.4
  - 2033: -1.4
- Gross financing needs:
  - 2023: 25.8
  - 2024: 23.1
  - 2025: 20.4
  - 2026: 16.8
  - 2027: 13.8
  - 2028: 12.3
  - 2029: 12.7
  - 2030: 11.8
  - 2031: 11.9
  - 2032: 9.8
  - 2033: 9.3
- Of which: debt service:
  - 2023: 10.0
  - 2024: 14.2
  - 2025: 15.5
  - 2026: 16.1
  - 2027: 13.4
  - 2028: 12.5
  - 2029: 13.5
  - 2030: 12.9
  - 2031: 13.1
  - 2032: 11.1
  - 2033: 10.6
- Memo:
  - Real GDP growth (percent):
    - 2023: 5.3
    - 2024: 2.5
    - 2025: 5.5
    - 2026: 5.3
    - 2027: 4.5
    - 2028: 4.3
    - 2029: 4.2
    - 2030: 4.1
    - 2031: 4.0
    - 2032: 4.0
    - 2033: 4.0
  - Inflation (GDP deflator; percent):
    - 2023: 18.5
    - 2024: 11.7
    - 2025: 10.7
    - 2026: 5.5
    - 2027: 5.0
    - 2028: 5.0
    - 2029: 5.0
    - 2030: 5.0
    - 2031: 5.0
    - 2032: 5.0
    - 2033: 5.0
  - Nominal GDP growth (percent):
    - 2023: 24.8
    - 2024: 14.5
    - 2025: 16.8
    - 2026: 11.1
    - 2027: 9.7
    - 2028: 9.5
    - 2029: 9.4
    - 2030: 9.3
    - 2031: 9.2
    - 2032: 9.2
    - 2033: 9.2
  - Effective interest rate (percent):
    - 2023: 7.0
    - 2024: 8.1
    - 2025: 5.4
    - 2026: 4.8
    - 2027: 4.3
    - 2028: 4.0
    - 2029: 4.0
    - 2030: 3.8
    - 2031: 3.5
    - 2032: 3.4
    - 2033: 3.4

*Source: IMF staff (Annex III of the SRDSA update for the Third Review of Ukraine’s Extended Fund Facility arrangement).*

### Annex III. Figure 5. Ukraine: Realism of Baseline Scenario Assumptions

### Annex III. Figure 5. Ukraine: Realism of Baseline Scenario Assumptions

### Forecast track record and realism assessment
- The forecast track record "continues to point to persistent optimism for the debt-to-GDP," and stock-flow adjustment indicators "flag upward surprises in the medium-term horizon."
- Caution is warranted given "the scale of the war shock and uncertainties about its duration," so backward-looking tools may overstate realism of the baseline.
- Projections are "made in the October and April WEO vintage."

### Key drivers of public debt dynamics identified
- "The key debt drivers will be the primary deficit and a weak recovery."
- "Substantial long-term official financing drives the maturity structure and interest rate assumptions."
- "The realism of the three-year fiscal adjustment critically depends on the duration of the war and the speed at which deficits can be reversed."
- "Ukraine has previously achieved a relatively large fiscal adjustment, although this will face considerable headwinds from a slow recovery."

### Fiscal adjustment, multipliers, and output gap
- "The assumptions on multipliers are uncertain amid a deep structural break."
- "The output gap is assumed to close gradually."
- Figure annotations and scenarios reference fiscal multipliers illustrated as:
  - Baseline
  - Multiplier=0.5
  - Multiplier=1
  - Multiplier=1.5

### Forecast errors, percentile signals, and benchmark rule
- Color-code percentiles used in the figure legend:
  - > 75th percentile
  - 50-75th percentile
  - 25-50th percentile
  - < 25th percentile
- Definitions and notes:
  - Historical output gap revisions are "calculated as the percentile rank of the country's output gap revisions (defined as the difference between real time/period ahead estimates and final estimates in the latest October WEO) in the total distribution of revisions across the data sample."
  - Data cover annual observations over 1990-2019 for MAC advanced and emerging economies; "Pct. of sample on vertical axis."
- Statistical thresholds highlighted in the figure:
  - "3-year adjustment above 75th percentile (2 ppts of GDP)"
  - "3-year debt reduction above 75th percentile (5.9 ppts of GDP)"
  - A numeric label appearing in the figure: "12.2"
- Laubach (2009) rule note: "The Laubach (2009) rule is a linear rule assuming bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio."

### Implications for policy and risk monitoring
- The three-year fiscal adjustment realism "critically depends on the duration of the war and the speed at which deficits can be reversed" — implying contingent reliance on policy flexibility and external financing.
- Uncertainty around multipliers and output gap closure implies that fiscal consolidation plans should be stress-tested across multiplier and growth scenarios.
- Given the forecast track record of optimistic debt outcomes, monitoring of primary deficit outturns and recovery signals is essential to avoid upward surprises in debt trajectories.

*Source: Annex III. Figure 5. Ukraine: Realism of Baseline Scenario Assumptions (from the provided IMF content).*

### 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 (downside scenario)
- The program "remains robust" even under the updated downside scenario given:
  - "The authorities’ very strong policy commitments and track record, together with the renewed financing assurances from international partners and expected debt relief."
- The debt sustainability analysis based on the downside scenario "reconfirms that under this downside scenario, additional financial assurances provided by Ukraine’s international partners would restore debt sustainability on a forward-looking basis."

### Real economy (key projections and components)
- Nominal GDP (billions of Ukrainian hryvnias):
  - 2021: 5,451
  - 2022: 5,239
  - 2023: 6,538
  - 2024 (Proj.): 7,301
  - 2025 (Proj.): 7,951
  - 2026 (Proj.): 8,613
  - 2027 (Proj.): 9,415
  - 2028 (Proj.): 10,261
  - 2029 (Proj.): 11,184
  - 2030 (Proj.): 12,189
  - 2031 (Proj.): 13,284
  - 2032 (Proj.): 14,478
  - 2033 (Proj.): 15,777
- Real GDP (percent change):
  - 2021: 3.4
  - 2022: -28.8
  - 2023: 5.3
  - 2024 (Proj.): -1.7
  - 2025 (Proj.): -1.0
  - 2026 (Proj.): 2.1
  - 2027–2033 (Proj. each year): 4.0; 3.8; 3.8; 3.8; 3.8; 3.8
- Contributions to Real GDP (selected):
  - Domestic demand 2021: 12.9; 2022: -22.9; 2023: 13.9; 2024 (Proj.): -1.2; 2025 (Proj.): 0.2; 2026 (Proj.): 5.5
  - Private consumption 2021: 4.7; 2022: -16.8; 2023: 5.5; 2024 (Proj.): -0.7; 2025 (Proj.): -0.2; 2026 (Proj.): 3.7
  - Investment (percent contribution) 2021: 8.1; 2022: -18.6; 2023: 5.8; 2024 (Proj.): -0.2; 2025 (Proj.): 0.1; 2026 (Proj.): 1.5
  - Net exports 2021: -9.5; 2022: -5.9; 2023: -8.6; 2024 (Proj.): -0.5; 2025 (Proj.): -1.2; 2026 (Proj.): -3.4
- Prices, wages, labor:
  - GDP deflator (percent change): 2021: 24.8; 2022: 34.9; 2023: 18.5; 2024 (Proj.): 13.6; 2025 (Proj.): 10.0; 2026 (Proj.): 6.1; 2027–2033: 5.1; 5.0; 5.0; 5.0; 5.0; 5.0
  - Consumer prices (period average): 2021: 9.4; 2022: 20.2; 2023: 12.9; 2024 (Proj.): 6.0; 2025 (Proj.): 10.4; 2026 (Proj.): 7.4; 2027–2033: 6.0; 5.2; 5.0; 5.0; 5.0; 5.0
  - Consumer prices (end of period): 2021: 10.0; 2022: 26.6; 2023: 5.1; 2024 (Proj.): 10.0; 2025 (Proj.): 8.5; 2026 (Proj.): 6.5; 2027–2033: 5.5; 5.0; 5.0; 5.0; 5.0; 5.0
  - Nominal wages (average): 2021: 20.8; 2022: 1.0; 2023: 20.1; 2024 (Proj.): 8.9; 2025 (Proj.): 10.1; 2026 (Proj.): 14.2; 2027–2033: 11.2; 9.7; 9.2; 9.2; 9.1; 9.0
  - Unemployment rate (ILO, period average, percent): 2021: 9.8; 2022: 24.5; 2023: 19.1; 2024 (Proj.): 17.0; 2025 (Proj.): 16.8; 2026 (Proj.): 14.0; 2027–2033: 13.1; 11.6; 11.2; 10.6; 9.6; 9.1; 8.7
- Savings and investment (percent of GDP):
  - Savings (total) 2021: 12.5; 2022: 17.0; 2023: 10.0; 2024 (Proj.): 5.0; 2025 (Proj.): 12.1; 2026 (Proj.): 12.2; 2027 (Proj.): 12.8; 2028 (Proj.): 13.8; 2029 (Proj.): 15.0; 2030 (Proj.): 15.3; 2031 (Proj.): 15.6; 2032 (Proj.): 16.3; 2033 (Proj.): 16.9
  - Investment (percent of GDP) 2021: 14.5; 2022: 12.1; 2023: 15.1; 2024 (Proj.): 13.6; 2025 (Proj.): 13.8; 2026 (Proj.): 15.7; 2027–2033 (Proj. each year): 16.9; 17.5; 18.3; 19.2; 19.6; 19.9; 20.3

### Fiscal outlook (general government, downside scenario)
- Fiscal balance (percent of GDP):
  - 2021: -4.0
  - 2022: -15.6
  - 2023: -19.6
  - 2024 (Proj.): -16.7
  - 2025 (Proj.): -17.1
  - 2026 (Proj.): -13.4
  - 2027–2033 (Proj.): -5.5; -4.5; -4.3; -4.0; -3.5; -3.3; -3.1
- Fiscal balance, excluding grants (percent of GDP):
  - 2021: -4.0
  - 2022: -24.8
  - 2023: -26.1
  - 2024 (Proj.): -27.4
  - 2025 (Proj.): -23.9
  - 2026 (Proj.): -17.8
  - 2027–2033 (Proj.): -7.9; -5.6; -5.2; -4.9; -4.4; -4.1; -3.9
- General government overall balance (billions of Ukrainian hryvnias):
  - 2021: -216
  - 2022: -817
  - 2023: -1,282
  - 2024 (Proj.): -1,223
  - 2025 (Proj.): -1,356
  - 2026 (Proj.): -1,155
  - 2027–2033 (Proj.): -516; -463; -477; -485; -470; -477; -492
- Revenue and expenditure (billions of Ukrainian hryvnias, selected):
  - Total revenue 2021: 1,990; 2022: 2,609; 2023: 3,583; 2024 (Proj.): 3,505; 2025 (Proj.): 3,560; 2026 (Proj.): 3,785
  - Total expenditure 2021: 2,207; 2022: 3,426; 2023: 4,865; 2024 (Proj.): 4,728; 2025 (Proj.): 4,916; 2026 (Proj.): 4,940
  - Grants (billions): 2021: 148; 2022: 142; 2023: 577; 2024 (Proj.): 954; 2025 (Proj.): 838; 2026 (Proj.): 222
- Public and publicly-guaranteed debt (billions of Ukrainian hryvnias):
  - 2021: 2,666
  - 2022: 4,072
  - 2023: 5,383
  - 2024 (Proj.): 7,648
  - 2025 (Proj.): 9,664
  - 2026 (Proj.): 11,370
  - 2027–2033 (Proj.): 12,280; 13,126; 14,020; 14,964; 15,926; 16,930; 17,995
- General government financing composition (billions, selected):
  - External financing (2021–2026): 132; 560; 1,078; 926; 601; 397
  - Domestic (net) (2021–2026): 85; 263; 304; 42; 97; 557
  - Bond financing (2021–2026): 66; 295; 182; 917; 497; 524

### Balance of payments and external sector (downsized scenario highlights)
- Current account balance (percent of GDP):
  - 2021: -1.9
  - 2022: 4.9
  - 2023: -5.2
  - 2024 (Proj.): -8.6
  - 2025 (Proj.): -1.7
  - 2026 (Proj.): -3.6
  - 2027–2033 (Proj.): -4.0; -3.7; -3.4; -3.9; -4.0; -3.7; -3.4
- Goods (net, percent of GDP):
  - 2021: -3.3
  - 2022: -9.0
  - 2023: -16.1
  - 2024 (Proj.): -19.7
  - 2025 (Proj.): -15.8
  - 2026 (Proj.): -19.2
  - 2027–2033 (Proj.): -21.7; -19.2; -18.3; -17.6; -16.7; -15.6; -14.7
- Exports and imports of goods (percent of GDP, 2021–2033 highlights):
  - Exports 2021: 31.6; 2022: 25.2; 2023: 19.4; 2024 (Proj.): 21.3; 2025 (Proj.): 23.6; 2026 (Proj.): 26.3; 2027–2033 (Proj. range): 26.2–35.4
  - Imports 2021: -34.9; 2022: -34.3; 2023: -35.6; 2024 (Proj.): -41.0; 2025 (Proj.): -39.4; 2026 (Proj.): -45.5; 2027–2033 (Proj. range): -47.9 to -49.4
- Financial account and capital flows (percent of GDP, selected):
  - Financial account balance (percent): 2021: -2.8; 2022: 5.3; 2023: -11.4; 2024 (Proj.): -4.6; 2025 (Proj.): -4.7; 2026 (Proj.): -5.8; 2027–2033 (Proj.): -3.3; -3.1; -4.6; -6.5; -6.2; -5.8; -5.7
  - Direct investment (net, percent of GDP) 2021: -3.8; 2022: -0.1; 2023: -2.4; 2024 (Proj.): -1.6; 2025 (Proj.): -1.5; 2026 (Proj.): -2.2; 2027–2033 (Proj.): -3.9; -4.7; -4.7; -4.8; -5.0; -4.9; -4.8
- Gross international reserves (end of period, U.S. dollars, billions):
  - 2021: 30.9
  - 2022: 28.5
  - 2023: 40.5
  - 2024 (Proj.): 32.5
  - 2025 (Proj.): 36.6
  - 2026 (Proj.): 41.3
  - 2027–2033 (Proj.): 40.5; 39.3; 41.6; 45.7; 49.1; 52.1; 56.0
- Months of next year's imports of goods and services (end of period):
  - 2021: 4.5
  - 2022: 3.9
  - 2023: 4.8
  - 2024 (Proj.): 4.5
  - 2025 (Proj.): 4.8
  - 2026 (Proj.): 5.2
  - 2027–2033 (Proj.): 4.9; 4.6; 4.6; 4.8; 4.9; 5.0; 5.0
- IMF composite metric (float, percent):
  - 2021: 104.4
  - 2022: 103.6
  - 2023: 124.2
  - 2024 (Proj.): 89.7
  - 2025 (Proj.): 96.1
  - 2026 (Proj.): 101.1
  - 2027–2033 (Proj.): 98.0; 93.5; 94.7; 102.3; 106.5; 111.3; 116.9

### Gross external financing requirements and official financing (downside scenario)
- Total financing requirements (USD billions):
  - 2021: 20.3
  - 2022: 31.9
  - 2023: 39.6
  - 2024 (Proj.): 59.9
  - 2025 (Proj.): 29.5
  - 2026 (Proj.): 25.2
  - 2027–2033 (Proj.): 20.3; 18.6; 22.2; 19.4; 21.9; 20.4; 20.0
- Total financing sources (USD billions):
  - 2021: 20.0
  - 2022: 0.7
  - 2023: 9.3
  - 2024 (Proj.): 9.7
  - 2025 (Proj.): 7.4
  - 2026 (Proj.): 12.7
  - 2027–2033 (Proj.): 12.1; 13.4; 16.5; 15.9; 18.1; 16.4; 16.6
- Net financing needs (A − B, USD billions):
  - 2021: 0.3
  - 2022: 31.1
  - 2023: 30.3
  - 2024 (Proj.): 50.1
  - 2025 (Proj.): 22.0
  - 2026 (Proj.): 12.5
  - 2027–2033 (Proj.): 8.2; 5.2; 5.7; 3.5; 3.8; 4.0; 3.5
- Official financing (USD billions, selected):
  - Total official financing 2021: 1.0; 2022: 29.2; 2023: 39.9; 2024 (Proj.): 42.1; 2025 (Proj.): 26.2; 2026 (Proj.): 17.2
  - IMF (net uses/repurchases and purchases, selected):
    - Net IMF (2021–2026): -0.7; 0.6; 1.9; 2.9; -0.5; 0.6
    - Purchases (2021–2026): 0.7; 2.7; 4.5; 5.3; 1.8; 2.6
    - Repurchases (2021–2026): 1.4; 2.1; 2.5; 2.4; 2.3; 2.0
  - Official budget grants (USD billions): 2021: 0.0; 2022: 14.0; 2023: 11.6; 2024 (Proj.): 8.6; 2025 (Proj.): 11.4; 2026 (Proj.): 7.4
  - Official budget loans (USD billions): 2021: 1.7; 2022: 14.5; 2023: 26.4; 2024 (Proj.): 20.5; 2025 (Proj.): 15.3; 2026 (Proj.): 9.2

### Key policy-relevant takeaways
- Even under a downside scenario, program objectives of:
  - maintaining macroeconomic and financial stability;
  - restoring debt sustainability on a forward-looking basis; and
  - ensuring medium-term external viability
  could be met given:
  - strong policy commitments by the authorities;
  - renewed financing assurances from international partners; and
  - expected debt relief.
- The staff view is that "additional financial assurances provided by Ukraine’s international partners would restore debt sustainability on a forward-looking basis" under the downside scenario.

*Sources: Ukrainian authorities; World Bank, World Development Indicators; and IMF staff estimates.*

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

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

### Monetary survey (End of period, percent change unless otherwise noted) (Billions of Ukrainian Hryvnia)
- Net foreign assets: 8501,2521,9261,7632,1362,4262,4642,5432,9063,4444,0044,5985,280
- Net domestic assets: 1,2211,2491,1511,6681,5861,6372,0142,3382,4132,3532,3142,2882,223
- Domestic credit: 1,9252,2122,2482,4953,1744,0054,5005,0805,4645,8676,4037,0107,688
  - Net claims on government: 8981,2181,2591,4882,1632,9823,4213,9134,1474,3814,6875,0275,398
  - Credit to the economy: 1,0239919861,0031,0071,0191,0751,1631,3121,4811,7111,9762,282
    - Domestic currency: 7317257337497597758339251,0801,2531,4871,7562,067
    - Foreign currency: 292266253254248244242237233228224220215
  - Other claims on the economy: 5433444556677
- Other items, net: -704-963-1,097-827-1,588-2,368-2,487-2,742-3,051-3,514-4,089-4,722-5,464
- Broad money: 2,0712,5013,0773,4313,7224,0644,4784,8805,3195,7976,3186,8867,503
- Currency in circulation: 5816667167189391,0271,1101,1851,4111,4921,5701,6431,708
- Total deposits: 1,4891,8342,3602,7122,7823,0353,3663,6943,9074,3044,7465,2415,794
  - Domestic currency deposits: 1,0141,2041,6281,9591,9382,1462,3812,5832,7133,0203,3663,7574,199
  - Foreign currency deposits: 4746307327538448899851,1101,1941,2841,3811,4841,595

### Accounts of the NBU (End of period)
- Net foreign assets: 7019071,4561,2581,6141,9091,9532,0392,3822,8983,4354,0054,663
- Net international reserves: 5666701,0788031,1141,3851,4031,4631,7772,2642,7703,3093,932
  - (In billions of U.S. dollars)20.818.328.4
  - Reserve assets: 8441,0421,539
- Other net foreign assets: 134237378455500525550576604634665696731
- Net domestic assets: -38-115-479-169-406-591-520-498-729-1,143-1,578-2,050-2,614
- Net domestic credit: 1753126-94671,0081,1401,3471,3431,3281,3981,4841,579
  - Net claims on government: 270704591567551539533527522514506497486
  - Claims on government: 325758729717704691680669658647636625614
  - Net claims on banks: -95-392-585-576-844706088208228148939871,094
- Other items, net: -213-427-485-160-873-1,599-1,661-1,845-2,073-2,471-2,977-3,534-4,193
- Base money: 6627939771,0891,2081,3181,4331,5411,6521,7551,8571,9552,049
- Currency in circulation: 5816667167189391,0271,1101,1851,4111,4921,5701,6431,708
- Banks' reserves: 81126261371268291323356242263287312341
- Cash in vault: 474948858795105116122135149164181
- Correspondent accounts: 3577213286181196218240119128138148159

### Deposit money banks (End of period)
- Net foreign assets: 149345470505522517511503524546569593617
  - Foreign assets: 254427550646701732765800836873912953996
  - Foreign liabilities: 1058280141179215255297311327343361379
- Net domestic assets: 1,3391,4891,8902,2072,2602,5182,8553,1903,3823,7574,1774,6485,176
- Domestic credit: 1,8752,0642,5402,9133,0133,3263,7204,1264,4004,8405,3295,8766,486
  - Net claims on government 1/: 6285136689211,6122,4442,8883,3853,6253,8664,1814,5304,913
  - Credit to the economy: 1,0239919861,0031,0071,0191,0751,1621,3121,4811,7101,9752,282
  - Other claims on the economy: 5333444556677
- Net claims on NBU: 220594883985391-140-247-426-542-513-568-636-715
- Other items, net: -536-574-650-706-754-808-865-936-1,018-1,082-1,152-1,228-1,311
- Banks' liabilities: 1,4881,8342,3602,7122,7823,0353,3663,6933,9074,3034,7465,2415,793

### Memorandum items (selected)
- Base money: 11.219.623.311.510.99.28.77.57.26.25.85.34.8
- Currency in circulation: 12.614.67.50.230.89.34.85.86.87.88.89.810.8
- Broad money: 12.020.823.011.58.59.210.29.09.09.09.09.09.0
- Credit to the economy: 8.4-3.1-0.51.80.41.25.58.112.912.915.515.515.5
- Real credit to the economy 2/: -1.5-23.5-5.3-7.5-7.5-5.00.03.07.57.510.010.010.0
- Credit-to-GDP ratio, in percent: 18.818.915.113.712.711.811.411.311.712.212.913.614.5
- Velocity of broad money, ratio: 2.62.12.12.12.12.12.12.12.12.12.12.12.1
- Money multiplier, ratio: 3.13.23.13.23.13.13.13.23.23.33.43.53.7
- Hryvnia per U.S. dollar (end of period): 27.336.638.0

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

### 5.      The economy could rebound more quickly, particularly if the security situation

### 5.      The economy could rebound more quickly, particularly if the security situation

### Recovery scenarios and drivers
- A stronger recovery could be supported primarily by:
  - A decline in security risks enabling a quicker return of migrants and faster recovery in sentiment.
  - Swifter resolution of war-related supply disruptions and more durable access to seaports and other supply routes.
  - Raised resources for critical recovery and repair projects, including in the energy sector.
  - Forceful implementation of structural reforms, significant investments in reconstruction (including private investment inflows), and a faster return of migrants.
- Upside scenarios hinge on progress toward EU integration and implementation of reforms that catalyze investment and productivity (TFP) growth.

### Downside risks and vulnerabilities
- Risks remain tilted to the downside amid exceptionally high uncertainty:
  - Security risks could persist longer than expected, increasing fiscal pressures and new budget needs.
  - A prolonged or more intense war would depress firm and household sentiment, exchange rate and inflation expectations, and slow migrant returns, worsening labor market mismatches.
  - Export transit route interruptions, additional damage to energy infrastructure, or resurgent supply-chain disruptions could raise production costs and lower firm profitability.
  - External financing shortfalls or delays could materialize despite recent approvals (US aid and the EU Ukraine Facility), exacerbating financing constraints and forcing difficult policy trade-offs.
  - Mobilizing higher domestic financing in the event of materialized risks could become difficult.

### Macroeconomic and structural policy approach (2024–27) — Overview
- Ultimate goals: restore fiscal and debt sustainability, maintain external and financial stability, and promote long-term growth in the context of post-war reconstruction and EU accession.
- Two-phased approach:
  - Phase 1 (current): maintain macroeconomic, external, and financial stability; ensure robust budget implementation in 2024; anchor policy via a strong medium-term fiscal framework; managed exchange rate flexibility; implement targeted structural measures in public finances, financial sector, monetary and exchange rate policies, governance, anti-corruption, and energy; safeguard social spending.
  - Phase 2 (post-war tapering): shift to expansive structural reforms to entrench stability, support recovery and reconstruction, promote growth, and restore medium-term external viability; revert to pre-war policy frameworks as conditions allow; progress toward EU accession is a major policy anchor.
- Preparedness for downside scenario:
  - Ready to take additional feasible fiscal measures, guided by the National Revenue Strategy (NRS).
  - Identify additional domestic financing as needed; deploy foreign reserves, adjust monetary policy stance, and recalibrate FX controls if required.
  - Partners stand ready to provide additional financial resources sufficient to close financing gaps; Ukraine committed to sharing adjustment burdens.
- Medium- and long-term growth pillars: high and sustained investment, supporting inward migration, rebuilding human capital, fostering an enabling business environment, frameworks for post-war reconstruction to absorb official resources and catalyze private capital, reforms toward EU accession and deeper integration (Association Agreement and Deep and Comprehensive Free Trade Agreement).

### Fiscal policy (findings and commitments)
- Early-2024 prudent budget execution due to financing constraints prior to significant external disbursements in mid-March:
  - Measures: restraining expenditures, front-loading revenues (including extraordinary one-time tax on 2023 bank profits), mobilizing domestic financing, drawing down buffers.
- End-March 2024 fiscal targets achieved:
  - End-March non-defense cash primary balance of the general government excluding grants: UAH 241.9 billion (at program exchange rates), exceeding the program's floor of UAH 135.0 billion (Quantitative Performance Criterion).
  - Overall balance excluding grants: UAH -211.0 billion (at program exchange rates), exceeding the floor of UAH -344.5 billion (Indicative Target).
  - Tax revenues (excluding social security contributions) through end-March: UAH 508.0 billion, exceeding the floor of UAH 426.3 billion (Quantitative Performance Criterion).
  - Issuance of government guarantees: UAH 5.9 billion, below the ceiling of UAH 49.9 billion (Quantitative Performance Criterion).
  - Accumulation of overdue accounts payable (domestic arrears) as of end-March: UAH 1.5 billion, below the ceiling of UAH 2.0 billion (Indicative Target).
  - Social spending outlays at end-March: UAH 142.1 billion, exceeding the floor of UAH 130.0 billion (Indicative Target).
- 2024 budget priorities and parameters:
  - Expenditures: prioritize national defense with allocation consistent with a full year of war operations; continue to provide resources for social safety net and war veterans; floor on social program spending maintained.
  - Pension indexation: annual pension indexation from March 1, 2024 of 7.96 percent carried out in line with legislation and consistent with the deficit projection.
  - Revenues: implementation of revenue policies in the budget, including revised allocation of personal income taxes between state and local budgets and extraordinary one-time bank profit tax.
  - Balance target: overall balance excluding grants of UAH -1,562 billion or around -21 percent of GDP; deficit financed primarily through international donor budget support.
  - Monitoring: floor on the non-defense primary balance of the general government excluding grants (Quantitative Performance Criterion) and floor on the overall cash balance excluding grants (Indicative Target).
- Fiscal restraint and safeguards:
  - No tax amnesties for the duration of the program; refrain from tax policy/administrative measures that erode the tax base.
  - Targeted, timebound, controlled tax-related measures for defense/security imports only with oversight.
  - Resist pressures on non-core spending; revise spending categories only after consultation with IMF staff and identification of new financing or compensating measures.
  - Continue strong commitment controls and strict oversight of budget execution by key spending units.
- Revenue and tax policy reforms:
  - Draft legislation to gradually align tobacco and fuel product excise taxes with EU requirements over 2024H2–2028 registered in Parliament following CMU approval.
  - Draft legislation to introduce excises on sugary drinks submitted; legislation on medical cannabis taxation and advance CIT payments for fuel stations in development.
  - Improve excise tax administration and implement a track and trace system in cooperation with the Ministry of Digital Transformation, planned operational by January 1, 2026 (as envisaged in the NRS).
  - Working group continuing to identify potential temporary revenue measures for 2024; intent to mobilize additional domestic financing if necessary.
- 2025 budget process:
  - Budget Declaration for 2025–2027 to be approved by the Cabinet of Ministers of Ukraine in June and submitted to Parliament; this is the first medium-term budget declaration since restoring the Budget Code.
- Medium-term fiscal strategy and reconstruction needs:
  - Aim to mobilize 3-4 percent of GDP in additional revenues during 2024–27.
  - Seek highly concessional external financing where possible.
  - Work to complete a treatment of external public debt to bring public debt and gross financing needs back to manageable levels (see ¶38).
  - RDNA-3 (published February 15, 2024) estimated reconstruction needs of US$486 billion over the next 10 years; reconstruction needs pushed beyond RDNA-3 estimates due to relentless attacks on energy infrastructure.
  - Reconstruction financing will be evaluated to ensure consistency with fiscal and debt sustainability and integrated public investment management; focus on housing, transport, commerce and industry to restore productive capacity and promote return of displaced persons.

### Financing strategy
- External financing:
  - External budget support since program start: US$45.1 billion disbursed, of which US$11.8 billion was disbursed over January-May 2024.
  - Expected additional external budget support for the rest of 2024: US$26.1 billion.
  - Over July 2024–June 2025 (next 12 months of the IMF-supported program), firm financing assurances are in place from large official sector multilateral and bilateral commitments.
  - Continued support from the EU, IFIs, and bilateral donors in envisaged amounts, terms, and timing is vital; key partners have assured continued support beyond June 2025 to keep the program fully financed over the program period.
- Domestic financing and debt management:
  - Strategy involves increasing issuance of domestic government securities in the primary market with objective of obtaining net positive financing in 2024.
  - As of end-May 2024, mobilized net domestic bond financing of UAH 46.1 billion or almost US$1.2 billion, implying an implied rollover rate of 132 percent so far this year.
  - Issuance adjustments: matching issuance yields and maturities to market demand, lengthening maturities; about UAH 3.3 billion issued as designated benchmark bonds that banks may use to meet reserve requirements.
  - Measures to increase bank financing being pursued, including studying flow of liquidity into the banking system on a bank-by-bank and bank-group basis and developing targeted strategies under the joint Working Group of the Financial Stability Council (established April 2023).
  - Importance of smooth secondary market trading of government bonds on stock exchanges to support price discovery and liquidity.
  - MOF and NBU discussions ongoing to achieve savings on other domestic debt.
  - Successful domestic placements and timely concessional external financing will enable budget execution as planned, avoid arrears, maintain avoidance of monetary financing, and safeguard macroeconomic and financial stability consistent with debt sustainability.
- Debt strategy actions:
  - Plan to publish an update to the Medium-Term Debt Strategy (MTDS) by end-2024 following impacts from the external commercial claims debt treatment.
  - Commitment to strengthen the capacity of the Debt Management Agency (increase staffing and training).
  - Support development of the domestic debt market, diversify investor base (including encouraging non-resident participation), and cautiously restore international capital market access to enable the bond market to support reconstruction.

*Source: Excerpt from IMF staff report chapter on policies and outlook.*

### 20.      We are determined to strengthen treasury cash and liquidity management. The

### 20.      We are determined to strengthen treasury cash and liquidity management. The

### Treasury cash and liquidity management
- Ongoing war and uncertainty around timing of external disbursements has led to volatility in budget execution and higher transaction costs for treasury resource management.
- Efforts underway:
  - Strengthen liquidity forecasting and cash management to lower volatility and transaction costs.
  - Conducted a diagnostic assessment of treasury cash and liquidity management with IMF FAD TA, based on international best practices regarding the roles of finance ministries, treasuries, central banks, and debt management agencies.
  - Reviewing diagnostic findings to improve predictability of cash and liquidity management and may seek further TA.

### Fiscal structural reforms (overview)
- Structural reform agenda to support EU accession and development goals will focus on:
  - (i) raising adequate revenues to meet reconstruction and social spending needs, enhancing efficiency, fairness and simplicity of the tax system, including through the National Revenue Strategy (NRS);
  - (ii) preparing public investment and public financial management for the post-war era by strengthening public investment processes, the project management cycle, and commitment controls;
  - (iii) reforming and strengthening the pension system and social safety net;
  - (iv) enhancing fiscal transparency and management of fiscal risks;
  - (v) ensuring fiscal sustainability and predictability of budget policy by restoring the medium-term budget framework (MTBF).

### Revenue mobilization and National Revenue Strategy (NRS)
- NRS adopted in December 2023; aims to establish a fair and competitive tax framework to generate revenues sufficient for post-war development while maintaining fiscal and debt sustainability.
- NRS provides guidance for coordination among government agencies, donors, private sector and civil society, led by the MOF.
- Implementation actions:
  - Developed detailed implementation plans with specific timetables for tax administration, customs, and tax policy reforms.
  - Will abstain from tax policy and administrative measures that may adversely affect the tax revenue base and will refrain from introducing new categories of taxpayers in existing preferential regimes.

### Near-term tax policy measures
- Focus on raising revenues from excises, alignment with the EU acquis, and streamlining tax privileges.
- Submitted legislation to increase excise rates as a first step toward gradual increase to EU minimum levels over the medium term (see ¶13 in source).
- Tax privileges assessment approach (in consultation with IMF FAD TA):
  - Develop and adopt a formal assessment methodology and guidelines specifying:
    - (i) the number of topics on tax privileges to be evaluated in an annual cycle;
    - (ii) a standardized evaluation template;
    - (iii) the publication process of underlying assessments.
  - Structural Benchmark: end-July 2024, proposed to be modified and reset to end-September 2024.
  - Phased application targeting most significant tax expenditures first, leading to a regular evaluation cycle covering all topics over a number of years.

### Medium-term tax policy reforms (planned)
- Over next few years, guided by NRS, actions include:
  - (i) developing a comprehensive package for post-war taxation of carbon emissions based on environmental protection;
  - (ii) analyzing and assessing taxation of extractive industries;
  - (iii) defining principles of taxation of virtual assets aligned with EU rules and OECD Global Forum initiatives.
- Consideration of PIT reforms (more progressive personal income tax) when conditions and administrative safeguards (including confidentiality of tax data in STS systems) are in place.
- Developing legislative amendments to implement rules to combat tax evasion in line with EU Anti-Tax Avoidance Directive (EU ATAD) and best international practices.

### State Tax Service (STS) near-term reforms
- Objectives: build public trust and develop modern compliance risk management.
- Actions and timelines:
  - Address issues identified in 2022 taxpayer survey; a similar independent survey supported by World Bank started in April 2024, with results to be published within two weeks after receipt by the STS, no later than August 2024.
  - Approve a long-term Digital Development Plan for the STS in accordance with the NRS implementation plan (by the end of 2024); includes consolidation of IT platforms and independent administration.
  - Develop concept for anonymized data (data masking) on taxpayers by tax authorities by end-2024; changes operational by end-2026.
  - Adopt a comprehensive compliance improvement plan and operationalize tax risk management; launch pilot of new compliance risk management system by end-June 2024 (requires CMU resolution).
  - Organizational restructuring reflecting functional review results by end-2024.
  - Determine criteria for assessing impact and efficiency of STS Anti-Corruption Program.
  - Implement IT solutions for SAF-T UA and improve information exchange with foreign competent authorities, including obtaining positive assessment from the OECD Global Forum on Information Security Management Maturity.

### State Customs Service (SCS) near-term reforms
- Focus on reducing corruption risks. Key measures:
  - Adopted legislation reinstating post-clearance customs audits, effective end-May 2024.
  - Adopted legislation criminalizing large-scale customs fraud and smuggling, effective January 1, 2024 for excisable goods and July 1, 2024 for all other goods.
  - Submitted legislation to modernize administrative liability framework for customs violations to be adopted by end-2024.
  - Submitted significant revisions to the Customs Code to align with international best practice; reform aims to:
    - (i) simplify procedures;
    - (ii) clarify treatment of customs debt;
    - (iii) establish legal basis for dismissing customs officers, including integrity checks and periodic re-attestation;
    - (iv) set up a disciplinary committee;
    - (v) introduce hiring of customs personnel on contractual basis;
    - (vi) ensure alignment with EU legislation and regulations;
    - (vii) ensure SCS remains subordinated to and accountable to the MOF.
  - Aim to adopt amendments to the Customs Code by end-October 2024 (proposed Structural Benchmark, end-October 2024).
  - Launch initiative to determine criteria for assessing impact of SCS Anti-Corruption Program by end-September 2024; supported by biannual independent surveys of traders on perception of integrity.
  - Additional work: HR and compensation reforms; operational management improvements including centers of excellence; move verification/checking of customs documents from border crossings to inland offices.

### Economic Security Bureau of Ukraine (ESBU)
- Adopt a new ESBU law by end-June (Structural Benchmark) to:
  - Establish clear mandate and scope for investigative powers focused on major economic crimes and strengthen analytical capacity.
  - Maintain delineation of investigative powers between ESBU and NABU.
  - Legal basis to:
    - (i) develop open, transparent and competitive selection for management and staff;
    - (ii) strengthen selection commission requirements for ESBU head, including decisive vote for independent experts with international experience;
    - (iii) set up a disciplinary committee;
    - (iv) introduce a contract system for employees;
    - (v) develop attestation mechanism based on high-level principles; prioritize attestation of managers to be completed within a reasonable period after appointment of new ESBU head.
- ESBU activities to be directed and coordinated by the CMU, focusing on major economic crimes and complementing STS and SCS capacities.

### Restoring the Medium-Term Budget Framework (MTBF)
- With IMF TA, undertake a diagnostic review of pre-war MTBF policies and practices relative to best practices (Structural Benchmark, end-October 2024).
- Completed first set of gap analyses and started preparation of the budget declaration for 2025-2027.
- Sent letter to key spending units requesting factors for estimating baseline costs of public services for 2025-2027.
- Sequenced approach to strengthen MTBF and expand coverage to include local governments and social funds.
- Submitted draft law No. 11131 to restore medium-term budget planning for local budgets.
- Expect continuous IMF TA support to enhance estimation of baseline expenditures in instructions for the 2026-2028 Budget declaration and 2026 Budget.

### Pensions and social spending
- With World Bank TA, preparing pension system modifications and mechanisms to support vulnerable populations.
- Pensions:
  - Working on comprehensive conceptual framework and reviewing possibility of introducing a second pillar when conditions permit.
  - Any legal amendments increasing pension expenditures require 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 lower legally defined retirement age.
- Mechanisms to support vulnerable groups:
  - Exploring consolidation of social entitlements under a single unified package based on individual needs regardless of recipient’s status (e.g., IDP or non-IDP) with World Bank support.
  - Increased income threshold for Guaranteed Minimum Income (GMI) eligibility by 10 percent.

### Fiscal transparency and fiscal risks
- Key measures and commitments:
  - Included a Fiscal Risk Statement (FRS) in the 2024 budget; will include consolidated financial performance analysis and stress testing across major SOEs.
  - Issued letter to line ministries and key spending units to start identifying key fiscal risks; information to be included in the 2025–2027 medium-term budget declaration.
  - Continue strengthening SOE stress testing under different scenarios and identify major public companies severely affected by the war and prepare assessment of potential fiscal and quasi-fiscal costs (Structural Benchmark, end-September 2024). IMF TA requested to define scope and timeline.
  - Develop methodological guidance for assessing fiscal risks in key spending areas and contingent liabilities, including PPPs, guarantees, and SOEs; integrate these assessments into early stages of the budget cycle.
  - With ongoing IMF TA, MOF will continue development of risk-based fees for guarantees and prepare amendments to existing decree; upcoming IMF TA mission expected in July-August 2024.
  - In collaboration with MOE, MOF 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.

### BDF 5-7-9 loan program fiscal management
- Implementing reforms to reduce deficit and limit fiscal risks from the BDF’s 5-7-9 loan program.
- Actions taken:
  - In line with BDF concept note (Structural Benchmark, end-March 2024, met), reduced bank margins by 300-500 basis points and lowered maximum size of working capital loans to non-priority sectors from UAH150 million to UAH5 million.
  - Resolved earlier backlog of bank compensations.
  - Working on remaining measures to limit program’s deficit in 2024 and eliminate it in 2025, including:
    - (i) reinstating state aid rules;
    - (ii) further targeting the lower end of medium-sized enterprises by end-June 2024.
  - Implementing ESG criteria to the extent possible by end-2024 to improve program quality and limit its size.
- MOF oversight and coordination:
  - Developed coordination mechanism with clearly defined roles for MOE and MOF: MOE identifies priority sectors for SME support; MOF controls and monitors spending under the program.
  - Appropriations for the 5-7-9 program in the 2025 Budget will be consistent with program parameters.
  - Ensure 5-7-9 program remains solely within the BDF, preventing delegation or replication by other entities.

*Source: 1ukrea2024002-print-pdf*

### 34. Our reforms of the 5-7-9 program are accompanied by measures to strengthen the

### 34. Our reforms of the 5-7-9 program are accompanied by measures to strengthen the 

### BDF effectiveness, governance, and financial sustainability
- Independent assessments and reviews:
  - MOF, with international partners, commissioned an independent assessment of the BDF (to be completed by end-2024) and its support programs to refine operational design and inform the future role of the BDF.
  - The World Bank will carry out a policy effectiveness review of the 5-7-9 program in 2024.
- Legal and governance measures:
  - Passed a law to align asset declaration obligations of the BDF’s foreign independent supervisory board members with those of SOBs to ensure legal certainty and attract qualified candidates.
  - Commitment to establish a BDF supervisory board with majority of independent candidates (by end-September 2024).
  - Commitment to prepare a draft law to clarify the mandate and ensure the independence of the supervisory board, as outlined in the BDF concept note (by end-year 2024).
- Financial sustainability measures:
  - Increase BDF's fees from 0.15 percent to 0.5 percent and shift responsibility for paying such fees from the government to banks participating in the 5-7-9 program (by end-September 2024).

### Limiting fiscal risks from government lending facilities and DFIs
- Principles and safeguards:
  - Any government lending facilities or development finance institutions will strictly adhere to international best practice.
  - Legislation will internalize the need for appropriate oversight (including by the competent authorities), a business model that ensures long-term financial sustainability, sound risk management frameworks, and corporate governance standards to insulate from political interference.
  - Commitment to consult with IMF staff and other international partners before launching any such programs.

### Transparency in management and spending of budgetary funds and special accounts
- Fund for the Liquidation of the Consequences of the Armed Aggression:
  - In Budget 2023, the Fund supported restoration of destroyed and damaged property in the amount of UAH 38.1 billion.
  - In 2024, the Fund will continue serving its purpose as stated in Article 28 of the 2024 State Budget Law.
  - Sources for the Fund’s operations are expected to comprise the unspent balance of about UAH 24 billion as of end-2023.
- Special accounts:
  - April 2023 amendment to the Budget Code to ensure transparency of sources, usage and reporting of funds on special accounts.
  - Starting mid-2023, the MOF publishes information about sources and usage of funds in special accounts donated by private individuals and legal entities.
  - Commitment to continuing transparency and accountability of these accounts.

### Strengthening Public Investment Management (PIM)
- Roadmap and objectives:
  - 2023 roadmap to reform PIM addresses weaknesses in (i) strategic planning, (ii) integrating public investment into the MTBF, (iii) procedures for preparing, appraising, selecting, and implementing projects, (iv) institutional capacity, and (v) monitoring and evaluating implementation.
- Institutional reforms and timeline:
  - Established the Strategic Investment Council (SIC) to define the project pipeline.
  - SIC will consider the list of public investment projects for the 2025 budget (by end-September 2024).
  - With IMF TA and/or other partners, the roadmap will be operationalized via a government decree with a specific action plan and timeline that provides clear linkages between the MTBF and national reconstruction priorities, specifying a gatekeeper role for the MOF (Structural Benchmark, end-December 2024).
  - Amend the Budget Code (by end-2024) to establish clear institutional links between the MTBF, PIM, and reconstruction priorities to bolster MOF’s gatekeeper role and mitigate risks to debt sustainability.
  - Strengthen coordination between the MOF, MOE, Ministry of Infrastructure, and other line ministries (ministries remain responsible for project execution).
  - Continue strengthening PIM policies consistent with best practices of MTBF and PIM, following principles of budget unity, coherence, and predictability.

### External Debt Strategy and debt treatment
- Strategy objectives:
  - Publicly announced intention to proceed with a debt treatment of external public debt on March 24, 2023.
  - Strategy aims to close financing gaps during the program period, reduce gross financing needs to manageable levels, place public debt on a sustainable path, create conditions for private sector participation in post-war reconstruction, and preserve financial stability.
  - Hired external financial advisors and committed to a credible, transparent process; continuing discussions with private creditors.
- Elements of the debt treatment:
  - Official bilateral debt:
    - Group of Creditors of Ukraine committed to a two-step process: an extension of the debt standstill coupled with a separate assurance to deliver a final debt treatment sufficient to restore debt sustainability before the final review of the IMF-supported program.
    - First stage—an extension of the standstill until 2027—was formally concluded in December 2023.
    - Will seek treatments on comparable terms with other official creditors.
  - External commercial debt:
    - Goal to reach agreement with international bondholders and participating commercial creditors by the time the current standstill ends in August 2024.
    - Working with legal and financial advisors, in discussions with bondholders, to reach an agreement consistent with the program’s debt sustainability targets under the latest baseline scenario.
    - Committed to undertake a further treatment of external commercial claims as needed to restore debt sustainability, in line with program parameters.
    - Further treatment expected once conditions of exceptionally high uncertainty abate, or at the latest by the penultimate review of the program.
    - Retaining legal and financial advisors and undertaking consultations with creditors, including sharing information about the potential range of outcomes and continuing regular consultations and updated information sharing.

- Guarantees:
  - Will continue to strictly limit the issuance of guarantees (Quantitative Performance Criterion).
  - Limit consistent with reinstatement of the articles of the Budget Code.
  - Adequate space will be provided for guarantees on loans from IFIs and foreign governments for projects, including those for recovery and reconstruction.

### Monetary and Exchange Rate Policies — objectives and strategy
- Overall aim:
  - Safeguard price and external stability and ensure an adequate level of international reserves.
  - Adapting monetary and exchange rate policies in view of evolving macroeconomic conditions and outlook, including cautiously continuing with FX liberalization.

Monetary Policy
- Stance and actions:
  - Maintain an appropriate monetary policy stance to support price stability, anchor inflation expectations, and enhance FX market stability.
  - Continued easing cycle by cutting the key policy rate (KPR) by 150 bps this year, at a faster pace than envisaged at the beginning of the year.
  - Plan to transition gradually toward a full-fledged inflation targeting regime, consistent with the Strategy and subject to its conditions.
  - Aim to steer monetary policy towards sustaining moderate inflation throughout 2024, followed by its return toward the target of 5 percent over the NBU’s forecast horizon.
  - See further scope for the easing cycle to continue, albeit more gradually, subject to balance of risks to inflation and the economic outlook.
  - Intend to maintain sufficiently positive real interest rates to support price and external stability.
- Operational design and liquidity management:
  - Continue adjusting operational design to ensure attractiveness of hryvnia-denominated instruments and manage banking system structural liquidity.
  - October 2023 shift from a corridor to a floor system, aligning the KPR with the main overnight CD instrument, enhancing the KPR’s role.
  - Maintained the 3-month CD (access linked to hryvnia term deposit growth) to support real returns and deposit volumes, enhancing FX stability and bank funding.
  - Recent adjustments: eligibility for 3-month CDs, reducing spread between rates on 3-month CDs and overnight CDs, reducing spread between the KPR and the refinancing rate.
  - May consider introducing instruments beyond an overnight maturity to increase average maturity of sterilization operations, considering implications for the primary government bond market.

Exchange Rate Policies
- Managed flexibility and market development:
  - Operationalization of the managed flexibility exchange rate regime has enhanced FX market’s capacity for self-balancing and the exchange rate’s role as a shock absorber while safeguarding reserves.
  - Since the transition to managed flexibility, transactions excluding the NBU’s participation have more than tripled, and their share more than doubled.
  - Spread between exchange rates on the cash and official exchange rates remained compressed within 2 percent in February-April 2024.
  - Allowing the exchange rate to adjust to domestic and external shocks is intended to enhance resilience of the economy and FX market.
  - Continue to monitor the FX market and calibrate FX intervention policy to ensure price and external stability and consistency with program NIR targets.
  - Will continue to facilitate 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.

FX Reserves and Performance Criteria
- Reserve management and adjustments:
  - Intend to maintain adequate FX reserves through the course of the program to safeguard external stability.
  - FX reserves remained robust in 2024Q1 due to weaker than expected net FX demand early in the year, stronger than expected net exports, and lower private outflows, allowing meeting the end-March Quantitative Performance Criterion on net international reserves.
  - Requesting an adjustment of the floor on the NIR QPC for end-June 2024, primarily due to shifted timing of expected financing from the US.
  - New end-September and end-December 2024 PCs are set at a higher level than IT projections under the previous review to reflect improvements in external sector performance and shifted timing of external financing.

FX Liberalization and Controls
- Easing and monitoring:
  - Carefully adjust FX controls to support economic recovery while maintaining FX market stability and addressing national and international security considerations.
  - Cautiously eased FX controls, including easing restrictions on service imports, dividend repatriation, and external loan repayments; facilitating international leasing; and increasing fund transfer limits for specific entities.
  - Reforms aim to improve investment environment, facilitate debt management, and promote capital inflows, while ensuring consistency with macroeconomic assessments.
  - Will proceed with the FX liberalization roadmap under the Strategy and closely monitor bank-level data to identify and address potential circumvention.
- Discretionary FX permits:
  - March 2024 amendments ensure discretionary right of the NBU to approve FX permits for exemptions to general rules on cross-border transactions set by Resolution #18.
  - Approval decisions for individual permits will be consistent with the FX Strategy and goal of safeguarding macroeconomic, financial, and external stability, and made in cases of exceptional importance to the state in wartime.
  - Will work with stakeholders on solutions for adjusting settlement periods for export and import transactions to balance facilitating business and ensuring steady flow of export earnings.

Additional FX-related commitments
- No multiple currency practices (MCPs) identified since the Third Review.
- Commitment to ensure that as exchange rate transition and FX liberalization continue, multiple currency practices do not arise inadvertently.

### NBU independence, governance, and monetary financing
- Monetary financing:
  - Remain committed to avoiding monetary financing.
  - If unexpected critical needs arise or external disbursements are delayed, will first explore drawing down excess government deposits or tapping the government debt market.
  - Will request monetary financing from the NBU only as a last resort and in strictly limited amounts, underpinned by a framework mutually agreed between the MOF and NBU in consultation with the IMF; a draft NBU resolution is underway.
  - Will avoid indirect forms of monetary financing outside core NBU functions (e.g., directed liquidity provision to banks for purchase of government securities on the primary market).
  - Direct financing of off-budget programs by the NBU will be avoided altogether.
  - A minor miss of the indicative target on the ceiling on general government direct borrowing from the NBU occurred due to a technical fluctuation in accounts payable unrelated to budget execution; the issue has been resolved.
- Independence and governance:
  - Fully committed to upholding independence and institutional effectiveness of the NBU as critical to macroeconomic stability and transition back to inflation targeting with a floating exchange rate.
  - Governance arrangements:
    - Further enhanced the MoU between the NBU and the MOF for servicing the government’s obligations to the Fund by the NBU through additional agreements, necessary contracts, and rigorous monitoring of settlements between the MOF and the NBU.
  - Financial autonomy:
    - Continue adhering to profit retention rules and ensure distribution of NBU profits to the state budget in line with procedures established by the NBU Law.
    - Commit to refrain from using NBU profit for earmarked spending and will direct this revenue category to the General Fund of the State Budget.
    - Recognize costs from monetary policy implementation via liquidity absorption (interest expenses on NBU CDs) are necessary and justified; these costs have decreased in line with recent monetary easing.

*Source: 1ukrea2024002-print-pdf - 34. Our reforms of the 5-7-9 program are accompanied by measures to strengthen the*

### 51. As part of our efforts to achieve our strategic goal of EU accession, we will continue to

### 1ukrea2024002-print-pdf - 51. As part of our efforts to achieve our strategic goal of EU accession, we will continue to

### Central bank financial reporting and monetary policy framework
- Improve the conceptual framework and content of the NBU’s financial reporting to provide reliable and relevant presentation of information, taking into account the purpose and unique features of the central bank’s operations.
- With IMF and other partners’ technical assistance, study experiences of European national central banks and the legal framework for accounting and financial reporting in the European System of Central Banks (ESCB), and assess the NBU’s readiness to transition to financial reporting in line with ESCB standards.
- Intend to carefully unwind unconventional wartime measures:
  - Ensure such measures are well-targeted, clearly communicated and time bound.
  - As the structural liquidity surplus unwinds, adjust the design of the monetary policy operational framework, including assessing the merits of reverting to a corridor system.
  - Commit to phasing out war-time measures when conditions permit to support an eventual return to a full-fledged inflation targeting framework with a floating exchange rate regime.

### Financial sector stability and emergency measures
- Wide-ranging emergency measures have preserved financial stability; continued close monitoring and adjustments as necessary.
- Operational status and resilience:
  - Majority of bank branches remain operational.
  - Online banking services fully available to all clients with internet connectivity.
  - Non-cash payment system functioning normally.
  - Liquidity robust for most banks.
  - “Power Banking” introduced 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 December-2023) revoked under Martial Law; one bank (also around 4 percent of system assets) nationalized.
- NBU and DGF prepared contingency plans for further high-impact events; Financial Stability Council approved plans related to potential adverse rulings and litigation risks.

### Bank diagnostics, resilience assessments, and asset quality
- NBU completed a resilience assessment of banks comprising 90 percent of system assets in December 2023.
  - Assessment found minor capital needs in five banks which have mostly been addressed.
  - Four banks submitted capital management plans to close the approximately UAH 10 billion (US$260 million) gap as of end-2023 in two stages by March 2026.
  - Findings fully reflected in banks’ regulatory ratios and financial statements.
- Starting in 2025, NBU plans to resume annual resilience assessments including asset quality reviews and stress testing under baseline and adverse scenarios and involve external auditors.
- Prepare a prioritized interagency NPL resolution action plan by end-June 2024, informed by the NBU resilience assessment.
- In line with Terms of Reference adopted January 2023:
  - Complete an independent asset quality review (AQR) once conditions stabilize.
  - Carry out a subsequent bank viability assessment.
  - Current prohibition on bank capital distributions remains until independent AQR findings fully reflected in regulatory ratios and financial statements.

### Bank rehabilitation, governance, and state ownership strategy
- DGF, MOF and NBU to prepare a bank rehabilitation framework in consultation with IMF staff (Structural Benchmark, end-December 2024) including:
  - Strengthen operational readiness: regularly updated bank recovery and contingency plans.
  - Improve procedures to apply resolution tools for insolvent banks and early intervention measures, including temporary administration for anti-crisis management to close key outstanding gaps by end-December 2024.
  - Revive NBU-DGF coordination committee to improve information sharing and cooperation.
  - Review financial backstop mechanisms and improvements needed to the DGF’s financial position.
  - Align counterparty eligibility in monetary policy operations and coordination with lender-of-last-resort operations to international best practice.
- Refrain from changes to allocation of financial safety net roles during Martial Law.
  - Appoint a new DGF Managing Director when the position becomes vacant in July 2024 (in consultation with IFIs).
  - A Financial Stability Council subcommittee will review DGF governance and prepare legislative proposals to close gaps by end-March 2025; appointment procedures to include an independent HR firm and a nomination committee with voting representatives and IFIs as observers.
- Strategy to reduce state ownership in banking sector:
  - Any decision that may increase state ownership will be consulted with IMF staff and strictly limited to preserving financial stability and national security during Martial Law.
  - All systemic banks with majority state ownership will fall under MOF responsibility.
  - Non-systemic banks that come under state ownership will not be recapitalized using fiscal resources and will be transferred to the DGF for resolution upon breach of prudential requirements (Continuous Structural Benchmark).
  - Prepare and implement a framework to inform decisions on any additional banks coming under state control to preserve value and ensure operational management.
  - Use independent AQR results to update general SOB strategy and strategies for individual majority public-owned banks, including privatization plans.

- Privatization and preparation steps:
  - Prepare a draft law on SOB privatization in consultation with IFIs and submit to Parliament by end-September 2024.
  - Prepare two systemic state-owned banks for sale, Sense Bank and Ukrgasbank.
  - Plan to appoint an internationally recognized financial advisor by end-September 2024 using a transparent procedure in consultation with IFIs.
  - Ministry of Economy to develop strategies for the Ukrainian Financial Housing Company and Export Credit Agency in consultation with the Ministry of Finance by end-November 2024.

### Financial and credit market infrastructure reforms
- Financial reporting and audit quality:
  - 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.
  - NBU has fully restored prudential reporting requirements for NBFIs.
  - Restore by end-September 2024 requirements for mandatory quality control of services provided by audit companies, including verification of audit reports.
- Bank capital rules and EU alignment:
  - NBU issued a regulation in December 2023 to align banks’ regulatory capital structure with the EU Capital Requirements Directive and Regulation.
  - With World Bank support, close key gaps in minimum capital requirements by end-June 2025 and other gaps thereafter; implementation phased to facilitate integration into business plans.
  - NBU to monitor economic conditions and relax controls and reinstate pre-war regulations when safe and based on banks’ adherence to new capital requirements aligned with EU standards.
- Property valuations and collateral frameworks:
  - SPF, in coordination with World Bank and consultation with NBU, NSSMC and IFIs, to develop provisions by end-August 2024 improving draft amendments to the law “On Valuation of Property, Property Rights and Professional Valuation Activities in Ukraine” (#7386).
  - By end-December 2024, propose implementation roadmap including transitional arrangements, supportive regulation/guidance, steps to strengthen valuers’ profession, additional training requirements for valuation of financial assets, and creation of a register of valuations for financial assets.
- Immovable property databases and indices:
  - March 2024: NBU and Ministry of Justice prepared a detailed proposal to increase transparency, strengthen systemic risk analysis and bank collateral valuations.
  - Proposal includes a publicly accessible database of real estate transaction prices with detailed metadata and residential and commercial property price indexes.
  - Ministry of Justice and NBU to implement reforms to launch databases and publish indices in 2025 per the proposal’s timeframe.
- Virtual assets:
  - NBU and NSSMC to prepare an update of legislation with IMF technical assistance and in consultation with IMF staff by end-December 2024 to align with international best practice while considering economic development goals and mitigating price and financial stability risks.
- Non-performing exposures:
  - NBU aligned the definition of non-performing exposures with Article 47a and Article 178 of Regulation EU 575/2013; amendments come into force from January 1st, 2025 to strengthen monitoring.
- NBU’s status as a secured creditor:
  - Submit law amendments to Parliament by end-December 2024 reflecting NBU and DGF coordinated position to strengthen NBU’s status as a secured creditor by improving mechanisms for extraordinary satisfaction of NBU's claims through collateral, management, and sale of collateral.

### Strengthening banking supervision and AML/CFT
- Recent supervisory developments (2023):
  - Separated related-parties unit from banking supervision.
  - Strengthened Supervisory Committee decision-making by implementing “supervisory panels” as consulting bodies providing additional independent review.
  - Resumed scheduled onsite inspections for banking and non-banking institutions while ensuring NBU discretion on staff safety.
  - Undertake a survey of the effectiveness of supervisory panels by end-September 2024 in consultation with IMF staff.
- Transition to risk-based supervision:
  - NBU to prepare and implement a supervisory risk assessment methodology to inform supervisory engagement priorities (Structural Benchmark, end-December 2024).
  - Apply 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 expertise for supervision of information and communications technology risks as part of operational risk.
  - Improve professional capacity of bank supervision including developing professional profiles and a multi-year training program for new hires.
- AML/CFT:
  - Continue strengthening risk-based AML/CFT supervision of banks, payment service providers and NBFIs, focusing on corruption, tax crimes and illegal gambling.
  - By end-December 2024, amend Article 32 of the AML/CFT law and corresponding amendments to Article 73 of the Banking Law to ensure penalties for AML/CFT violations by entities regulated and supervised by the NBU are effective, dissuasive, and proportionate in line with FATF standards.
  - Financial sanctions applied to such entities will be established by laws of Ukraine and NBU regulatory legal acts.
- Supervision of banking hybrid business models:
  - NBU, in consultation with the IMF, to propose a supervisory framework for Banking-as-a-Service and similar models incorporating specific risks by end-August 2024.
- Transfer of bank ownership:
  - Ensure any future transfers of bank ownership, including following seizures during Martial Law, comply with the Law of Ukraine on Banks and Banking and require formal notification, review, and NBU approval.

### Non-bank financial institutions (NBFIs), payments, and capital markets
- Legal framework updates:
  - December 2021–July 2023 legislation passed on Financial Services and Financial Companies (#1953), Insurance (#1909) and Credit Unions (#3254); most provisions came into force in January 2024 and NBU prepared implementing regulations.
  - Rules for insurance intermediaries apply from January 2025; Solvency II applies from January 2027.
  - NBU and DGF plan to initiate deposit insurance framework for credit unions and a guarantee framework for life insurance companies after Martial Law is lifted and required regulations are in effect.
- Capital and reporting requirements for NBFIs:
  - NBU increased capital requirements for financial companies in December 2023 with a six-month transition period for existing entities.
  - NBU to prepare a supervisory risk assessment methodology by end-September 2024 to transition to risk-based supervision for NBFIs.
  - NSSMC to prepare draft regulation for financial intermediaries by end-December 2024 to align capital requirements with the EU acquis.
- Payments market reforms:
  - Draft law (#11043) to align with PSD2 (2015/2366) passed Parliamentary committee stage and is ready for first reading; aim to adopt law by end-September 2024.
  - In consultation with IFIs, prepare concept note for supervisory risk assessment methodology by end-August 2024 and implement by end-December 2024.
  - Develop reporting system; strengthen supervision capacity; prepare a concept note by end-June 2024 on regulatory requirements for person to person (p2p) and electronic payments to identify and restrict abnormal behavior and implement reforms as quickly as possible.
  - Develop a concept note by end-August 2024 on establishing a public register to record card holder and merchant violations and implement supporting regulation by end-December 2024.
- Capital market regulation and IOSCO alignment:
  - Law (#3585) on NSSMC enacted April 2024 enhancing NSSMC powers and independence.
  - Conduct screening to become a signatory of IOSCO’s multilateral MoU by end-December 2024 with full implementation of other provisions by end-December 2025.
  - NSSMC to enhance operational efficiency of NBU’s capital controls and align capital flow restrictions for securities accounts with those for bank accounts by end-December 2024.
- Related parties and insurance transparency:
  - Extend related-parties supervision unit powers to NBFIs by end-August 2024 including resource increases and a new internal database; propose draft amendments to the Law on Banks and Banking by end-July 2024.
  - February 2024 regulation requires auditors to confirm insurers have acceptable assets and assess their value for the 2023 financial year.
  - Assess feasibility of updating disclosure requirements for insurance and reinsurance brokers by end-December 2025.

*International Monetary Fund — Ukraine: selected excerpt*

### 62. In recognition of its important catalytic role in post-war economic recovery, we will

### 62. In recognition of its important catalytic role in post-war economic recovery, we will take steps to enhance credit and financial market infrastructure:  

### Capital market infrastructure
- Mechanisms are needed for foreign investors to directly access marketable debt instruments beyond government securities.
- Priority actions proposed by the NBU, NSSMC and MOF in consultation with IMF and other IFIs:
  - First phase: the NSSMC will approve the NBU regulation allowing the NBU to extend the NBU Clearstream link by end-July 2024 to facilitate access of foreign capital to municipal bonds and other Ukraine reconstruction-related debt instruments.
  - Second phase: the NSSMC, National Depositary (NDU), and NBU with IMF technical assistance will target establishment of a direct link between the Central Securities Depository (CSD) and foreign CSDs by end-July 2025 to expand foreign investors’ access to a broader range of instruments and markets.
  - The NBU, NSSMC, and MOF will by end-August 2024 propose further measures aimed at enhancing capital market infrastructure.

### War risk insurance system
- The NBU, together with the Ministry of Economy and Ministry of Finance, will prepare an initial draft law establishing a fully functional war insurance system by end-June 2024.

### Financial inclusion
- The war is adversely impacting access to financial services for households and enterprises near the conflict zone, in liberated territories, and for certain population groups.
- Due to the war, IFIs’ ability to comprehensively assess financial inclusion developments and priorities is restricted.
- Actions and timelines:
  - Collate fresh data using a best efforts approach and update the financial inclusion strategy in consultation with IFIs by end-July 2024.
  - Encourage financial institutions to better meet needs of vulnerable clients and to reintegrate de-occupied territories.
  - The NBU will prepare by end-July 2024 a legislative draft proposal for a specialized and restricted banking license to quickly tackle growing financial inclusion challenges by leveraging on existing infrastructure.
    - These specialized banks will: (i) be subject to the full extent of the Law of Ukraine on Banks and Banking; (ii) participate in the Ukraine deposit insurance scheme; (iii) have limits imposed on lending and funding operations.
    - The proposal will be prepared in consultation with key stakeholders and IFIs, and with due regard to international good practice.

### Lending development strategy
- A strategy prepared in consultation with IFIs aims to provide a unified policy approach to support fresh credit.
  - Focus: targeting subsidized lending instruments to key priority sectors during the war and further developing credit infrastructure to support banks’ risk management and lending decisions.
  - Aim to submit to the FSC for approval in June 2024.
  - NBU regulation and supervision will continue to apply to institutions that provide financial services to a large volume of clients.
  - Any authorities or agencies mandated with improving the lending infrastructure will adhere to the approved strategy.

### Responsible consumer lending
- To strengthen borrowers’ rights, improve information exchange, and encourage responsible lending:
  - A draft law on improving state regulation and the functioning of credit bureaus was submitted to parliament in February.
  - Steps will be taken to facilitate adoption of the law by Parliament by end-September 2024.
  - Enhance supervision of credit bureaus by establishing requirements for ownership and internal controls within six months of the law being adopted by the parliament and signed by the President.

### Monetary derivative instruments
- To hedge foreign exchange and interest rate risks and improve monetary transmission:
  - The NBU in consultation with IFIs, including via technical assistance, will prepare a concept note by end-October 2024 that will set out the steps, conditions and timing needed to introduce and develop the derivative financial instruments (including forwards) market.

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

*Source: 1ukrea2024002-print-pdf - 62. In recognition of its important catalytic role in post-war economic recovery, we will*

### 74. Our immediate priority is to contain the adverse impact of the war on the energy

### 1ukrea2024002-print-pdf - 74. Our immediate priority is to contain the adverse impact of the war on the energy

### Immediate priority and overall commitment
- Immediate priority: contain the adverse impact of the war on the energy sector.
- Commitment: implement, once conditions allow, a timely and ambitious energy reform agenda to address long-standing structural problems in the energy sector exacerbated by the war.

### Damage to infrastructure and repair strategy
- Recent large-scale attacks destroyed around a half of generating capacity, especially thermal and hydroelectric power, with damage exceeding US$1 billion during the spring.
- Actions:
  - Swift repairs to restore electricity provision to households and firms.
  - Increase resilience to future attacks, including through decentralized energy generation in a conducive market and regulatory environment.
  - Affected companies will mostly rely on their working capital for repairs; donor support (including equipment) is acknowledged.
  - Potential need for additional donor financial assistance to support decentralized electricity generation support programs.
- Tariffs:
  - Electricity tariffs for households increased by up to 64 percent as of June 1, 2024, bringing tariffs closer to cost recovery levels and adjusting incentives for electricity usage during the heating season.

### Potential reform measures (to be implemented once conditions allow)
- Possible measures include:
  - Additional gradual tariff increases (subject to a new tariff methodology and social considerations during the war).
  - Securing external financing.
  - Providing transparent and exceptional direct budget support to energy SOEs pending available budgetary resources.
- Post-war reform priorities:
  - Restore and enhance competition in wholesale and retail gas markets.
  - Ensure sustainability of the system and reduce quasi-fiscal liabilities via a gradual increase in gas and electricity tariffs towards cost recovery, while allocating adequate and well-targeted resources to protect vulnerable households.
  - The CMU will adopt a roadmap for gradual liberalization of gas and electricity markets, with a time-bound implementation plan for the post Martial Law period based on technical analysis of the sector’s financial condition, in coordination with the European Commission.

### Gas supply, Naftogaz, and fiscal adjustor
- Consumption and imports:
  - Restrained domestic consumption and growing domestic production limited the need for gas imports during the past heating season.
  - For the 2024/25 heating season, no additional gas imports for domestic consumption are planned, including due to Naftogaz’s expanded production capacity.
  - Under the baseline, up to 3 bcm of additional gas for storing by non-residents for EU country needs could occur.
- Financing and compensation:
  - Naftogaz secured additional financing for gas imports through the EBRD and bilateral donors.
  - If Naftogaz faces a liquidity shortfall, the amount of 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, the findings of the stock of arrears of District Heating Companies (DHCs) based on a desk audit, available financing, and capped at UAH 60 billion (about 1 percent of GDP).

### GTSO, transmission industry, and transit risk
- Updated strategies of the GTSO and transmission industry:
  - Seek to rightsize the system and identify alternative sources of gas supply to reflect the new operating environment.
  - Critical preparation for the zero-transit scenario when the transit contract expires at end-2024.
- Legislative action:
  - Adopt draft law #6133 by end-June that allows for a special regime of operations for GTSO to reduce operational expenditures and maintenance for non-critical gas transmission purposes.
  - Transfer of GTSO shareholding to the Ministry of Energy and related corporate governance actions noted elsewhere in the structural benchmarks.

### Regulatory independence and market integration (NEURC)
- Commitment to ensure independence of the National Energy and Utilities Regulatory Commission (NEURC) consistent with EU and international partners.
- Specific actions and timing:
  - Adopt amendments to the Law of Ukraine 'On the NEURC’ (law #3354-IX) by end-December 2024 to exempt regulatory decisions by NEURC from the state registration procedure and to implement Article 5 prohibiting state bodies from interfering with NEURC’s activities.
  - Ensure appointment of NEURC’s Commissioners by end-September 2024 based on competition results carried out in line with the norms of the Law of Ukraine ‘On the NEURC.’

### District Heating Companies (DHCs) arrears and interim measures
- Situation:
  - DHCs accumulated a significant stock of arrears to Naftogaz before and since the start of the war, due to accumulated tariff differentials and wartime impacts.
- Strategy:
  - Comprehensive action once war-related budget pressures subside, including developing a new tariff methodology.
  - Interim measure: analyze debts and financial conditions of DHCs through a desk review by a reputable audit firm, separating arrears until and after February 2022 (Structural Benchmark; originally end-June 2024 proposed to be modified and reset to October 2024).
  - Objective: clarify stock of arrears and financial situation ahead of the 2024/25 heating season.

### Program monitoring, reviews, and conditionality
- Monitoring framework:
  - Program implementation in 2024 will be monitored through quarterly reviews via quantitative performance criteria, indicative targets, and structural benchmarks.
  - Authorities commit to provide IMF staff all data needed for program monitoring as detailed in the attached TMU.
  - Program monitored also through the continuous performance criterion (PC) on the non-accumulation of external payments arrears and standard continuous PCs.
- Review schedule:
  - Fifth review expected on or after September 1, 2024 (based on quantitative performance criteria for end-June 2024).
  - Sixth review expected on or after December 1, 2024 (based on end-September 2024 criteria).
  - Seventh review expected on or after March 1, 2025 (based on end-December 2024 criteria).

*Source: IMF staff report and accompanying MEFP text (June 17, 2024).*

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

### Technical Memorandum of Understanding (TMU) — Definitions and Methods

### Scope and 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), as described in the Letter of Intent dated June 17, 2024 and attached Memorandum of Economic and Financial Policies (MEFP).
- Describes methods for assessing program performance and information requirements for monitoring targets.
- Quantitative performance criteria and indicative targets are shown in Table 1 of the MEFP; definitions of targets and adjustors are in Section I; official exchange rate in Section II; reporting requirements in Section III.

### Exchange rates and valuations (program accounting rates)
- Official hryvnia to U.S. dollar exchange rate for program evaluations: 36.5686 (set by NBU as of March 13, 2023).
- Reference exchange rates of other currencies as of March 13, 2023:
  - 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
- Accounting exchange rate for the SDR: 0.748641 SDR per U.S. dollar.
- Official gold holdings valued at 1,902.6 dollars per fine ounce.
- These accounting exchange rates are kept fixed over the program period; program exchange rate may differ from market rate; program exchange rate is for computing monetary aggregates only and does not imply a policy target.

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

### Definition of debt (consistent with Guidelines on Public Debt Conditionality)
- Debt: a current (not contingent) liability created under a contractual arrangement through provision of value in the form of assets (including currency) or services, requiring obligor to make one or more payments in assets or services at future time(s); payments discharge principal and/or interest under the contract.
- Primary forms of debt include:
  - loans (including deposits, bonds, debentures, commercial loans and buyers’ credits; repurchase agreements and official swap arrangements),
  - suppliers’ credits (deferral of payments after delivery),
  - leases (debt is present value at inception of all lease payments expected, excluding payments that cover operation, repair, or maintenance).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt are debt.
- Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

### GDP and external financing definitions
- GDP for program purposes: compiled as per the System of National Accounts 2008 and excludes territories that are or were in direct combat zones and temporarily occupied by Russia.
- External financing definitions (Table B):
  - Budget support loans and grants: unearmarked financial support for general government financing; includes financing from official multilateral creditors and official bilateral creditors.
  - Project support loans and grants: earmarked financial support for financing specific projects; includes financing from official multilateral creditors and official bilateral creditors.
  - Note: Project support is in the form of loans (Table B footnote).

### Defense expenditures
- Defense expenditures include expenditures of the defense and security sector pursuant to the Law of Ukraine “On National Security of Ukraine”.
- Includes 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.

### Own revenues of budgetary institutions
- Defined in Item 15, Part 1, Article 2 of the Budget Code.
- Include revenues received by budgetary institutions as 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.

### Proceeds of sales of confiscated Russian assets
- Proceeds of sales of confiscated Russian assets or bank accounts balances, including those 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.

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

I. QUANTITATIVE PERFORMANCE CRITERIA AND INDICATIVE TARGETS

### A. Floor on Net International Reserves (NIR) — Quantitative Performance Criterion
- Definition:
  - NIR of the NBU: dollar value of the difference between usable gross international reserve assets and reserve-related liabilities to nonresidents, evaluated at program exchange rates.
- Usable gross international reserves:
  - Comprise all readily available claims on nonresidents denominated in convertible foreign currencies, consistent with the Balance of Payments Manual (Sixth Edition) and the SDDS (Table 6.1, item A).
  - Exclusions include, inter alia:
    - assets denominated in foreign currencies held at or claims on domestic institutions (including foreign currency claims of the NBU on domestic banks, NBU deposits held at the Interbank Foreign Currency Exchange Market and domestic banks for trading purposes);
    - any precious metals or metal deposits other than monetary gold and gold deposits held by the NBU;
    - assets that correspond to claims of commercial banks in foreign currency on the NBU and any reserve assets that are (i) encumbered; or (ii) pledged as collateral; or (iii) frozen;
    - reserve assets not readily available for intervention in FX market because not fully under NBU control or lack quality/liquidity.
- Reserve-related liabilities (for program purposes) comprise:
  - all short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign currencies with remaining maturity of one year or less;
  - the stock of IMF credit outstanding;
  - the nominal value of all derivative positions (including swaps, options, forwards, and futures) of the NBU and general government, implying the sale of foreign currency or other reserve assets (note: refers to the notional value of the commitments, not the market value);
  - all foreign exchange liabilities of the NBU to resident entities which are not already excluded from reserve assets, but excluding foreign exchange liabilities to the general government or related to deposit guarantees.
- Adjustors to NIR targets:
  - NIR targets adjusted downward by the full amount of the cumulative shortfall in external budget support financing disbursements (defined in paragraph 7) relative to baseline projection (Table B).
  - NIR targets adjusted downward by the full amount of the cumulative shortfall in net issuance (gross issuance minus redemption) of central government’s domestic foreign exchange securities relative to amounts expected under baseline (Table C).
  - Symmetric adjustor for central bank swap conversions:
    - If NBU converts any non-reserve currency provided under a central bank swap into a reserve currency through an outright sale, NIR targets adjusted upward by the amount converted into a reserve currency at time of conversion; adjusted downward by the amount of reserve currency repaid (principal and interest) when repaying non-reserve currency provided under swap.
  - Symmetric adjustor for use of reserve currency under 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.

- Table A: Components of Net International Reserves (mapping to NBU balance sheet and memorandum accounts)
  - International reserves components (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). Corresponding NBU account codes referenced (e.g., 1100, 1107; 1011, 1017; 1201, 1202, 2746, minus 4746; etc.).
  - Short-term liabilities to nonresidents (in convertible currencies) components (e.g., 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) with corresponding account codes (e.g., 3201; 3210; 3211; 3401, 8805; 3230, 3232, 3233, 8815; IMF, Finance Department).

- Program note on accounting classifications:
  - Definitions will be adjusted to reflect any changes in accounting classifications introduced during program period; foreign accounts definitions correspond to system of accounts in existence on October 31, 2022.
  - Authorities will inform staff before introducing any change to Charts of Accounts of NBU and Commercial Banks, and changes in reporting forms.
  - Before receiving monthly data from IMF’s Finance Department, components calculated on basis of preliminary data from NBU and memorandum accounts.

- Table B: Gross Disbursements from IFIs and Official Sources (Cumulative in USD millions, at program exchange rates)
  - Total official support: 13,187 26,351 34,061 4,378 11,220
  - Budget support: 12,936 25,745 32,565 4,236 10,794
  - Loans: 11,887 15,239 20,451 3,807 9,830
  - Grants: 1,050 10,506 12,114 429 965
  - Project support: 2/ 251 605 1,496 142 426
  - Columns correspond to test dates: 2024 end-Jun., end-Sep., end-Dec.; 2025 end-Mar., end-Jun. (Flows cumulative from Jan 1, 2024 for 2024 and from Jan 1, 2025 for 2025; calculated at program exchange rates; prospective IMF disbursements under the EFF are excluded).
  - Footnotes: 1/ Flows in USD million...; 2/ Project support is in the form of loans.

### B. Ceiling on General Government Direct Borrowing from the NBU — Indicative Target
- Definition:
  - General government direct borrowing from the NBU, net of redemptions and repayments, = cumulative change in stock of outstanding claims on 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 general government securities held by the NBU measured at face value as reported on NBU balance sheet.
  - Change excludes securities acquired as collateral under loans provided by NBU during measurement period; loans exclude those to the Deposit Guarantee Fund.
  - Change measured relative to stock as of end of preceding quarter over the latest as of assessment; adjusted for exchange rate valuation effects using program exchange rates.
  - For the Fourth Review: preceding quarter = December 2023; latest as of assessment = March 2024.
  - Detailed breakdown of accounts to be provided in format agreed with IMF staff.
- Preconditions for activating monetary financing:
  - Additional precondition: drawing down of government deposits (consistent with paragraph 49 of MEFP), criteria set out in discussion between NBU and Ministry of Finance.
- Adjustors:
  - If shortfall in external financing (as defined in Table B) and primary issuances on government bonds (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 same period, ceiling on general government borrowing from 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.
  - The ceiling resets every quarter (June 30, 2024; September 30, 2024; December 31, 2024 for 2024 targets; March 31, 2025 and June 30, 2025 for 2025 targets) and is not carried over between quarters.
  - Amount of shortfall in external financing is assessed as total cumulative shortfall from end-December 2023 for 2024 targets, and end-December 2024 for 2025 targets, measured on the last day of the previous month.
  - Projected redemptions shown in Table D.
  - In cases where 15-business-day interval for reaching agreement and making payments falls past relevant test date, the ceiling will be subject to an automatic upward adjustor by the amount of the payment.

- Table D: Adjustors for the Ceiling on General Government Direct Borrowing from the NBU (in UAH billion)
  - For the test date of: Mar 31; Jun 30; Sep 30; Dec 31; Mar 31; Jun 30
  - Memo: Projected redemptions (in UAH billions), as per 2024 budget law: 132 132 132 132 132 132
  - Adjustment to ceiling on general government borrowing from the NBU, net of redemptions is the smaller of external financing as defined in Table B (if any) or this amount (in UAH billion) as of May 15, 2024: 40.5 0 47.1 16 50 49 46
  - Actual rollover rate on three month period prior to requesting monetary financing: -88.5 -107.0 -81.0 -168.0 -128.0 -137.0
  - (Note: table formatting in source aligns these numbers with specific dates and memos.)

### C. Floor on Overall Cash Balance of the General Government excluding Budget Support Grants (Indicative Target)
- Definition text begins in the source immediately following Table D (section header present in source). (Content of this subsection continues beyond the provided excerpt.)

*Source: Technical Memorandum of Understanding (TMU) — definitions and methods for the Extended Arrangement under the Extended Fund Facility (excerpt).*

### 19. The overall cash balance of general government excluding budget support grants is defined

### 19. The overall cash balance of general government excluding budget support grants is defined

### Definition and measurement framework
- The overall cash balance of general government excluding budget support grants is defined as a balance measured in paragraph 20, adjusted by the amount of budget support grants (Table B) recorded above the line in non-tax revenues.
- The balance is measured on a cumulative basis, starting from January 1st of a calendar year.
- For program target computational purposes, a positive number is a surplus and negative number is deficit.

### Components used to measure the overall cash balance (paragraph 20)
- Total net treasury bill sales (in hryvnias and foreign currency) as measured by the information kept in the NBU registry of treasury bill sales, where net treasury bill sales are defined as the cumulative total funds realized from the sales of treasury bills at the primary auction and government securities issued for recapitalization of banks and state-owned enterprises (SOE), less the cumulative total redemption of principal on treasury bills.
  - Treasury bill issuances and redemptions for the purposes of calculating the overall cash balance of the general government exclude bonds issued to recapitalize Naftogaz and other SOEs (including State Housing Financial Corporation).
- Other net domestic banking system credit to general government as measured by the monetary statistics provided by the NBU (this consists of all non-treasury bill financing in either domestic or foreign currency extended to the general government by banks less the change in all government deposits in the banking system) as well as any other financing extended by entities not reflected by the monetary statistics provided by the NBU.
- Total receipts from privatization (including the change in the stock of refundable participation deposits and the sale of nonfinancial assets) and the proceeds from uncompensated seizures.
- Total proceeds from sales of confiscated Russian assets and bank account balances.
- The change in sub-accounts 3551 and 3559 for pre-payments ahead of the delivery of goods and services.
- The difference between disbursements and amortizations on any bond issued by the general government or the NBU to nonresidents for purposes of financing the general government.
- The difference between disbursements of foreign loans attracted by the State (including budget support, project support, including on lent to public enterprises) and the 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 97 of this TMU).
- The net sales of SDR holdings in the IMF’s SDR department.
- The net change in general government deposits in nonresident banks, or other nonresident institutions.
- Net proceeds from any promissory note or other financial instruments issued by the general government.

### Accounting conventions and exclusions (paragraph 21)
- 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.
- Exceptions: external disbursements and amortizations of municipal governments and commercial bank direct credit, which will be accounted for at current exchange rates.
- 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.

### Quantitative Performance Criterion: Floor on Non-Defense Cash Primary Balance excluding budget support grants (section D)
- Definition: Non-Defense Cash Primary Balance of the General Government excluding budget support grants = Overall Balance of the General Government excluding budget grants (section C) less interest payments (total interest paid on domestic and external debt, consistent with budget treasury codes 2410 and 2420, respectively) less defense spending of the state budget general fund as defined in paragraph 8 of this TMU.
- Measured on a cumulative basis, starting from January 1st of each calendar year.

Adjustors for balances in Parts C and D:
- The floor on the overall cash balance excluding grants and on the non-Defense Cash Primary Balance will be adjusted upward by the full amount of any increase above the projected stock of budgetary arrears (overdue account payables) in state budget and social funds. This definition excludes domestic arrears in the territories that are or were in direct combat zones and temporarily occupied by Russia.
- Automatic adjustor downward for shortfalls in cumulative proceeds from external budget support loans (in hryvnia evaluated at program exchange rates): the floor will be adjusted downward by the full amount of the shortfall in external financing, consistent with the adjustors in section B.
- Automatic adjustor downward corresponding to the full amount of government bonds issued for the purposes of bank recapitalization and DGF financing, up to a cumulative maximum amount to be set in future reviews. The amount included in the targets is zero.
- Automatic upward adjustment corresponding to the full amount of profits transferred by the NBU in excess of:
  - UAH 30 billion in end-March 2024,
  - UAH 38 billion for the remaining test dates in 2024,
  - UAH 0 billion for end-March 2025,
  - UAH 34.4 billion for end-June 2025.
- Automatic downward adjustment to accommodate gas purchases, PSO compensation and transfer to GTSO up to a cumulative maximum amount of UAH 60 billion in 2024 and UAH 0 billion in 2025, conditional upon availability of financing.
- For test dates in 2024, an automatic downward adjustor up to a cumulative maximum amount of UAH 23.7 billion corresponding to the full amount of receipts from sales of confiscated Russian assets and transfers of bank accounts; for test dates in 2025 the cumulative maximum downward adjustment is UAH 0 billion.
  - This amount reflects the balance of the Fund for the Liquidation of the Consequences of the Armed Aggression, which stood at UAH 24 billion as of March 31, 2024.
  - For the period of the Martial law, data from territories that are or were in direct combat zones and temporarily occupied by Russia are excluded from the adjustor.

### Other fiscal targets and ceilings
- Floor on Tax Revenues (excluding SSC) (Quantitative Performance Criterion, section E):
  - Measured on a cumulative basis starting from January 1st of each calendar year and includes total tax revenues and fees as defined by the 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.
- Floor on the General Government Social Spending (Indicative Target, section F):
  - Social spending defined as spending on social programs through the General Fund and Special Funds covering categories in budget treasury code 2700, including social insurance and social assistance programs on budget and transfers to the Pension Fund.
  - Indicative Target set in hryvnias on a cumulative basis starting January 1st of each calendar year.
- Ceiling on the General Government Domestic Arrears (Indicative Target, section G):
  - Derived from the definition in paragraph 11 and reporting format in paragraph 81; cumulative starting January 1st of each calendar year.
  - The stock of arrears measured in that way will not exceed the stock of arrears at end December 2022.
  - The 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.
- Ceiling on Non-Accumulation of New External Debt Payments Arrears by the General Government (Continuous Performance Criterion, section H):
  - Arrears defined as 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 of the government subject to rescheduling.
  - “External” defined as debt payments to non-residents.
- Ceiling on Publicly Guaranteed Debt (Quantitative Performance Criterion, section I):
  - Applies to the amount of guarantees issued by the central (state) government once the underlying debt is disbursed.
  - For test dates in 2024 the ceiling will be set at UAH 47.9 billion, consistent with 3 percent of current year revenues of the state budget general fund and applies to the cumulative amount of guarantees issued by the central (state) government from January 1st of 2024 calendar year including guarantees to priority sectors.
  - The program exchange rates will apply to all non-UAH denominated debt.
  - This ceiling excludes guarantees for NBU borrowings from IMF.
  - Automatic upward adjustor for guarantees signed for selected projects financed by multilateral and bilateral donors (e.g., WB, EIB, EBRD, KfW) for test dates in 2024, including (i) loan to UGV to purchase equipment for gas extraction; (ii) loan to Naftogaz for additional procurement of natural gas; (iii) loan to Ukrhydroenergo for emergency restoration of hydropower plants; (iv) working capital loan to Ukrenergo; (v) loan for Boryspil International Airport for reconstruction of flight zone 2; (vi) loan to Urkhydroenergo for recovery equipment; (vii) loan to Urkhydroenergo for installation of energy storage.
  - The adjustor will be capped at UAH 38.7 billion in 2024 and discussed in program reviews. Projects subject to the adjustor in 2025 will be discussed in subsequent program reviews.
- Other Continuous Performance Criteria (paragraph 29):
  - During the period of the EFF, Ukraine will not (i) impose or intensify restrictions on the making of payments and transfers for current international transactions; (ii) introduce or modify multiple currency practices; (iii) conclude bilateral payments agreements that are inconsistent with Article VIII; and (iv) impose or intensify import restrictions for balance of payments reasons.

### Official exchange rate (Section II)
- The official exchange rate of the hryvnia against U.S. dollar 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 transitioned to a regime of managed flexibility; official exchange rate against the USD is determined based on series of transactions in the interbank FX market.
- De jure exchange rate arrangement: floating. De facto arrangement reclassified from stabilized to floating, effective October 3, 2023.
- Starting from October 3, 2023, NBU sets the official hryvnia/US dollar exchange rate on a daily basis at the weighted average rate determined based on interbank market transactions using a two-stage cut-off system for transactions with extreme parameters.
- To calculate the official exchange rate, the NBU uses information on all tod, tom, and spot (T+2) USD purchase/sale transactions with a volume of USD 100,000 to USD 5 million inclusive between banks and between banks and the NBU, reported to the NBU via trade information systems before 3 p.m. on the same day.
- Official exchange rates for other currencies are determined by the NBU on the basis of the official exchange rate against USD and cross rates; published daily on the NBU’s website no later than 3:30 pm of the day of the calculation and take effect the next business day.
- Some foreign currencies have official exchange rates set by the NBU on a monthly basis.

### Reporting requirements: National Bank of Ukraine (Section III.A)
- The NBU will provide to the IMF monthly sectoral balance sheets for the NBU and other depository corporations (banks) according to the standardized reporting forms (SRFs), no later than the 25th day of the following month (except for SRFs for the end of the reporting year, which should be provided no later than the 41st day after the reporting year).
- Weekly: provide to the IMF daily operational data on the stock of net and gross international reserves, at both actual and program exchange rates; full breakdown of NBU accounts included in net international reserves and any additional information needed for IMF monitoring.
- Monthly (no later than the 20th of the following month): balance data on the stock of net and gross international reserves and flows affecting net international reserves.
- Monthly (no later than the 25th of the following month): data on the currency composition of reserve assets and liabilities.
- Daily: information on total foreign exchange sales (including total from nonresidents and sales by clients in the interbank market, as well as any obligatory sales, if any) and approved foreign exchange demand in the interbank market, including Naftogaz foreign exchange purchases.
- Daily: information on official foreign exchange interventions and intervention quotations in the breakdown agreed with the IMF staff, and results of any foreign exchange auctions.
- Quarterly: information on the indicators of FX interventions approved by the NBU Board (in case of any changes).
- Immediate notification to the IMF of any updates to the FX interventions methodology documentation and any decisions that define these indicators of FX interventions.
- Daily: information on balances held in analytical accounts 2900 “Accounts payable per transactions for the foreign exchange, banking and precious metals purchase and sale on behalf of banks’ clients.”
- Continue to provide on its web site the daily holdings of domestic government securities and information on primary auctions and secondary market sales.
- Provide to the IMF:
  - daily holdings of government securities broken down by type of holders at primary market prices at the rate fixed on the day of auction;
  - information on domestic government securities sales, from the beginning of the year at the official rate as of the date of placement, as well as domestic government securities in circulation, by principal debt outstanding at the official exchange rate as of the date of placement;
  - reports on each government securities auction;
  - data on the purchase and redemption of domestic government bonds from the Ministry of Finance in the NBU’s portfolio;
  - monthly report on government securities holdings, in the format agreed with the IMF staff, broken down by currencies and by holders—non-resident investors, resident non-bank, and resident banks (the latter further broken down by bank group: State Participation, Foreign Banking, and Private Capital).
- Provide information on daily transactions (volumes and yields) on the secondary market treasury bills (including over-the-counter transactions and a breakout for any NBU transactions).
- Provide to the IMF its financial statements (income and expenses, balances on the general reserves and the calculations of the profit distribution to the budget) for the current and, if available, projections for the following two years, as approved by the NBU’s Board; IMF to be notified immediately of any update.
- Continue to provide daily and monthly data on the NBU financing operations (including swaps or refinancing) of the banks of Ukraine, and on operations of mopping up (absorption) of liquidity from the banking system (including through the CDs issuance) in formats and timeliness agreed with the IMF staff.
- Monthly: information on collateral pledged to the NBU for loans (by bank and loan type as well as by collateral type, haircut, and currency).
- Monthly: bank-by-bank information on NBU refinancing, broken down by operations (with indications of their settlement and maturity dates), and collateral pools, broken down by asset types and securities (with their values before and after haircuts).
  - Monthly reporting of NBU loans and collateral will separately identify which banks are under temporary administration or liquidation.
- Monthly (but not later than 30 days after the expiration of the reporting month, except for end-of-year data which are to be provided no later than the 41st day after the reporting year ends): core FSIs, as defined in the IMF Compilation Guide, for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group.

*Source: 1ukrea2024002-print-pdf - 19. The overall cash balance of general government excluding budget support grants is defined*

### 40. O

### 40. O

### Reporting frequency and overall scope
- Daily, monthly, quarterly, and annual reporting obligations are specified for the NBU, DGF, and Ministry of Finance.
- Key deadlines:
  - Monthly depository corporations surveys: not later than on the 25th day after the termination of the report month (except report data as of the end of the report year: not later than the 41st day after the report year).
  - Quarterly balance of payments data: within 80 days after the end of the quarter.
  - Data on actual settlement of external obligations (public and private; separately principal and interest): quarterly, within 80 days following the end of the quarter.
  - NBU Internal Audit assurance report: no later than six weeks after each test date.
  - Annual external auditor’s management letter: within six weeks of completion of each audit.
  - Monthly consolidated balances (end-month) of other non-general government entities at the Treasury: no later than 25 days after the end of the month.
  - Monthly and quarterly treasury reports: 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.

### Monetary and banking sector data (NBU obligations)
- Depository corporations surveys (daily and monthly):
  - Domestic claims including NBU loans and liabilities with banks.
  - Detailed information on banking sector loans to general government, broken down by central (state) government, local budgets, and the DGF; by national and foreign currency; by loan and by security.
  - Balances of government funds held at the NBU, including:
    - Single Treasury Account denominated in the national currency (account 3240 L).
    - Funds of the Treasury denominated in foreign currency (account 3513 L).
  - Computation of Target on General Government Borrowing from the NBU in a format agreed with IMF staff based on monthly reporting data.

- External debt and payments:
  - Monthly projections for external payments falling due in the next 12 months.
  - Quarterly actual settlement of external obligations, separately principal and interest (public and private): within 80 days after quarter end.
  - Quarterly stock of short- and long-term external debt for public and private sectors.
  - Continuous reporting of stock of external arrears.

- Foreign exchange and external transaction flows:
  - Daily: foreign exchange export proceeds and foreign exchange sales; import transactions for goods and services; amounts transferred from abroad to benefit of physical persons for cash payment without opening an account; foreign exchange wires from Ukraine abroad for current foreign exchange nontrade transactions based on orders of physical persons; sales and purchases of foreign exchange cash by individuals (including through banks, exchange offices, and UkrPoshta).
  - Weekly: volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons.
  - Monthly: data on certain transfers of non-cash FX from Ukraine to benefit of non-residents.
  - Monthly: aggregated data on the number and amounts of e-limits granted to legal entities and physical individuals and on the transfer and purpose of foreign exchange outside Ukraine within the e-limits.
  - Daily: continued provision of daily information on exchange market transactions including the exchange rate.

- Banking system foreign assets/liabilities and positions:
  - Daily: foreign assets and liabilities of overall banking system (excl. the NBU); banks’ open FX positions by main groups of banks; aggregated deposits and loans for overall banking system (excl. the NBU) broken down by households and legal entities, maturity, and by national and foreign currency.
  - Daily: deposits and credits aggregated excluding deposits and credits of banks in liquidation starting from the beginning of 2014, broken down by households and legal entities, and by national and foreign currency.
  - Weekly: foreign assets and foreign liabilities (broken down by domestic and foreign currency) for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group.
  - Monthly: foreign assets for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group broken down by type (cash and deposits, government securities, nongovernment securities, loans, other); 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). Rollover rates for foreign credit lines from banks and for securities will also be provided.

- Bank-by-bank and aggregated liquidity and balance-sheet metrics:
  - Daily for largest 35 banks:
    - Liquidity ratio and amounts of cash and cash equivalents.
    - Available funds in NBU accounts (excl. reserve requirements).
    - Correspondent accounts with well-known international banks (excl. encumbered accounts).
    - Deposits from customers.
  - Daily 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).
  - Aggregates for banking sector and groups: deposits and credits excluding banks in liquidation since 2014.

- Currency flow aggregates:
  - Daily: aggregated data on main currency flows, including government foreign receipts and payments by currencies and interbank market operations by currencies.

- Reserve requirements and interest rates:
  - Monthly: reserve requirements at individual bank level, including breakdown between requirements fulfilled by reserves and by government securities.
  - Monthly (bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group): average interest rate on deposits to customers by domestic and foreign currency, by non-financial corporations and households, and by maturity—demand and time accounts.
  - Weekly (after Martial Law is cancelled): average interest rate on interbank borrowings by domestic and foreign currency, and by maturity—overnight, 1–7 days, and over one week.

- Capital, risk exposures, and regulatory metrics (monthly, agreed format):
  - Entire banking sector and bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group:
    - Risk weighted assets and other risk exposures (for ratio H2 and H3 calculation), including excess of long-term asset to funding and FX 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.
    - FX net open position split between total FX assets (long position) and FX liabilities (short position), and between on- and off-balance sheet.

- Loans, collateral, provisions, and asset quality (monthly, agreed format):
  - Bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group:
    - Amounts of loans and claims by households (domestic and foreign currency), legal entities (domestic and foreign currency), banks (domestic and foreign currency), maturity, and by borrower classification categories.
    - Collateral for loans and claims by type of collateral and borrower categories.
    - Provisions on loans and claims by borrower categories.
    - Large exposures (loans >= 10 percent of equity), refinanced loans, and restructured loans (by households, legal entities, and banks) (after Martial Law is cancelled).
    - Average interest rate on new loans to customers (by non-financial corporations and households).
    - Accrued interest on loans (by domestic and foreign currency).
    - Securities and debt financial instruments, with government securities reported separately (by domestic and foreign currency).

- Related-party exposures and transparency (monthly, bank-by-bank for specified bank groups):
  - Deposits of related parties (by domestic and foreign currencies, households and legal entities).
  - Deposits of related parties pledged as collateral (cash cover).
  - 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 and provisions on loans and claims on related parties (by type and borrower categories).

- Loans, provisions and regional breakdowns:
  - Monthly aggregate and bank-by-bank and by region data on loans and provisions (by households and legal entities, domestic and foreign currencies, and 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).

- Nonperforming loans (NPLs) and income statements (monthly, bank-by-bank and aggregates):
  - 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 (exchange differences and revaluations), compared with banks’ respective timebound plans for reducing NPLs once these are approved.
  - 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.

- Liquidity and stress information:
  - Upon request: banks’ net expected outflow of cash for a 30-day period.
  - Monthly: amount by which regulatory capital has been increased for State Participation Group, Foreign Banking Group and identified Private Capital Group banks, disclosing instrument or transactions (e.g., capital injection, conversion of subordinated debt to equity).

- Liquid assets and LCR metrics (monthly):
  - Data on liquid assets in local currency and all currencies, including holdings of cash, correspondent accounts with banks, domestic government debt securities (including benchmark domestic government debt securities), funds held at the NBU in correspondent accounts, NBU’s certificates of deposit (including NBU’s limited three-month certificates of deposit), amount of reserve requirements (required reserve ratio), the average value of the liquidity coverage ratio LCRall currencies, LCRfc.

- Regulatory and supervisory actions (monthly):
  - 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.
  - Inform IMF about decisions on declaring a bank as problem or insolvent, including banks whose license has been revoked without declaring the bank insolvent.

### Audit, accounting, and safeguards
- NBU Internal Audit Department assurance report: no later than six weeks after each test date, confirming:
  - (i) monetary data are in accordance with program definitions and have been verified and reconciled to accounting records; and
  - (ii) no changes to chart of accounts or valuation methods that would impact data reporting.
- NBU to provide annual management letter from external auditor within six weeks of completion of each audit; remains in effect for duration of arrangement and while credit remains outstanding.
- NBU to communicate electronically to IMF staff any changes in accounting and valuation principles applicable to balance sheet data and notify staff before introducing changes to Charts of Accounts and reporting forms of the NBU and commercial banks.

### Government securities, Treasury, and fiscal reporting
- Monthly: data on 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 outstanding stock of government securities held by NBU and the public, broken down by resident banks, resident non-bank, and non-resident investors.
  - Resident banks breakdown further by bank group (State Participation, Foreign Banking, and Private Capital) and include ISIN-level.
- Annually: information on hryvnia-denominated securities that are indexed (i.e., to inflation; USD), broken down by type of owner.
- Monthly: detailed information on government’s deposits at the NBU and at commercial banks in the breakdown of currency consistent with paragraph 20 and in an agreed format.
- Treasury daily and periodic reporting to IMF:
  - Daily operational budget execution indicators.
  - Daily inflow of borrowed funds (by currency of issuance) to the state budget and expenditures related to debt service (interest payments and principals) including data on government foreign exchange deposits, in a format agreed with IMF staff.
  - 10-day and monthly basis data on execution of the state, local, and consolidated budgets on the revenue side and data on revenues from social security contributions, including by oblast breakdown.
  - Monthly data on funds deposited with the Single Treasury Account, 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 and quarterly treasury reports include accounts payable by budget institutions; quarterly reports include standard information on budget expenses to cover called government guarantees.

- Notification obligation:
  - The NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, banks, or nonbank entities and individuals, providing information on outstanding interest and principal payments.
  - NBU will inform IMF staff of any changes to reserve requirements for other depository corporations.

### Deposit Guarantee Fund (DGF) reporting
- Monthly DGF reporting requirements:
  - Total number and volume of household deposits broken down in groups by deposit size; bank-by-bank for the largest 35 banks and aggregate for remaining banks.
  - Amount of insured deposits and total household deposits: monthly, bank-by-bank for all banks; reported by domestic and foreign currency in agreed format.
  - Total insured deposits and remaining insured deposits to be paid by the DGF for banks under liquidation and under provisional administration: monthly, bank-by-bank, by domestic and foreign currency.
  - Financial position of the DGF: monthly, including cash balance, bond holdings, credit lines, and loans (agreed format).
  - Financing arrangements of the DGF: monthly, including contracted financing from MoF (agreed format).
  - One-year forecast (monthly) of amounts and types of financial resources expected from MoF, NBU and other entities; amounts DGF expects to pay out to insured depositors in banks in liquidation; amount of asset recoveries expected by DGF (agreed format).

### Additional operational provisions
- Continued provision of detailed quarterly balance of payments data in electronic format within 80 days after quarter end.
- The NBU will provide, on request, banks’ net expected outflow of cash for a 30-day period.
- The NBU will report monthly any increases in regulatory capital for specified bank groups, disclosing instruments or transactions used.

*Source: 1ukrea2024002-print-pdf - 40. O*

### 76. The Ministry of Finance will report data on the public wage bill (excluding SOEs) in line with

### 1ukrea2024002-print-pdf - 76. The Ministry of Finance will report data on the public wage bill (excluding SOEs) in line with

### Ministry of Finance — reporting obligations and fiscal data submissions
- 76. The Ministry of Finance will report data on the public wage bill (excluding SOEs) in line with the template agreed with the IMF staff, including all payment categories, including defense wages. The Ministry of Finance will provide quarterly Treasury reports on expenditure under the medical guarantee program by economic classification.
- 77. The Ministry of Finance will report to the IMF on a quarterly information on municipal borrowing and amortization of debt in format agreed with IMF staff.
- 78. The Ministry of Finance, together with NBU, on a monthly basis, will provide information about redemptions of domestic bonds and bills in favor of residents (banks, non-banks) and non-residents. The Ministry of Finance, together with NBU, on a weekly basis, will provide information on face value of government bonds redeemed and face value of government bonds placed during the week.
- 79. The Ministry of Finance will report to the IMF on a monthly basis, no later than 15 days after the end of the month, the cash balance of the general government, with details on budget execution data for privatization receipts of the state and local governments; disbursements of external credits (including budget support and project loans including on lending) to the consolidated budget and amortization of external debt by the consolidated budget; net domestic borrowing of the general government, including net T-bill issuance, issuance of other government debt instruments, and change in government deposits.
- 80. The Ministry of Finance will provide in electronic form on a quarterly basis, no later than 25 days after the end of the quarter, an updated list of project financing credits (distinguishing grant and loan financing) to be disbursed to the special fund of the State Budget of Ukraine (project-by-project basis), as well aggregated cash expenditures for such projects through the most recent month.
- 81. The Ministry of Finance will provide data on the stock of all budgetary arrears on a monthly basis, no later than 25 days after the end of the month, including separate line items for wages, pensions, social benefits accrued by social funds, energy, communal services, and all other arrears on goods and services and capital expenditures. The Treasury will report monthly data on accounts payable for state and local budgets (economic classification of expenditures). The Pension Fund will provide monthly reports on net unpaid pensions to the individuals who resided or continue to reside in the territories that are or were in direct combat zones and temporarily occupied by Russia. The provided information will include defense and law-enforcement.
- 82. The Ministry of Finance will provide a decomposition of own revenues of budgetary institutions (budget treasury code 25000000) into proceeds from fees for services provided by budget institutions in accordance with the law (budget treasury code 25010000) and other sources of own revenues of budgetary institutions (budget treasury code 25020000) no later than 25 days after the end of the quarter.
- 83. The Ministry of Finance will provide monthly information, no later than 25 days after the end of each month, on the amounts and terms of all external debt contracted or guaranteed by the central government, including external and domestic credit to key budgetary spending units as well as nongovernment units that is guaranteed by the government (amount of sovereign guarantees extended by executive resolutions and actually effectuated; total amount of outstanding guarantees and list of their recipients).
- 84. The Ministry of Finance will provide monthly information, no later than 25 days after the end of each month, on the balances of sub-accounts 3551 and 3559.
- 85. The Ministry of Finance will provide to the IMF in electronic form on a quarterly basis, no later than 25 days after the end of the quarter, (a) data on the outstanding stock of domestic and external debt of the state and local budgets (including general and special funds); (b) the monthly forecasts of planned and actual external debt disbursement, amortization, and interest payments (including general and special funds), broken down in detail by creditor categories and currency as agreed with Fund staff. The Ministry of Finance will also report the accumulation of any budgetary arrears on external and domestic debt service.
- 86. The Ministry of Finance will provide to the IMF in electronic form on a semi-annual basis, no later than 25 days after the end of Q2 and Q4, disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements.
- 87. The Ministry of Finance will provide data on external and domestic credit to key budgetary spending units as well as nongovernment units that is guaranteed by the government (amount of sovereign guarantees extended by executive resolutions and actually effectuated; total amount of outstanding guarantees and list of their recipients) on a monthly basis no later than 25 days after the end of the month.
- 88. The Ministry of Finance will provide data on the approved budgets and quarterly operational data (daily for the Pension Fund only) on the revenue, expenditures, and arrears, and balance sheets of the Pension Fund (detailed data on the breakdown of revenues and expenditure by main categories are expected for this Fund), Employment Fund (detailed data on the breakdown of revenues and expenditure by main categories are expected for this Fund), and any other extra budgetary funds managed at the state level no later than 50 days after the end of each quarter (each month in case of the Pension Fund). Any within-year amendments to the budgets of these funds will be reported within a week after their approval. The Ministry of Finance will also report the annual financial statement including the final fiscal accounts of those funds at the end of each fiscal year, no later than April of the following year.
- 89. The Ministry of Finance will provide, no later than 15 days after the end of each month, monthly data on the budgetary costs associated with the recapitalization of banks and SOEs. This cost includes the upfront impact on the cash balance of the general government of the recapitalization of banks and SOEs as well as the costs associated with the payment of interests, including the respective changes as a result of supplementary budgets. The Ministry of Finance will provide quarterly performance reports for the Fund for Entrepreneurship Development. The registry of fiscal risks would become available to the IMF staff on semi-annually or, if available, on a sooner basis.

### Tax authorities and tax administration reporting
- 90. The STS and State Customs Service (SCS) will continue to provide on a quarterly basis, no later than two months after the end of the quarter, a listing 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 include losses from the simplified tax regime by groups of beneficiaries.
- 91. The STS will continue to provide monthly information, no later than 25 days after the end of the month, on VAT refunds in the following format: (i) beginning stock of refund requests; (ii) refund requests paid in cash; (iii) refunds netted out against obligations of the taxpayer; (iv) denied requests; (v) new refund requests; (vi) end-of-period stock of requests; and (vii) stock of VAT refund arrears (unsettled VAT refund claims submitted to the STS more than 74 days before the end of period.
- 92. 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.
  - Tax Arrears by Codes
  - Total stock, o/w Principal Interest Penalties Tax Arrears of Taxpayers Undergoing Bankruptcy Total Tax Arrears net of Taxpayers in Bankruptcy Procedures Taxes from Code 11010000 to 31020000
- 93. The STS will provide on a quarterly basis but no later than 25 days after the end of each quarter information 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.
- 94. The Ministry of Finance will provide on a monthly basis information about the number and amount of loans under the 5-7-9 program as well as a breakdown by sectors of loans.

### Sectoral and institutional reporting (Energy, SOEs, infrastructure, statistics, social policy)
- 95. For each month, no later than the 25th of the following month, Naftogaz Group and the GTSO will each provide IMF staff with information in electronic form (in an agreed format) on their cash flows. The report from Naftogaz Group will also provide information on volumes and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households, heating utilities, budget institutions, and industries), and the main revenue, expenditure, and financing items. On a monthly basis, Naftogaz will provide to IMF staff updated information on the company’s financial liabilities, with a schedule of loan-by-loan interest and principal payments.
- 96. The Ministry of Economy will provide on a quarterly basis, but no later than 80 days after the end of each quarter consolidated information from the financial statements of the 10 largest SOEs. Specifically, the information will include data on (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.
- 97. The Agency for the Restoration and Development of the Infrastructure of Ukraine will provide monthly reports on the execution of budgetary programs associated with the road construction and maintenance, including borrowing (disbursements, interests, and amortization) in line with the format agreed with IMF staff.
- 98. In case of any revisions of gross domestic products, the State Statistics Service will provide to the IMF revised quarterly data on gross domestic product (nominal, real, deflator) and their components (economic activities, expenditure, income), no later than 10 days after any revisions have been made.
- 99. The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on social assistance programs, including those existing before the war and newly emerging categories. The data, which will be presented in an agreed excel format, will show for each program, including IDPs (a) the number of households receiving help under HUS and other support categories; and privileges in the reporting month; (b) total value of transfers; (c) total value of outstanding HUS debt (d) income per capita of participants, both for HUS and privileges.

*Source: 1ukrea2024002-print-pdf - IMF country document excerpts.*

### 6.5 million recorded as forced refugees, mostly relocated to European countries (with 1.1 million refugees

### 1ukrea2024002-print-pdf - 6.5 million recorded as forced refugees, mostly relocated to European countries (with 1.1 million refugees in Germany, 0.96 million in Poland, and 0.36 million in the Czech Republic)

### Refugees and demographic impacts
- 6.5 million recorded as forced refugees, mostly relocated to European countries, with:
  - 1.1 million refugees in Germany
  - 0.96 million in Poland
  - 0.36 million in the Czech Republic
- Demographic composition:
  - 68 percent of the refugees are of working age
  - Of working-age refugees, 65 percent are women
  - 28 percent of the refugees are children
- Survey findings and risks:
  - Most migrants abroad still plan to return to Ukraine once economic factors, security, and housing improve.
  - The share planning to return has been declining, reflecting further adaptation of migrants in host countries, which bestows risks for post-war recovery.

### Economic performance and outlook
- Recent performance and drivers:
  - Despite ongoing war, lack of electricity, and labor force shortages, real GDP demonstrates growth in 2023 and 2024, reaching 6.5 percent yoy in Q1 2024 (flash estimate by the statistics committee).
  - Main drivers of recent recovery include resilience of the Ukrainian economy, adaptation of businesses and households to wartime conditions, substantial budget support, rebound in domestic demand, and faster expansion of maritime export routes.
- Remaining gaps and downside pressures:
  - Output remains 25 percent below pre-war level with all sectors severely impacted.
  - Poverty rate has risen to nearly 30 percent.
  - Recovery is expected to decelerate in 2024 due to recent attacks on the energy infrastructure, a deteriorated current account, a decline of the harvest, and weakening sentiment.

### Monetary and exchange rate policies
- Inflation and expectations:
  - Consumer inflation: 3.3 percent yoy in May 2024 (attributed to decrease in raw food prices, pass-through of last year’s strong harvests, and some producers reorienting toward the domestic market).
  - Core inflation: 4.4 percent yoy in May 2024, continuing within the target band for more than six months.
  - Near-term expectation: moderate increase in inflationary pressure through the rest of this year as harvest effects vanish, consumption recovers, and business costs rise amid the war.
  - Medium-term expectation: inflation will decrease and settle close to 5 percent.
- Monetary policy stance:
  - The National Bank of Ukraine (NBU) continued easing the cycle of interest rate policy at a faster pace than envisaged at the beginning of the year to support economic recovery without creating additional risks for monetary stability.
  - The NBU has cut the key policy rate (KPR) by 200 bps cumulatively since March.
  - The NBU monitors impacts on banks' behavior and transmission to market rates to preserve attractiveness of hryvnia assets and monetary stability.
  - The NBU intends to maintain adequate FX reserves through the course of the program to safeguard external stability.
- Exchange rate policy and FX controls:
  - Managed flexibility framework: ensuring two-way exchange rate (ER) movements while avoiding excessive ER volatility helped keep inflation and ER expectations under control and preserve confidence in the hryvnia.
  - Allowing ER adjustment to shocks strengthens resilience of the economy and FX market while safeguarding reserves.
  - Further easing of FX controls will continue on a gradual, staged basis in line with the FX liberalization roadmap under the NBU’s strategy, aimed at improving the investment environment, facilitating debt management, promoting capital inflows, and addressing security considerations.
- Safeguards and commitments:
  - The NBU will remain focused on safeguarding price and external stability amid exceptionally high uncertainty.
  - The NBU is committed to maintaining appropriately positive real rates and adapting them to changes in the balance of risks to inflation and the economic outlook.
  - Authorities stay committed to avoiding monetary financing in 2024 subject to rhythmic international support.
  - Three previously approved multiple currency practices (MCPs) are considered eliminated; no MCPs have been identified since the third review.

### Fiscal policies and financing strategy
- 2024 fiscal financing:
  - The 2024 deficit, excluding grants, is large but financeable due to confirmation of previously committed official financing from the European Union, the United States, and other partners since the third review.
  - Budget deficit financing: principally through external budget support from donors, amounting to US $38 billion (including the Fund), with domestic financing also contributing.
- Domestic financing as of end-May 2024:
  - Net domestic bond financing of UAH 46.1 billion (almost US $1.2 billion) mobilized.
  - Implied rollover rate of 132 percent so far this year.
  - About UAH 3.3 billion were issued as designated benchmark bonds that banks may use to meet reserve requirements.
- Revenue mobilization and tax reforms:
  - Implementation of the National Revenue Strategy (NRS) approved by the Cabinet of Ministers at the end of 2023 as part of the current EFF program.
  - Detailed implementation plans with timetables for tax administration, customs, and tax policy reforms have been developed.
  - Planned tax and customs measures include:
    - Amend Customs code in line with international best practices.
    - Draft legislation registered in Parliament to gradually align tobacco and fuel product excise taxes with EU requirements (over 2024–2028).
    - Introduce excises on sugary drinks.
    - Develop legislation on medical cannabis taxation and on advance payments on CIT for fuel stations.
    - Rationalize tax exemptions and improve targeting.
  - Commitment to adopt legislation to reform the Economic Security Bureau of Ukraine (ESBU) and to continue reforms to improve State Customs Service (SCS) and State Tax Service (STS).
- Public investment and reconstruction planning:
  - Strategic Investment Council (SIC) launched within the public investment management system; SIC should define the reconstruction projects pipeline.
  - By end-September 2024, SIC will consider public investment projects for the 2025 budget.
  - IMF TA and partners will help establish clear linkages between the MTBF and national reconstruction priorities, specifying a gatekeeper role for the Ministry of Finance.
- External financing flows and assurances:
  - Financing volatility in disbursement of committed external financing is a major challenge for budget execution.
  - Approval of external financing by EU (EUR 50 billion EU Facility and several tranches of the EU bridge financing) and the United States (comprising US $61 billion of supplemental appropriations for military and financial support) has eased near-term liquidity concerns.
  - As of mid-May 2024, total external financing reached US $11.8 billion.
  - Further rhythmic external support is essential for macrofinancial stability.
  - G7 partners confirmed willingness to grant approximately USD $ 50 billion in additional funding under the Extraordinary Revenue Acceleration (ERA) program; authorities emphasize ERA should not undercut or replace existing support programs.
  - Involvement of the Multilateral Coordination Platform of Donors (MDCP) and IMF participation in coordination is seen as important for quick, effective, and rhythmic distribution of funds.

### Governance policies and structural reforms
- Anti-corruption and rule of law:
  - Staying the course on critical anticorruption reforms is a priority to lay foundations for post-war growth and to advance toward EU accession.
  - A law to enhance the efficiency of the High Anti-Corruption Court (HACC) was enacted as one of the structural benchmarks (SB) for the current review (implemented with a several days delay), allowing adjudication by a single or panel of judges depending on penalty severity.
  - Complementing reforms strengthening the Specialized Anti-Corruption Prosecutor’s Office (SAPO), authorities plan further amendments to the criminal procedural code to rationalize processes and consequences after expiry of time limits for pre-trial investigations.
- SOE governance and state-ownership policy:
  - Implementation of the recently adopted SOE governance law is advancing.
  - Work is underway on the state-ownership strategy, including a dividend policy and privatization strategy.

### Authorities’ assessment and concluding remarks
- Authorities’ view of risks and program adequacy:
  - Authorities differ from staff’s Enterprise risk assessment that risks to the Fund have risen since the third review; they believe they have skillfully maintained economic stability amid invasion.
  - Continuous financial support from key donors and IMF disbursements have eased near-term liquidity strains and reduced many underlying risks.
  - Progress on the reform agenda is robust; end-March structural benchmarks were met (with one SB implemented with a several days delay).
  - All end-March and continuous quantitative performance criteria (QPCs) and all but one of the end-March 2024 indicative targets (ITs) were met.
  - Financing assurances are in place and a credible process is underway regarding external commercial debt restructuring.
  - Authorities believe the policies in the MEFP are adequate to achieve program objectives in the baseline and downside scenarios, acknowledging exceptionally high uncertainty.
- Commitments and strategic milestones:
  - Authorities reiterate commitment to full and timely implementation of policies under the EFF.
  - On June 25, 2024, the European Union opened accession negotiations with Ukraine.
  - Authorities believe reforms under the current EFF program will pave the way toward EU accession and reinforce drivers of long-term growth and stability.
  - Authorities request completion of the fourth review and commit to maintaining close policy dialogue with the Fund toward the EU accession path.

*Source: 1ukrea2024002-print-pdf - 6.5 million recorded as forced refugees, mostly relocated to European countries (with 1.1 million refugees in Germany, 0.96 million in Poland, and 0.36 million in the Czech Republic).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ukrea2024002-print-pdf.pdf_