## 1ukrea2024003-print-pdf ## Source details **Canonical URL:** [1ukrea2024003-print-pdf](https://www.imf.org/-/media/files/publications/cr/2024/english/1ukrea2024003-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1ukrea2024003-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1ukrea2024003-print-pdf.pdf.json) --- ### Russia’s war and macroeconomic/social overview - War continues to inflict rising economic, social, and humanitarian toll, including severe damage to energy infrastructure and large-scale electrical outages. - Resilience maintained through “skillful policymaking by the Ukrainian authorities” and “substantial external support”; adaptability of households and firms cited. - Social pressures and wartime disruptions: - 10.3 million people remain displaced, either internally or as refugees. - Food insecurity affects a fifth of the population. ### Program performance and financing status - Performance: - All quantitative performance criteria for end-June were met; end-September criteria are expected to have been met. - All but one structural benchmark through end-September were completed; the missed benchmark (NABU external audit publication) was reset due to appointment process delays. - Two structural benchmarks due later in the year and the prior action for the review were implemented early. - Financing envelope and commitments: - Program remains fully financed with a cumulative external financing envelope of US$151 billion in the baseline and US$187 billion in the downside over the 4-year program period, including new commitments from the ERA initiative. - G7 assurance to provide US$50 billion through the ERA initiative identified as critical. - Authorities requested rephasing of purchases totaling SDR4.265 billion over 2025–27 to accommodate quarterly monitoring and modest frontloading of IMF financing. - Staff supports completion of the Fifth Review, enabling a purchase of SDR 834.88 million (41.5 percent of quota). ### Outlook, scenarios, and principal risks - Baseline war assumption: war winds down in the last quarter of 2025. - Downside war assumption: war winds down by mid-2026; downside shock starts in 2024Q4. - Risks described as “exceptionally high,” arising from: - A longer war, - Vulnerability of the energy sector, - Durability of international support, - Loss of reform momentum and limited scope to absorb further shocks. - Preparedness and contingency planning emphasized to enable appropriate policy action. ### Key policy priorities and recommendations - Fiscal policy and financing: - Reconcile financeable fiscal deficits with higher defense needs from a longer war. - Boost and accelerate revenue mobilization, combat tax avoidance, and implement broad-based tax measures under the National Revenue Strategy. - Strengthen medium-term budgeting, fiscal risk frameworks, transparency, and public investment management. - Debt strategy: - Conclude remaining steps of the Eurobond exchange strategy and prepare for a second restructuring if needed. - Monetary and FX policy: - Maintain exchange rate flexibility under the managed exchange rate regime. - Preserve adequate FX reserves; gradual easing of FX controls, avoid monetary financing. - Current inflation uptick limits room for near-term easing; inflation remains “well-anchored.” - Financial sector: - Strengthen bank resolution and supervision, governance, and contingency planning; build capacity for risk-based supervision, stress testing, and contingency planning. - Governance and anticorruption: - Continue reform momentum: external audit of NABU (reset to end-February 2025), enact law to establish the High Public Disputes Court (HPDC), and legislative amendments to the Accounting Chamber of Ukraine (ACU). - Energy sector: - Address energy deficit ahead of the winter heating season. - Significantly strengthen energy corporate governance and complete supervisory boards (e.g., Ukrenergo). ### Selected economic and social indicators (highlights; exact series) - Nominal GDP (billions of Ukrainian hryvnias): 5,451 (2021 Act.), 5,239 (2022 Act.), 6,538 (2023 Act.), 7,542 (2024 Proj.), 8,542 (2025 Proj.), 9,715 (2026 Proj.), 10,761 (2027 Proj.) - Real GDP (percent change): 3.4 (2021 Act.), -28.8 (2022 Act.), 5.3 (2023 Act.), 3.0 (2024 Proj.), 2.5-3.5 (2025 Proj.), 5.3 (2026 Proj.), 4.5 (2027 Proj.) - Consumer prices (period average): 9.4 (2021 Act.), 20.2 (2022 Act.), 12.9 (2023 Act.), 5.8 (2024 Proj.), 9.0 (2025 Proj.), 7.7 (2026 Proj.), 5.0 (2027 Proj.) - Consumer prices (end of period): 10.0 (2021 Act.), 26.6 (2022 Act.), 5.1 (2023 Act.), 9.0 (2024 Proj.), 7.5 (2025 Proj.), 6.6 (2026 Proj.), 5.0 (2027 Proj.) - Unemployment rate (ILO definition; period average, percent): 9.8 (2021 Act.), 24.5 (2022 Act.), 19.1 (2023 Act.), 14.2 (2024 Proj.), 12.7 (2025 Proj.), 10.4 (2026 Proj.), 9.4 (2027 Proj.) - Fiscal balance (percent of GDP): -4.0 (2021 Act.), -15.6 (2022 Act.), -19.6 (2023 Act.), -18.7 (2024 Proj.), -19.2 (2025 Proj.), -9.5 (2026 Proj.), -2.7 (2027 Proj.) - Fiscal balance, excl. grants (percent of GDP): -4.0 (2021 Act.), -24.8 (2022 Act.), -26.1 (2023 Act.), -24.5 (2024 Proj.), -20.0 (2025 Proj.), -9.8 (2026 Proj.), -3.8 (2027 Proj.) - Public and publicly-guaranteed debt (percent of GDP): 50.5 (2021 Act.), 77.7 (2022 Act.), 82.3 (2023 Act.), 95.6 (2024 Proj.), 106.6 (2025 Proj.), 107.6 (2026 Proj.), 102.6 (2027 Proj.) - Gross reserves (end of period, billions of U.S. dollars): 30.9 (2021 Act.), 28.5 (2022 Act.), 40.5 (2023 Act.), 42.6 (2024 Proj.), 44.9 (2025 Proj.), 49.1 (2026 Proj.), 52.4 (2027 Proj.) - Months of next year's imports of goods and services: 4.5 (2021 Act.), 3.8 (2022 Act.), 5.1 (2023 Act.), 5.1 (2024 Proj.), 5.4 (2025 Proj.), 5.7 (2026 Proj.), 6.0 (2027 Proj.) - Goods exports (annual volume change in percent): 35.1 (2021 Act.), -43.7 (2022 Act.), -15.4 (2023 Act.), 15.7 (2024 Proj.), 6.2 (2025 Proj.), 14.0 (2026 Proj.), 6.3 (2027 Proj.) - Goods imports (annual volume change in percent): 17.0 (2021 Act.), -24.1 (2022 Act.), 21.5 (2023 Act.), 14.1 (2024 Proj.), 7.0 (2025 Proj.), 8.8 (2026 Proj.), 9.5 (2027 Proj.) - Memorandum items: - Per capita GDP / Population (2017): US$2,640 / 44.8 million - Literacy / Poverty rate (2022 est): 100 percent / 25 percent ### Program adjustments, waivers, and conditionality requests - Authorities requested waivers of applicability for: - (i) floor on the non-defense cash primary balance excluding grants, - (ii) floor on tax revenues (excluding social security contributions), - (iii) ceiling on government guarantees, - (iv) floor on net international reserves. - Requested modification of the adjustor associated with the end-December QPC on net international reserves. - Structural timing adjustments requested and proposed new benchmarks: - Reset publication of the NABU external audit from end-September 2024 to end-February 2025. - Reset revisions to the criminal procedural code from end-October to end-December. - Proposed 10 new structural benchmarks through mid-2025. ### Recent economic and program performance (near-term datapoints) - Real activity: - Real GDP expanded by 6½ percent in Q1 (y/y) and estimated at 3 percent in Q2 (y/y). - Growth remained 2.7 percent y/y in July. - Consumer confidence recovered from June low; business confidence rose through August to slightly below 50. - Inflation and components: - Inflation accelerated in August to 7.5 percent y/y. - Food inflation: 1.2 percent y/y in July to 6 percent in August. - Core inflation accelerated to 6.5 percent y/y. - External sector and reserves: - Current account deficit widened to US$8.6 billion in 2024H1 from US$1.8 billion in 2023H1. - Gross international reserves reached US$42.3 billion in August or 5.1 months of prospective imports. - Credit and deposits: - Private credit growth: 12.7 percent (y/y) in July. - Deposits growth: 19.4 percent y/y in July. - Policy implementation: - NBU held KPR at 13 percent at July and September MPC meetings; forward guidance implies resumption of easing in early 2025. - Continued FX liberalization and eased measures since July (external loan coupon repayments, higher fund transfer limits). ### A. Baseline scenario — fiscal revisions and macro outlook (selected exact figures) - Cumulative expenditures over 2024–27 expected to be around US$32 billion higher than the Fourth Review’s baseline. - Cumulative deficit excluding grants, baseline scenario (2024–27): - Fifth Review: UAH 4,920 billion / USD 112 billion / 14.5 percent of GDP. - Fourth Review: UAH 3,581 billion / USD 82 billion / 10.6 percent of GDP. - Revision to cumulative deficit excluding grants: UAH 1,339 billion / USD 30 billion / 4.0 percent of GDP. - Higher expenditures: UAH 1,431 billion / USD 32 billion / 4.2 percent of GDP. - Net revisions to revenue projections: -UAH 92 billion / -USD 2 billion / -0.2 percent of GDP. - Higher net external borrowing and grants: UAH 1,625 billion / USD 36 billion / 4.5 percent of GDP. - Of which ERA financing: UAH 1,524 billion / USD 33 billion / 4.2 percent of GDP. - Revised net domestic financing and other items: -UAH 287 billion / -USD 5 billion / -0.5 percent of GDP. - Baseline timeline and macro outlook: - 2024: Real GDP growth forecast at 3 percent; winter energy deficit estimated at 3– 4 GW; inflation to rise to 9 percent (y/y) by December; current account deficit projected at US$14.9 billion (8.1 percent of GDP); gross international reserves: US$42.6 billion (113.5 percent of ARA). - 2025: Real GDP recovery 2.5–3.5 percent (y/y); inflation moderates to 7.5 percent by end year; current account deficit expected at US$27.1 billion (14.3 percent of GDP); gross reserves: US$44.9 billion (104.7 percent of ARA). - Postwar: cumulative real GDP level loss of 2 percent through 2027 (and 2.7 percent through 2033) relative to the Fourth Review. ### B. Downside scenario — projections and key indicators (selected exact figures) - Revised timeline: downside shock starts in 2024Q4; war winds down by around mid-2026. - Projections (selected): - 2024: GDP growth 1 percent; current account deficit in excess of 10 percent of GDP; inflation rises to 12 percent. - 2025: Real GDP contracts 2.5 percent; inflation slows but remains in low double digits. - 2026: No growth expected; active combat continues. - Selected downside scenario indicators (Text Table 4 exact figures juxtaposed with baseline): - Real GDP growth (%) — 2024: 3.0; 2025: 2.5; 2026: -3.5; 2027: 5.3 - Inflation, eop (%) — 2024: 9.0; 2025: 7.5; 2026: 6.6; 2027: 5.0 - Current account (% GDP) — 2024: -8.1; 2025: -14.3; 2026: -10.5; 2027: -5.9 - Current account (US$ billion) — 2024: -14.9; 2025: -27.1; 2026: -21.7; 2027: -13.0 - FX reserves (US$ billion) — 2024: 42.6; 2025: 44.9; 2026: 49.1; 2027: 52.4 - Overall fiscal balance (% GDP) — 2024: -18.7; 2025: -19.2; 2026: -9.5; 2027: -2.7 - Public debt (% GDP) — 2024: 95.6; 2025: 106.6; 2026: 107.6; 2027: 102.6 - Downside cumulative financing gap estimated at US$187.1 billion (US$35.7 billion higher than the baseline US$151.4 billion). ### C. Debt restructuring, ERA, and DSA implications - Eurobond exchange (August 2024): - Exchange offer support: 97.38 percent of bondholders assented; settlement on August 30. - Affected 13 series of sovereign Eurobonds amounting to US$23.4 billion (including capitalized interest). - Nominal total debt service haircut: 36 percent. - NPV haircut at 5 percent discount rate: around 48 percent. - Average maturity extension: 4.2 years. - ERA and ULCM: - G7 committed to provide US$50 billion via ERA; ERA financing expected available by end-2024 and fully disbursed by 2027. - Staff models ERA financing as loans but treats ERA financing as neutral for DSA targets given the ULCM risk mitigation structure and assurances. - Size of immobilized assets: US$173 billion in June 2024, projected to reach US$217 billion by 2027. - DSA conclusions: - Staff judges debt sustainable on a forward-looking basis conditional on: (i) fiscal adjustment, (ii) concessional donor financing, and (iii) completion of remaining debt restructuring (including GDP warrants and other commercial claims). - Debt targets: public debt excluding ERA liabilities should reach 65 percent of GDP by 2033; gross financing needs excluding ERA debt service should average 8 percent of GDP in 2028–33. ### Monetary policy guidance and operational measures - Monetary stance: - NBU cut KPR cumulatively by 200 bps through June, then held KPR at 13 percent in July and September MPCs. - Staff suggests current tight stance appropriate to reach inflation target of 5 percent by 2027 while preserving positive real rates. - Inflation expected to peak around 9 percent y/y at end-2024. - Monetary Policy Guidelines (MPGs): - NBU adopted MPGs in September defining “flexible inflation targeting” with objective to return to 5 percent by end-2027 at the latest and policy horizon not to exceed three years. - Exchange rate to remain managed flexibility during transition; exchange rate to serve as a shock absorber. - Reserve requirements and liquidity management: - Effective October 11, NBU increased reserve requirements by 5 percentage points and increased share of RR that can be met with domestic government bonds from 50 to 60 percent. - Estimated impacts: induce demand for up to UAH 131 billion in primary government bond purchases through year-end; reserve requirements estimated to increase by UAH 170 billion. - Guidance: monitor impacts, phase out temporary use of RR to meet bond uptake as conditions permit. - Operational changes: - NBU lowered rate on 3-month CDs to 15.5 percent and on refinancing loans to 16 percent. - Recommended gradual phasing out of 3-month CDs to strengthen transmission and increase role of overnight instruments. ### Fiscal policy, 2024 supplementary and 2025 budget (selected exact figures) - Supplementary 2024 budget: - Expenditures: Primary spending will be over UAH 450 billion (about 6 percent of GDP) higher to respond to additional needs, mainly defense related. - Supplementary budget envisages net expenditures of UAH 4,815 billion, about UAH 410 billion higher than originally budgeted. - Overall balance excluding grants expected to reach UAH –1,850 billion or around 24.5 percent of GDP in 2024. - Revenue measures (draft law #11416-d and parliamentary actions): - Raise the military tax rate from 1.5 percent to 5 percent; broaden military tax to the simplified tax system. - Introduce presumptive taxation of fuel stations. - Raise applicable tax rate on non-bank financial institutions (except insurance) to 25 percent. - Full-year yield of the law in 2025 estimated at 1½ percent of GDP. - 2025 budget: - Envisages total spending at 59 percent of GDP, about 10 percent of GDP higher than in the Fourth Review baseline. - Overall deficit excluding grants envisaged at UAH 1,712 billion (around 20 percent of GDP). - Financing expected mainly from external donor support, including ERA-backed financing; authorities plan less reliance on domestic debt markets in 2025. ### Revenue mobilization, tax administration, and structural reforms - National Revenue Strategy (NRS) implementation is high priority; MOF approved formal assessment methodology for tax privileges (Structural Benchmark, end-September 2024, met). - STS reforms: - Pilot of Compliance Risk Management system launched in July. - Track and trace system for excise goods to be operational by January 1, 2026. - SAF-T UA IT solutions for large taxpayers operational by end-March 2025. - Customs reform: - Parliament approved legislation to reform State Customs Service (Structural Benchmark, end-October 2024, met); new head of customs to be appointed by mid-2025 (proposed SB, end-June 2025). ### Financial sector reforms, supervision, and preparedness - Bank sector: - Resilience assessment completed in December 2023; minor capital needs identified and mostly addressed; four banks submitted capital management plans to close UAH 10 billion gap by March 2026. - Annual resilience assessments to resume in 2025 with AQR and stress testing. - Bank rehabilitation framework to be prepared by end-December 2024 (Structural Benchmark). - NBU governance and safeguards: - NBU Council completed self-assessment in July with external consultants; 3 out of 9 Council positions vacant. - NBU resolution formalized MOF–NBU framework on monetary financing triggers and consultation with IMF. - Financial market infrastructure: - Steps to facilitate foreign investor access to marketable debt instruments and to develop central counterparty for OTC government bond transactions. - War risk insurance draft law to be submitted to Parliament by end-December 2024. ### Governance, anti‑corruption, judicial and SOE reforms - Anti‑corruption and judicial reforms: - Amend Criminal Procedural Code (reset SB from end-October to end-December 2024). - External audit of NABU missed end-September 2024 target and reset to end-February 2025; prior action on appointing independent auditors met. - Enact law to establish the High Public Disputes Court (HPDC) with vetted judges (Structural Benchmark, end-December 2024). - Audit and oversight: - Enact law to enhance independence and mandate of the Accounting Chamber of Ukraine (ACU) (proposed SB, end-December 2024). - SOE and SOB corporate governance: - Implement SOE law #3587-IX and related secondary legislation; publish state ownership, dividend policy and privatization strategy (Structural Benchmark, end-October 2024). - Complete supervisory board of Ukrenergo with independent majority (proposed SB, end-December 2024). ### Energy sector priorities and winter preparedness - Immediate priorities: - Address winter energy deficit; repair generation capacity damaged in attacks (around half of generating capacity damaged or destroyed). - Plan additional gas imports for 2024/25 heating season up to 2-3 bcm; Naftogaz secured financing from EBRD and bilateral donors. - Potential PSO compensation and transfers to GTSO capped at UAH 60 billion (about 0.8 percent of GDP) subject to assessment. - Corporate governance: - Complete Ukrenergo supervisory board (7 members) with independent majority; evaluate supervisory boards of Naftogaz and Ukrenergo (independent evaluations to start in November 2024 and conclude by end-January 2025). ### Program monitoring, QPCs, and reporting obligations - Monitoring via quarterly reviews, quantitative performance criteria (QPCs), indicative targets (ITs), and structural benchmarks (SBs). - End-June 2024 QPC outcomes (selected exact figures): - Floor on non-defense cash primary balance excluding grants: Adjusted QPC 250,000; Actual 466,499; Status: Met. - Floor on tax revenues (excluding SSC): Adjusted QPC 880,400; Actual 1,001,994; Status: Met. - Ceiling on publicly guaranteed debt: Adjusted QPC 53,779; Actual 7,071; Status: Met. - Floor on net international reserves (US$ million): Adjusted QPC 25,267; Actual 25,792; Status: Met. - Authorities requested waivers of applicability for end-September QPCs as data were not yet available at the time of review. - Comprehensive reporting requirements specified in TMU for NBU, MoF, DGF, STS, SCS, Naftogaz, GTSO, Ministry of Economy, and Ministry of Social Policy with detailed monthly/quarterly/annual data submission timetables. ### Staff recommendations and board actions - Staff supports authorities’ requests for waivers of applicability of performance criteria, resetting of two structural benchmarks, modification of a performance criterion, rephasing of purchases, and completion of the Fifth Review. - Staff also recommends completing the Financing Assurances Review. - Rationale: authorities’ strong program performance, commitments to maintain appropriate policies, and donor assurances indicate program remains on track to meet objectives. *Source: IMF staff report for Ukraine, Fifth Review under the Extended Arrangement under the Extended Fund Facility; requests for waivers, modification of performance criterion, rephasing of access, and financing assurances review (October 7, 2024) — excerpted from the provided PDF content unit.* ### 1. Russia’s war in Ukraine continues to bring a devastating social and economic toll on ### 1. Russia’s war in Ukraine continues to bring a devastating social and economic toll on Ukraine ### Macroeconomic and social overview - The war continues to inflict a rising economic, social, and humanitarian toll, including severe damage to energy infrastructure and large-scale electrical outages. - Resilience has been maintained through “skillful policymaking by the Ukrainian authorities” and “substantial external support,” with adaptability of households and firms cited as key factors. - Social pressures and wartime disruptions: - 10.3 million people remain displaced, either internally or as refugees. - Food insecurity affects a fifth of the population. ### Program performance and financing - Program performance: - All quantitative performance criteria for end-June were met; end-September criteria are expected to have been met. - All but one structural benchmark through end-September were completed; the missed benchmark was reset due to appointment process delays partly beyond authorities’ control. - Two structural benchmarks due later in the year and the prior action for the review were implemented early. - Financing envelope and commitments: - The program remains fully financed with a cumulative external financing envelope of US$151 billion in the baseline and US$187 billion in the downside over the 4-year program period, including new commitments from the Extraordinary Revenue Acceleration Loans for Ukraine (ERA) initiative. - The G7’s assurance to provide US$50 billion of stable, multi-year financing through the ERA initiative is identified as critical. - Authorities requested rephasing of purchases totaling SDR4.265 billion over 2025–27 to accommodate quarterly monitoring and modest frontloading of IMF financing given higher external needs. - Staff supports completion of the Fifth Review, enabling a purchase of SDR 834.88 million (41.5 percent of quota). ### Outlook and risks - Growth and outlook: - Recovery expected to slow amid headwinds from attacks on energy infrastructure and the continuing war. - Scenarios underpinning the program assume the war winds down in late 2025 in the baseline and mid-2026 in the downside. - Projected macroeconomic outturns have generally been downgraded to reflect a longer war. - Risks: - Risks to the outlook are described as “exceptionally high,” arising from: - A longer war, - Vulnerability of the energy sector, - Durability of international support. - Preparedness is emphasized to enable appropriate policy action should risks materialize. ### Key policy priorities and recommendations - Fiscal policy and financing: - Reconcile financeable fiscal deficits with higher defense needs from a longer war. - Boost and accelerate revenue mobilization, combat tax avoidance, and implement further broad-based tax measures as envisioned under the National Revenue Strategy. - Strengthen medium-term budgeting, fiscal risk frameworks, transparency, and public investment management. - Debt strategy: - Continue efforts to conclude remaining steps of the Eurobond exchange strategy to restore debt sustainability. - Monetary and FX policy: - Maintain exchange rate flexibility under the managed exchange rate regime to strengthen resilience. - Recent uptick in inflation suggests limited room for near-term easing; inflation remains “well-anchored.” - Preserve adequate FX reserves with a state-dependent and gradual easing of FX controls; continue efforts to avoid monetary financing. - Financial sector: - Continue to strengthen bank resolution and supervision, governance, and contingency planning. - Build capacity for risk-based supervision and conduct stress testing and contingency planning. - Governance and anticorruption: - Continue reform momentum in anticorruption and governance, including ensuring effectiveness of anticorruption institutions. - Specific actions: external audit of the National Anti-Corruption Bureau of Ukraine (NABU), enactment of a law to establish the High Public Disputes Court (HPDC), and legislative amendments to the Accounting Chamber of Ukraine (ACU). - Energy sector: - Address the energy deficit ahead of the winter heating season. - Significantly strengthen energy corporate governance. ### Selected economic and social indicators (highlights from Table 1) - Nominal GDP (billions of Ukrainian hryvnias): 5,451 (2021 Act.), 5,239 (2022 Act.), 6,538 (2023 Act.), 7,542 (2024 Proj.), 8,542 (2025 Proj.), 9,715 (2026 Proj.), 10,761 (2027 Proj.) - Real GDP (percent change): 3.4 (2021 Act.), -28.8 (2022 Act.), 5.3 (2023 Act.), 3.0 (2024 Proj.), 2.5-3.5 (2025 Proj.), 5.3 (2026 Proj.), 4.5 (2027 Proj.) - Consumer prices (period average): 9.4 (2021 Act.), 20.2 (2022 Act.), 12.9 (2023 Act.), 5.8 (2024 Proj.), 9.0 (2025 Proj.), 7.7 (2026 Proj.), 5.0 (2027 Proj.) - Consumer prices (end of period): 10.0 (2021 Act.), 26.6 (2022 Act.), 5.1 (2023 Act.), 9.0 (2024 Proj.), 7.5 (2025 Proj.), 6.6 (2026 Proj.), 5.0 (2027 Proj.) - Unemployment rate (ILO definition; period average, percent): 9.8 (2021 Act.), 24.5 (2022 Act.), 19.1 (2023 Act.), 14.2 (2024 Proj.), 12.7 (2025 Proj.), 10.4 (2026 Proj.), 9.4 (2027 Proj.) - Fiscal balance (percent of GDP): -4.0 (2021 Act.), -15.6 (2022 Act.), -19.6 (2023 Act.), -18.7 (2024 Proj.), -19.2 (2025 Proj.), -9.5 (2026 Proj.), -2.7 (2027 Proj.) - Fiscal balance, excl. grants (percent of GDP): -4.0 (2021 Act.), -24.8 (2022 Act.), -26.1 (2023 Act.), -24.5 (2024 Proj.), -20.0 (2025 Proj.), -9.8 (2026 Proj.), -3.8 (2027 Proj.) - Public and publicly-guaranteed debt (percent of GDP): 50.5 (2021 Act.), 77.7 (2022 Act.), 82.3 (2023 Act.), 95.6 (2024 Proj.), 106.6 (2025 Proj.), 107.6 (2026 Proj.), 102.6 (2027 Proj.) - Gross reserves (end of period, billions of U.S. dollars): 30.9 (2021 Act.), 28.5 (2022 Act.), 40.5 (2023 Act.), 42.6 (2024 Proj.), 44.9 (2025 Proj.), 49.1 (2026 Proj.), 52.4 (2027 Proj.) - Months of next year's imports of goods and services: 4.5 (2021 Act.), 3.8 (2022 Act.), 5.1 (2023 Act.), 5.1 (2024 Proj.), 5.4 (2025 Proj.), 5.7 (2026 Proj.), 6.0 (2027 Proj.) - Goods exports (annual volume change in percent): 35.1 (2021 Act.), -43.7 (2022 Act.), -15.4 (2023 Act.), 15.7 (2024 Proj.), 6.2 (2025 Proj.), 14.0 (2026 Proj.), 6.3 (2027 Proj.) - Goods imports (annual volume change in percent): 17.0 (2021 Act.), -24.1 (2022 Act.), 21.5 (2023 Act.), 14.1 (2024 Proj.), 7.0 (2025 Proj.), 8.8 (2026 Proj.), 9.5 (2027 Proj.) - Memorandum items: - Per capita GDP / Population (2017): US$2,640 / 44.8 million - Literacy / Poverty rate (2022 est): 100 percent / 25 percent ### Program adjustments and conditionality - Authorities requested waivers of applicability for: - (i) the floor on the non-defense cash primary balance excluding grants, - (ii) the floor on tax revenues (excluding social security contributions), - (iii) the ceiling on government guarantees, - (iv) the floor on net international reserves. - Authorities requested modification of the adjustor associated with the end-December QPC on net international reserves. - Structural actions and timing adjustments requested: - Reset publication of the NABU external audit from end-September 2024 to end-February 2025. - Reset revisions to the criminal procedural code from end-October to end-December. - Proposed 10 new structural benchmarks through mid-2025. *Source: IMF staff report for Ukraine, Fifth Review under the Extended Arrangement under the Extended Fund Facility; requests for waivers, modification of performance criterion, rephasing of access, and financing assurances review (October 7, 2024).* ### 2. This review focuses on updating the program scenarios and adapting macroeconomic ### 2. This review focuses on updating the program scenarios and adapting macroeconomic policies to reflect a longer war and major developments on external financing, while continuing to restore sustainability and medium-term external viability ### Recent economic and program performance - Program horizon and war assumption: - Program now envisages the war winding down in the last quarter of 2025 in the baseline and by mid-2026 in the downside. - Policy adjustments incorporate: (i) a durable and stronger push for further revenue mobilization building on a recently adopted package of tax measures; (ii) the successful August Eurobond exchange confirming sizable debt relief and achievement of a major part of the overall debt restructuring strategy, with a commitment to a second restructuring if needed; and (iii) assurances of US$50 billion of stable, multi-year additional financing from the G7’s ERA initiative consistent with debt sustainability. - Real activity: - Real GDP expanded by 6½ percent in Q1 (y/y) and is estimated at 3 percent in Q2 (y/y). - Growth remained 2.7 percent y/y in July. - Consumer confidence recovered from the June low; business confidence rose through August to slightly below 50. - Inflation: - Inflation accelerated in August to 7.5 percent y/y. - Food inflation: 1.2 percent y/y in July to 6 percent in August. - Core inflation accelerated to 6.5 percent y/y. - External sector and reserves: - Current account deficit widened to US$8.6 billion in 2024H1 from US$1.8 billion in 2023H1. - Gross international reserves reached US$42.3 billion in August or 5.1 months of prospective imports. - Credit and deposits: - Private credit growth: 12.7 percent (y/y) in July. - Deposits growth: 19.4 percent y/y in July. - Credit base reference: 15.1 percent of annual GDP reached in December 2023. - Policy implementation: - Budget: Tax collections overperformed in H1 2024; fuel excise alignment with EU directives effective in September; supplementary 2024 budget submitted in July to cover defense needs with accompanying package of tax measures and additional domestic financing. - Monetary policy: NBU held the key policy rate (KPR) at 13 percent at its July and September monetary policy committee meetings; forward guidance implies resumption of easing in early 2025. - FX policies: Continued FX liberalization; eased measures since July include external loan coupon repayments for corporates’ Eurobond financing and increasing fund transfer limits for specific entities. - Program performance and conditionality: - All program QPCs and ITs for end-June were met. - End-September QPCs are controlling; authorities expected to meet all fiscal QPCs (final data available around October 25) and the floor on net international reserves (final data around October 20). - Despite a missed August Eurobond payment, no breach of the continuous QPC on external payments arrears (arrears resolved by Eurobond exchange settled on August 30). - Structural conditionality: Met two of three end-September structural benchmarks; external audit of NABU SB missed and rescheduled for end-February 2025; prior action met on selection of independent auditors for external audit of NABU. ### Quantitative performance and fiscal balances (selected exact figures from Text Table 1 and statements) - QPCs and ITs (Jun 2024 status, in millions of Ukrainian hryvnia, unless indicated): - Floor on the non-defense cash primary balance of the general government, excluding budget support grants: 250,000 Adjusted QPC; Actual 466,499; Status: Met. - Floor on tax revenues (excluding Social Security Contributions): 880,400 Adjusted QPC; Actual 1,001,994; Status: Met. - Ceiling on publicly guaranteed debt: 47,900 Adjusted QPC; Actual 53,779; Status: Met. - Floor on net international reserves (in millions of U.S. dollars): 25,300 Adjusted QPC; Actual 25,792; Status: Met. - Floor on the cash balance of the general government, excluding budget support grants: -725,996 Adjusted QPC; Actual -555,702; Status: Met. - Ceiling on general government arrears: 2,000 Adjusted QPC; Actual 1,654; Status: Met. - Floor on social spending: 262,500 Adjusted QPC; Actual 291,447; Status: Met. - Ceiling on general government borrowing from the NBU: -2,884 Adjusted QPC; Actual -3,079; Status: Met. - Continuous PC: Ceiling on non-accumulation of new external debt payments arrears by the general government: 0 Adjusted QPC; Actual 0; Status: Met. - Notes: - 2/ Targets and projections for 2024 are cumulative flows from January 1, 2024. - 3/ Calculated using program accounting exchange rates as specified in the TMU. - 4/ From end of previous quarter. - 5/ Calculated using the projected redemptions of government bonds as of September 10, 2024. - 1/ Definitions and adjustors are specified in the Technical Memorandum of Understanding (TMU). ### Outlook and scenarios — overview - Scenarios reflect Extended-Hierarchy Uncertainty (EHU) lending policy with baseline and downside, both updated to reflect a longer war. - Scenario projections are based on staff judgment informed by security experts, Ukraine’s macroeconomic policy management under the war, and donor commitments. - Key drivers considered: level of financial support, energy availability, port access, labor force dynamics. - Objective: policy actions and commitments in both frameworks aim to deliver medium-term external viability by the end of the IMF-supported program period. ### A. Baseline Scenario — key projections and revisions - Fiscal and financing revisions (2024–27): - Cumulative expenditures over 2024–27 expected to be around US$32 billion higher than the Fourth Review’s baseline. - Cumulative deficit excluding grants, baseline scenario: - Fifth Review: UAH 4,920 billion / USD 112 billion / 14.5 percent of GDP. - Fourth Review: UAH 3,581 billion / USD 82 billion / 10.6 percent of GDP. - Revision to cumulative deficit excluding grants, due to: UAH 1,339 billion / USD 30 billion / 4.0 percent of GDP. - Higher expenditures: UAH 1,431 billion / USD 32 billion / 4.2 percent of GDP. - Net revisions to revenue projections: -UAH 92 billion / -USD 2 billion / -0.2 percent of GDP. - Revision to financing, due to: UAH 1,339 billion / USD 30 billion / 4.0 percent of GDP. - Higher net external borrowing and grants: UAH 1,625 billion / USD 36 billion / 4.5 percent of GDP. - Of which: ERA financing: UAH 1,524 billion / USD 33 billion / 4.2 percent of GDP. - Revised net domestic financing and other items: -UAH 287 billion / -USD 5 billion / -0.5 percent of GDP. - Source: IMF staff. - 1/ Converted using 5th Review baseline projections. - 2/ Averages over 2024-27 using 5th Review Baseline GDP. - Baseline timeline and macro outlook: - War winds down in the last quarter of 2025. - 2024: Real GDP growth forecast at 3 percent. Winter energy deficit estimated at 3– 4 GW. Inflation to rise to 9 percent (y/y) by December. Current account deficit projected at US$14.9 billion (8.1 percent of GDP). Gross international reserves: US$42.6 billion (113.5 percent of ARA). - 2025: Real GDP recovery 2.5–3.5 percent (y/y) (2–3 pp lower than Fourth Review). Inflation moderates to 7.5 percent by end year. Current account deficit expected at US$27.1 billion (14.3 percent of GDP). Gross reserves: US$44.9 billion (104.7 percent of ARA). - Postwar (after 2025): Cumulative real GDP level loss of 2 percent through 2027 (and 2.7 percent through 2033) relative to the Fourth Review. Potential growth broadly unchanged. - Program implications: - Deficits in 2024–27 substantially wider (up around US$30 billion cumulatively), mostly covered by large-scale multi-year ERA loan financing. - Revenue-based fiscal adjustment remains a cornerstone to meet priority expenditures and restore fiscal and debt sustainability. - G7 ERA multi-layer risk mitigation structure designed to provide assurances that Ukraine will not incur residual obligations; ERA financing treated as neutral for debt sustainability assessments. - Debt remains sustainable on a forward-looking basis according to program projections. - Scope to absorb further large shocks under the program is very limited. ### B. Downside Scenario — key projections - Revised timeline: Downside shock starts in 2024Q4; war winds down by around mid-2026. - Compared with baseline: greater damage from longer and more intense combat, stronger adverse supply shocks, deeper energy shortages, larger labor force loss through 2025, and weaker return migration thereafter. - Projections: - 2024: GDP growth 1 percent; current account deficit in excess of 10 percent of GDP; inflation rises to 12 percent. - 2025: Real GDP contracts 2.5 percent; inflation slows but remains in low double digits; current account balance excluding grants worsens. - 2026: No growth expected; active combat continues and rebound contained by weaker population trends; inflation slows but remains higher than the Fourth Review; current account deficit remains wide. - 2027 and beyond: Real GDP growth broadly unchanged as stronger rebound from a lower base offsets weaker fundamentals; inflation converges to prior assumptions; lingering effects on the external sector persist. - Selected downside scenario indicators (Text Table 4 exact figures): - Baseline table juxtaposed for 2024–2027: - Real GDP growth (%) — 2024: 3.0; 2025: 2.5; 2026: -3.5; 2027: 5.3; 2024 (change from Fourth Review column repeated): 4.5; 2025: 0.5; 2026: ...; 2027: 0.0. - Inflation, eop (%) — 2024: 9.0; 2025: 7.5; 2026: 6.6; 2027: 5.0; comparisons continue in table. - Current account (% GDP) — 2024: -8.1; 2025: -14.3; 2026: -10.5; 2027: -5.9; and change-from-Fourth-Review columns show -2.3, -7.4, -3.9, -0.9 respectively. - Current account (US$ billion) — 2024: -14.9; 2025: -27.1; 2026: -21.7; 2027: -13.0; change-from-Fourth-Review columns: -4.4, -14.0, -8.6, -2.5. - Current account balance excluding grants (US$ billion) — 2024: -25.6; 2025: -28.8; 2026: -22.3; 2027: -15.4; change columns: -2.9, -10.0, -6.6, -2.5. - Goods trade balance (US$ billion) — 2024: -32.1; 2025: -36.2; 2026: -36.1; 2027: -39.8; change columns: -4.4, -4.0, -2.1, -1.2. - FX reserves (US$ billion) — 2024: 42.6; 2025: 44.9; 2026: 49.1; 2027: 52.4; change columns: 0.8, 1.8, 1.1, 5.0. - Overall fiscal balance (% GDP) — 2024: -18.7; 2025: -19.2; 2026: -9.5; 2027: -2.7; change columns: -4.5, -11.7, -4.6, 0.9. - Overall fiscal balance, excl. grants (% GDP) — 2024: -24.5; 2025: -20.0; 2026: -9.8; 2027: -3.8; change columns: -3.6, -9.6, -3.6, 1.0. - Public debt (% GDP) — 2024: 95.6; 2025: 106.6; 2026: 107.6; 2027: 102.6; change columns: -1.7, 9.0, 10.7, 8.2. - Gross Reserves (% IMF composite metric (float)) — 2024: 113.5; 2025: 104.7; 2026: 104.0; 2027: 106.9; change columns: -0.2, -5.6, -10.7, -4.3. - Source: IMF staff estimates. ### C. Risks - Principal risks to both scenarios (Annex I referenced for further detail): - Length and intensity of the war: could last longer or escalate, worsening economic performance and program objectives. - Energy supply: further attacks are a downside risk; faster repairs and additional generation are upside possibilities. - Durability of international support: scenarios assume donors deliver on financing commitments (including G7 ERA). Delays or shortfalls could force sub-optimal policies (e.g., social spending cuts or domestic arrears) with substantial economic and social disruption. - Reform fatigue: sustaining policy adjustment and deeper structural reforms over an extended period may prove challenging for social cohesion. - Limited scope in program design for absorbing additional shocks: extension of the war assumption significantly diminishes scope to redesign the program further while restoring external viability by the end of the program period. *Source: IMF staff (Text excerpt from the IMF PDF chapter/section).* ### 11. Overall enterprise risks remain at the level assessed at the Fourth Review, with some ### 11. Overall enterprise risks remain at the level assessed at the Fourth Review, with some changes in the underlying composition of risks given the revised assumptions on the duration of the war ### Strategic and enterprise risk assessment - The strategic risk related to the duration of the war—identified as the key risk at the time of the Fourth Review—has crystallized and led to a lengthening of the assumptions on the duration of the war in both the baseline and downside scenarios. - Staff assesses the residual strategic risk of the war extending beyond the revised duration assumptions as high, albeit lower than the level of risk at the time of the Fourth Review (given the realization of the risk). - A longer war increases uncertainty and places additional headwinds to restoring fiscal and debt sustainability and achieving external viability by the end of the program; consequently, business risks have increased. - Mitigating factors noted: - Safeguards under the EHU on the financing assurances policy. - Quarterly review structure to maintain close engagement. - G7’s US$50 billion ERA financing commitment to Ukraine, including the EC’s recent proposal of up to €35 billion. - Reduced financial risks from external commercial debt restructuring following completion in August of an exchange of US$23 billion of Eurobonds and a credible strategy, including a commitment from the authorities for a second restructuring. - Reputational and operational risks have not meaningfully changed since the Fourth Review. ### Key macroeconomic numbers (Current Forecast and Change from Fourth Review as presented) - Downside - Real GDP growth (%) 1.0-2.5 0.0 4.0 2.7 -1.5 -2.1 0.0 - Inflation, eop (%) 12.0 10.0 8.0 5.5 2.0 1.5 1.5 0.0 - Current account (% GDP) -10.7 -12.8 -11.9 -6.6 -2.1 -11.1 -8.3 -2.6 - Current account (US$ billion) -19.6 -22.6 -21.1 -12.2 -4.6 -19.9 -15.1 -5.2 - Current account balance excluding grants (US$ billion) -36.8 -30.0 -26.5 -16.3 -3.1 -15.9 -13.1 -5.2 - Goods trade balance (US$ billion) -39.0 -36.0 -34.3 -38.3 -4.6 -10.0 -2.3 -0.6 - FX reserves (US$ billion) 33.0 35.2 40.5 42.5 0.6 -1.4 -0.8 2.0 - Overall fiscal balance (% GDP) -18.5 -21.8 -18.4 -8.0 -1.7 -4.8 -5.0 -2.5 - Overall fiscal balance, excl. grants (% GDP) -27.8 -26.0 -21.4 -10.2 -0.4 -2.1 -3.6 -2.4 - Public debt (% GDP) 97.0 117.5 132.1 134.3 -7.7 -4.1 0.1 3.8 - Gross Reserves (% IMF composite metric (float)) 89.0 83.7 84.4 84.6 -0.6 -12.5 -16.7 -13.4 *Source: IMF staff estimates.* ### POLICY DISCUSSIONS - The program maintains prospects of restoring fiscal and debt sustainability, and successfully delivering medium-term external viability despite a longer war due to updated understandings on policies going forward. - Authorities have made first-phase commitments to deliver fiscal and monetary policies consistent with: - preserving macroeconomic stability, - restoring debt sustainability, - maintaining adequate reserves. - Authorities have delivered politically difficult and comprehensive reforms and committed to a second phase to deepen the structural agenda to: - ensure vigorous medium-term growth prospects, - contain fiscal risks via tax policy and administration reforms, - entrench the rule of law, - assure financial stability, - enhance prospects for EU accession. ### A. Macro-Fiscal Policies and Financing Strategy - Fiscal policy implementation for the rest of 2024 must adhere to the recently adopted 2024 supplementary budget. Key features: - Expenditures: Primary spending will be over UAH 450 billion (about 6 percent of GDP) higher to respond to additional needs, mainly defense related, with partially offsetting savings, including on interest. - Revenues: An accompanying package of personal and corporate tax measures currently in parliament is expected to yield around UAH 30 billion in the remainder of 2024, with important carry over into 2025 (¶15). - Financing: The deficit excluding grants of UAH 1,850 billion (25 percent of GDP) is significantly higher. External donor support remains the largest source of financing; the overage resulting from the supplementary budget will be mainly financed domestically. - Authorities plan an ambitious placement of a large volume of government bonds on the domestic market in a short period of time; careful coordination with banks is required to avoid market disruption. - Authorities adjusted reserve requirements at the September MPC meeting to incentivize greater uptake of government bonds; these actions are described as distortionary and increase risks by reducing scope for domestic market financing to absorb shocks going forward. - Draft 2025 Budget: - Envisages total spending at 59 percent of GDP, about 10 percent of GDP higher than in the Fourth Review baseline. - Expenditures principally oriented toward defense; other categories tightly prioritized. - Expenditure control policies include: (i) freezing minimum wages, public wages, minimum subsistence level; (ii) achieving social spending savings via encouraging IDP labor participation, improving IDP eligibility verification, internalizing lower unemployment, measures on pensions; (iii) tightly containing non-defense capital expenditures identified through the Strategic Investment Council. - Authorities must ensure equitable burden sharing across society given tight constraints and elevated shock risk. - Revenue measures and tax agenda to safeguard budget implementation in 2025: - Recent tax package (draft law #11416-d) priority to secure Parliamentary adoption. Key measures include: - raising the military tax (income tax) rate from 1.5 percent to 5 percent; - broadening military tax to the simplified tax system; - introducing presumptive taxation of fuel stations; - raising the applicable tax rate on non-bank financial institutions (except insurance companies) to the level applied to banks (25 percent). - Full-year yield of the law in 2025 estimated at 1½ percent of GDP (Text Table 5). - Aligning taxes with EU directives: law to gradually align fuel excises with EU directives enacted in September; adjustments effective that month. Tobacco excise alignment law awaiting second reading in Parliament. - Contingent tax increases: Authorities committed to introduce additional tax measures (MEFP ¶14) if unexpected expenditure needs materialize and/or revenues underperform; staff notes increasing the main rate of VAT would be most appropriate. - Tax enforcement: IMF TA supported measures; authorities to make durable progress on tax administration elements in the NRS (¶20). - Financing in 2025: - Authorities’ budget proposal envisages general government deficit excluding grants of UAH 1,712 billion or around 20 percent of GDP. - Expected to be mainly financed with external donor support (including G7 commitments through the ERA initiative expected to be used as budget support); no monetary financing. - After substantial net issuance this year, plan for significantly less reliance on the domestic government debt market in 2025 to allow room to support credit for recovery. - With narrow space for domestic government debt absorption, imperative to respond to shocks with offsetting tax and/or expenditure measures. ### B. Fiscal Structural Reforms - Revenue mobilization and tax administration: - National Revenue Strategy (NRS) reforms are high priority. - MOF approved a new formal assessment methodology for tax privileges (Structural Benchmark, end-September 2024, met). - Commitment to streamline the Simplified Tax system over the medium term; near-term introduction of reporting requirements for digital platform operators proposed (Structural Benchmark, end-April 2025). - STS launched a pilot of its new Compliance Risk Management system in July. - Customs reform: - Parliament approved legislation to reform the State Customs Service (SCS) (Structural Benchmark, end-October 2024, met). - Law envisages integrity checks, accountability mechanisms, robust leadership selection with participation by independent experts; MOF role in directing and supervising SCS preserved. - Authorities committed to appoint a new head of customs by mid-2025 (proposed Structural Benchmark, end-June 2025) and promptly fill regional customs head vacancies. - SCS steps include vetting importers for the Authorized Economic Operator program and a new automatic risk management system. - ESBU and AML/CFT: - Implementation of ESBU reform following new legislation in June 2024 (MEFP ¶28). - ESBU to focus on major economic and financial crimes; strengthened analytical capacity; law enshrines transparency, accountability, integrity mechanisms. - Authorities committed to appoint ESBU head based on the law’s selection process (proposed Structural Benchmark, end-February 2025); ESBU head to approve attestation procedures and form the attestation commission within three months of appointment. - AML/CFT measures and cooperation with the State Financial Monitoring service to be leveraged to detect tax crimes and smuggling; requires enhanced analytical capabilities and information-sharing. - Public Investment Management (PIM) and PFM: - Action plan to implement the 2023 PIM Roadmap approved ahead of schedule (Structural Benchmark, end-December 2024, met). - Plan establishes strategic approach to public investment, single approach to project appraisal/selection/monitoring, integrates public investment with medium-term budgeting, and creates a MOF gatekeeper role. - Strategic Investment Council established and implementation of the plan begun. - Next steps include enacting Budget Code amendments (proposed Structural Benchmark, end-January 2025) and approving new methodological framework for PIM (proposed Structural Benchmark, end-February 2025). - MOF expanded coverage of the annual Fiscal Risk Statement (FRS); FRS for the 2025 Budget includes analysis of major public companies severely affected by the war (Structural Benchmark, end-September 2024, met). - Pension-related measures: - Authorities considering legislative amendments to resolve ambiguity where pension-related laws are deemed unconstitutional and new legislation prohibiting changes to the pension system through unrelated legislation. - Near-term measures to achieve pension savings include: (i) modifying indexation of some pensions linked to wages; (ii) improving targeting of certain pension supplements; (iii) limiting pension amounts obtainable in addition to entitlements earned through contributions. *Source: IMF staff estimates.* ### 25. The NBU should maintain the current appropriately tight monetary stance given risks ### 25. The NBU should maintain the current appropriately tight monetary stance given risks ### Monetary stance, inflation outlook, and policy horizon - After cutting the key policy rate (KPR) through June by a cumulative 200 bps, the NBU kept the KPR on hold at its July and September MPCs. - Staff analysis suggests the current tight stance is appropriate to reach the NBU’s inflation target of 5 percent by 2027 while preserving positive real rates on hryvnia assets, consistent with the NBU’s recently approved Monetary Policy Guidelines (¶26, MEFP ¶45). - Inflation developments and projections: - Inflation accelerated to 7.5 percent y/y in August. - Inflation is expected to peak at around 9 percent y/y at the end of the year, largely because of the passthrough of higher energy and labor costs, and of exchange rate depreciation. - Policy sequencing: - The easing cycle may resume as the effect of recent shocks fades, possibly in early 2025, while continuing to preserve positive real interest rates (above the estimated neutral real rate of 3–4 percent) to keep inflation expectations anchored and preserve adequate returns on hryvnia assets. - In 2025, monetary policy should also account for output and inflation effects from subsequent revenue-based fiscal adjustment. ### Monetary Policy Guidelines (MPGs) and transition to inflation targeting - The NBU adopted MPGs in September defining a “flexible inflation targeting” regime with the objective of returning to an inflation target of 5 percent over its policy horizon (by end-2027 at the latest) in view of economic conditions as the war continues. - Key MPG features: - Policy horizon will adjust flexibly to accommodate temporary inflation fluctuations along the path to target but should not exceed three years. - MPGs allow anchoring expectations and strengthen inflation as the nominal anchor while preserving flexibility to react to shocks and avoiding excessive reactions to short-lived inflation increases. - Reiterate the NBU Strategy principle that the current regime of “managed flexibility” of the exchange rate will continue along the transition to a fully floating exchange rate and require a gradual and cautious approach to liberalization (¶27 and ¶30), in line with objectives to safeguard reserves under the program. - The return to full-fledged inflation targeting should only be considered once the prerequisites, as defined in the Strategy, are met. ### Exchange rate role and FX interventions - In line with the MPGs and program objectives, the exchange rate should serve as a shock absorber. - The MPGs specify: - The KPR will serve as the main policy instrument to achieve the inflation target. - FX interventions are reserved to fill the structural supply deficit of FX and smooth excessive exchange rate volatility that could de-anchor expectations, with the level of the exchange rate determined by market conditions. - Given the continuing war, safeguarding FX reserves remains important, and FX interventions should remain appropriately calibrated through applying appropriately calibrated FX intervention rules consistent with program objectives. ### Reserve requirements and liquidity management - Effective October 11, the NBU increased reserve requirements by 5 percentage points (except for longer-term local currency household deposits) and increased the share of RR that can be met with domestic government bonds from 50 to 60 percent. - Estimated impacts: - This change is estimated to induce demand for up to UAH 131 billion in primary government bond purchases through year-end. - Reserve requirements are estimated to increase by UAH 170 billion, but the resulting impact on liquidity would be more muted given the large marginal share that would likely be met with government bonds. - Policy guidance: - The impact of this measure on liquidity conditions as it takes effect should be carefully monitored to ensure consistency with the monetary stance. - The use of RR to encourage primary bond uptake is effective under extenuating circumstances but is not an effective way to manage the large liquidity surplus, distorts the functioning of the RR as a monetary policy tool, and may increase dependence of the government bond market on such support. - The share of government bonds allowed to meet RR should be phased out over time as conditions permit. ### Operational design and monetary transmission - In its September MPC, the NBU lowered the rate on 3-month CDs to 15.5 percent and on refinancing loans to 16 percent to further support transmission in line with the easing cycle. - Recommended operational changes: - Gradually phasing out the 3-month CDs (currently a third of outstanding CDs) would increase the role of overnight CDs (remunerated at the KPR since October 2023) for open market operations and liquidity absorption, thereby ensuring stronger monetary policy transmission. - Adjustments to 3-month CDs should be gradual to permit assessment of their impact on hryvnia term deposits, in view of risks to the outlook. - Continue normalizing the conduct of monetary policy, for example, by considering instruments beyond overnight maturity to increase the average maturity of sterilization operations. ### FX liberalization guidance - FX liberalization should continue to be guided by the NBU’s Strategy balancing risks to the outlook and the need to support economic recovery. - Cautious liberalization is instrumental in safeguarding FX buffers while addressing constraints on firms and households. - Monitoring and regulatory responses: - Potential circumvention of war-time exchange restrictions requires continued close monitoring of transactions and corresponding regulatory amendments. - Since the Fourth Review, authorities have tightened restrictions on current international transactions involving jewelry and real estate, and imposed limits on purchases of FX cash against non-cash hryvnia by individuals through amendments to Resolution 18 (Executive Board notified under Decision 144). ### Governance, safeguards, and institutional reforms relevant to monetary operations - Progress on 2023 Safeguards Assessment recommendations: - In July, the NBU Council completed a self-assessment assisted by external consultants with recommendations to further improve its oversight role and collective fitness. - Work is underway to align collective fitness criteria for NBU Council members with best practices. - Vacancies: 3 out of 9 NBU Council positions are currently vacant; efforts should be made to promptly fill these positions with due consideration to enhancing collective fitness. - Proceed with recommendations to reinforce financial autonomy safeguards and to revise the Audit Committee charter. - Monetary financing framework: - In September, an NBU resolution was adopted to formalize the agreement reached with the MOF on a framework for monetary financing, providing clear conditions around triggers and type of monetary financing, and requiring consultation with the IMF to ensure consistency with program parameters. - Counterparty eligibility and liquidity assistance: - Authorities are seeking IMF TA to implement recommendations relative to counterparty eligibility in refinancing operations and emergency liquidity assistance as part of the end-December SB on strengthening the bank rehabilitation framework. *Source: IMF staff report (section 25).* ### 44. The authorities have made major progress recently with implementing their strategy ### 44. The authorities have made major progress recently with implementing their strategy ### Progress on Eurobond restructuring and creditor engagement - Following an inconclusive initial round of restricted discussions in May, discussions resumed in July, and on July 22 the authorities and steering committee of bondholders reached agreement-in-principle (AIP) on a proposal that staff has assessed as consistent with the overall restructuring strategy to restore debt sustainability. - The Group of Creditors of Ukraine (GCU) endorsed the proposal. - An exchange offer took place over August 9–27; upon its close the authorities announced they had received overwhelming support for the offer, with 97.38 percent of bondholders assenting, well above thresholds to trigger the collective action clauses, making it binding. - Settlement of the new bonds occurred on August 30, allowing this part of the restructuring to occur close to the authorities’ initial timeline of restructuring the bonds by the end of the debt service standstill on August 1. ### Remaining elements of the restructuring strategy - Remaining external commercial claims: - Remaining private commercial claims to be restructured include the GDP warrants (issued following the 2015 restructuring), a government guaranteed bond issued by Ukrenergo, and several external commercial loans. - Authorities focused on Eurobonds (majority of claims in the external commercial restructuring perimeter) but have initiated dialogue on warrants and commercial loans. - On August 27, the authorities announced a moratorium on payments on the warrants (in addition to removing the cross-default clause with Eurobonds as a result of the bond exchange) and several commercial loans through May 2025. - Official bilateral debt: - The standstill agreed last December remains in effect. - Authorities have kept GCU apprised and received its endorsement for steps taken thus far. - Definitive restructuring of official bilateral claims is expected to take place by the final review of the program or the conclusion of EHU, whichever comes first. - Second-stage restructuring of external commercial claims: - Eurobond restructuring was designed on the Fourth Review baseline and under conditions of EHU. - Authorities remain committed to a second-stage restructuring (MEFP ¶41) to support restoration of debt sustainability across program scenarios. - Authorities continue to retain legal and debt advisors and will maintain sharing information with creditors, including the range of possible outcomes and potential timelines. - Further treatment would occur by the penultimate review of the program, with deeper creditor engagement on an ultimate offer once resolution of EHU brings a second restructuring into better focus. ### Updates to DSAs and treatment of ERA financing - DSAs updated to reflect: - Expected impact of the recently concluded Eurobond restructuring: principal reduction on the debt stock and a more favorable debt service profile that lowers GFNs. - G7’s ERA financing: modeled as loans to Ukraine whose disbursements finance higher deficits in the program period; thus these loans add to Ukraine’s public debt. - Expected favorable financing terms of ERA have an overall positive impact on gross financing needs (GFNs). - Offsetting flows from the proposed Ukraine Loan Cooperation Mechanism (Annex II. Box II), envisaged to provide dedicated non-repayable financial support to cover repayments of eligible ERA financing, are incorporated as such payments are due. - On balance, relative to the Fourth Review, over the projection period the addition of ERA loans offsets the impact of Eurobond restructuring on debt levels, but the current baseline GFNs are now substantially improved. - DSAs do not incorporate the yet-to-be-concluded restructuring of GDP warrants, commercial loans, and official bilateral claims. ### Debt and GFN targets, and staff judgment - Debt and GFN targets established under the program remain appropriate and are consistent with provision of ERA financing. - Based on assurances from the European Commission and the G7, staff judges risks of Ukraine having to assume residual liability for servicing ERA financing are sufficiently mitigated and ERA financing can be carved out from assessment of reaching the debt restructuring targets (Annex II). - Targets summarized in Text Table 8 continue to be appropriate and are applied to Ukraine’s public debt and GFNs excluding ERA financing. - Staff judges debt is sustainable on a forward-looking basis and that sufficient safeguards are in place for the Fund to proceed with financing. Key elements: - Debt sustainability restoration depends on: (i) fiscal adjustment in line with program policies; (ii) concessional financing committed by donors; and (iii) debt restructuring. - A credible debt restructuring process is in place and has made major progress on external commercial claims. - Authorities’ commitment to a second restructuring and retention of legal and financial advisors substantiate a credible process toward concluding a restructuring that will restore sustainability. - Financing Assurances Review: debt restructuring evolves broadly in line with the original timeline and debtor-creditor relations suggest favorable prospects for concluding remaining elements. - Authorities’ efforts to obtain GCU endorsement for proposals regarding private claims indicate relations with official creditors remain on track for definitive restructuring of those claims. - Continued engagement, retention of advisors, regular updates, and a schedule of consultations should support high participation and comparability of treatment across the overall strategy. - The full implementation of the authorities’ strategy remains consistent with restoring medium-term viability and assuring capacity to repay the Fund under both scenarios. - Capacity-to-repay assurance provided by a significant group of creditors/donors as required by the EHU policy provides an additional layer of safeguards. ### Financing needs, gaps, and sources - Program remains fully financed despite the shock from the longer war; revised financing gap higher in both scenarios but new information on assurances on ERA financing indicates the program is financed in both scenarios. - Staff engaged with creditors to establish firm financing commitments through 2025Q3 and reconfirmed good prospects on financing for the rest of the program. - Baseline scenario: - Cumulative financing gap over the program period is estimated at US$151.4 billion (an increase of US$29.5 billion over the Fourth Review). - Changes to external sources to fill this gap include: - fresh G7 budget financing based on ERA support (US$33.1 billion); - a new World Bank loan under the SPUR facility (US$4.8 billion), supported by US financing; - fresh loan financing of €10 million from the Council of Europe Development Bank (CEB); - higher support from the UK (US$1 billion) and under the Ukraine Relief, Recovery, Reconstruction, and Reform Trust Fund (URTF) (US$60 million); - updated flow relief consistent with the August 2024 Eurobond exchange on Ukraine’s sovereign bonds; and - revised cross exchange rate assumptions. - Downside scenario: - Cumulative program financing gap projected at US$187.1 billion, US$46.4 billion higher than under the Fourth Review. - Relative to the Fourth Review, US$50 billion in ERA financing is included to cover the downside financing need. ### Capacity-to-repay (CtR) assurances and Fund exposure - The CtR assurance provided by a significant group of creditors/donors at program approval remains valid; required given continuing exceptionally high uncertainty around the scale, intensity, and duration of the war. - Assurance reaffirmed: recognition of the Fund’s preferred creditor status for amounts currently outstanding to Ukraine, plus any purchases under the proposed extended arrangement, and undertaking to provide adequate financial support to secure Ukraine’s ability to service all obligations to the Fund. - Staff will continue outreach with members interested in joining the CtR assurance. - Indicators of capacity to repay remain in line with the Fourth Review: - Under the baseline scenario, the stock of total Fund credit is expected to peak at 8.2 percent of GDP and 35.5 percent of gross reserves in 2024. - Debt service to the Fund would peak at 1.9 percent of GDP in 2025 and 8 percent of gross reserves in 2024. - Under a materialization of downside risks, outstanding credit to the Fund would peak at 8.8 percent of GDP in 2025 and 45.7 percent of gross reserves in 2024; debt service to the Fund would peak at 2 percent of GDP in 2025 and 10.3 percent of gross reserves in 2024. *Source: IMF staff, as presented in the referenced chapter.* ### 52. The authorities’ skillful macroeconomic management under immensely challenging ### The authorities’ skillful macroeconomic management under immensely challenging circumstances remains impressive, but headwinds remain strong from the continuing war. ### Macroeconomic outturns and near-term outlook - Despite exceptionally high uncertainty from the continuing war and large-scale damage to energy infrastructure, recent economic outturns have been resilient. - Headwinds are building and will weigh on growth going forward. - The authorities’ commitments to appropriate policies together with robust external financing are necessary to help preserve macroeconomic stability. ### Program implementation and structural progress - Overall performance under the program remains strong. - The authorities met all continuous PCs, all end-June QPCs, and are expected to meet the end-September QPCs when final data become available. - On the structural agenda: - The two end-September SBs were met on time. - An end-December SB was met early. - A prior action to make progress on the governance agenda has been implemented. ### Risks and contingency planning - Risks remain exceptionally high. - Main potential adverse shocks identified: - War-related uncertainty. - The speed at which the damage to energy infrastructure can be repaired. - The durability of Ukraine’s international support. - The authorities’ capacity to implement needed reforms. - The scope for absorbing additional large shocks under the current program has significantly diminished. - The Ukrainian authorities need to stand ready to take countervailing policy measures if these risks crystallize and should proactively identify responses in their contingency planning. - Enterprise risks remain high. ### Fiscal policy, deficits, and revenue mobilization - Further efforts to mobilize tax revenues must proceed to ensure that deficits remain financeable and consistent with delivering fiscal and debt sustainability. - Higher defense expenditures will result in larger deficits in the next few years. - Despite the availability of ERA financing, durable efforts to mobilize domestic tax revenues are needed to achieve self-reliance and meet post war priorities on recovery, reconstruction, and social protection. - Tax policy measures, including an increase in the main VAT rate, will likely be needed. - In parallel, the authorities need to step up efforts to tackle tax avoidance and evasion and improve the integrity of revenue collecting agencies to mobilize more resources and enhance equity, efficiency, and public buy-in. ### External financing, donor support, and debt sustainability - Donors’ financing must remain consistent with medium-term external viability. - The assurances and steps the G7 to provide large-scale and predictable financing while mitigating the risks from Ukraine experiencing any residual obligation from the ERA loans are welcome and necessary to ensure debt sustainability. - It is important for the G7 to promptly finalize the full amount of this arrangement to avoid exacerbating uncertainty and risks to macro-financial stability. - The authorities will need to ensure realistic and appropriate financing mixes to meet the fiscal paths under the program, consistent with stability and debt sustainability objectives. ### Debt restructuring and next steps - The recent Eurobond exchange is a major step toward restoring sustainability. - Authorities should expeditiously implement next steps of the strategy to restore debt sustainability: - Treat remaining external commercial claims in the restructuring perimeter, including the GDP warrants. - Continue close engagement with official creditors to assist in the definitive restructuring of official bilateral claims. - Commitment to a second-stage restructuring is necessary to restore debt sustainability across the program scenarios and an ongoing credible process toward this end is in line with the program’s strategy. ### Fiscal structural reforms and public investment frameworks - Momentum on implementing fiscal structural reforms should continue. - The medium term will bring important recovery, reconstruction, and social needs requiring robust policy frameworks to avoid fiscal risks. - Reforming the Customs code is essential to program commitments toward domestic revenue mobilization; the recently adopted legislation should be vigorously implemented with clear oversight from the Finance Ministry. - Authorities must continue implementing the NRS, the PIM action plan, and key pension reforms. ### Monetary policy, exchange rate, and prerequisites for inflation targeting - Monetary easing may resume in early 2025 if risks to inflation recede. - The recent pause in the easing cycle is appropriate to allow the NBU to ascertain price stability impacts of war, energy, and fiscal developments. - Once uncertainty subsides, easing could resume even in 2025. - The managed exchange rate should continue to serve as a shock absorber and be accompanied by: - A carefully calibrated FX intervention policy. - A cautious easing of FX restrictions to safeguard FX reserves amid heightened risks. - A return to a full-fledged inflation targeting framework must wait until necessary prerequisites are in place, in line with the NBU’s Strategy. ### Financial sector surveillance and preparedness - Careful surveillance of the financial system is welcome and preparedness for potential shocks should be enhanced. - Priorities include: - Strengthening the bank rehabilitation framework. - Maintaining bank vulnerability analysis. - Updating the Resilience Assessment. - Addressing corporate governance needs of state-owned banks. - Efforts to develop credit and financial markets are welcome, while remaining mindful of relevant risks. ### Governance, anti-corruption, and judicial reforms - Effective governance frameworks are critical for durable growth, levelling the playing field, and pursuing EU accession. - Independence, competence, and credibility of anti-corruption and judicial institutions should continue to be enhanced. - Key actions highlighted: - Strengthening the criminal procedural code. - Establishing a new high administrative court. - Reforming the Accounting Chamber of Ukraine. - Conducting the inaugural external audit of the National Anti-corruption Bureau as a near-term priority. ### Energy sector and winter preparedness - Addressing the energy deficit ahead of the winter is critical. - The authorities' multipronged response to restore the deficit should be implemented in close coordination with international stakeholders and with attention to avoiding a buildup of fiscal risks. - It will be important that Ukrenergo’s full supervisory board is completed and members chosen in a transparent and merit-based selection process under OECD standards, with independent members constituting the majority. - Additional efforts to reform the energy regulator and contain financial risks of energy operators and utilities should continue. ### Program role and concluding assessment - The program continues to provide a basis for restoring medium-term external viability. - Despite revisions arising from a longer war, the program remains an anchor for policies consistent with stability, guiding the ongoing debt restructuring, and catalyzing large-scale donor financing. - Resolving Ukraine’s balance of payments problem requires strong delivery under very challenging circumstances of policy commitments by the authorities and by donors on financing on appropriate terms, to ensure the program remains fully financed and medium-term external viability is restored across both program scenarios. - With full implementation, prospects for success remain in place. *Source: IMF country document excerpt* ### 64. Staff supports the authorities’ requests for waivers of applicability of performance ### 1ukrea2024003-print-pdf - 64. Staff supports the authorities’ requests for waivers of applicability of performance ### Program status and staff recommendations - Staff supports the authorities’ requests for waivers of applicability of performance criteria, resetting of two structural benchmarks, request for modification of a performance criterion, request for rephasing, and completion of the Fifth Review Under the Extended Arrangement. - Staff also recommends completing the Financing Assurances Review. - Rationale cited: "The authorities’ strong performance under the program, continuing commitments to maintain appropriate policies, and assurances from donors all point to the program remaining on track to meet its objectives." ### Selected structural benchmarks (timing and status as reported) - "1 Enact the second supplementary Budget 2023 Fiscal End-April 2023 Met" - "6 Prepare a conditions-based strategy to move to a more flexible exchange rate, ease FX controls and transition to inflation targeting Monetary and Exchange Rate End-June 2023 Met" - "11 Present in the 2024 budget declaration projections for major revenue and spending categories and sources of deficit financing for 2025–2026, and a fiscal risks statement including details on energy and critical infrastructure SOEs Fiscal End-September 2023 Met" - "21 Based on findings of the revenue working group, prepare short-term revenue measures (tax and non-tax) with yields of at least 0.5 percent of GDP ready to be included in budget 2024 Fiscal End-February 2024 Met" - "24 Adopt a new law on the ESBU that has a clear mandate and scope for investigative powers consistent with good practice by focusing on major economic crimes; establishing legal basis for operation of the ESBU in terms of the selection of management and staff. The law will respect the existing delineation between the investigative powers of the ESBU and the National Anti-corruption Bureau of Ukraine (NABU). Fiscal End-June 2024 Met" - "25 Based on the outcomes of a roadmap on development of PIM procedures, adopt a government decree with an action plan and timeline that provides clear linkages between MTBF and capital expenditures, including reconstruction priorities, and specifying the gatekeeper role of the MOF. Fiscal End-December 2024 Met" - "26 Develop a methodology to assess the effectiveness of tax privileges, including their cost to the budget, in order to have a unified reform approach Fiscal End-September 2024 Met" - "28 Adopt amendments to the Customs Code (consistent with ¶27 of the MEFP), in line with international best practice. Fiscal End-October 2024 Met" - "43 Amend the Criminal Procedural Code to enable the Specialized Anti-Corruption Prosecutor’s Office to manage extradition and mutual legal assistance request and rationalize consequences from expiration of time limits for pre-trial investigations (including for corruption cases) in line with MEFP, ¶69, 1st bullet. Governance/ Anti-Corruption End-December 2024 Reset from end-October 2024" - "44 Publish the completed external audit of the National Anti-Corruption Bureau of Ukraine’s effectiveness with participation of three independent experts with international experience. Governance/ Anti-Corruption End-February 2025 Missed in end-September 2024" - "48 Appoint the independent auditors to assess the effectiveness of the National Anti-Corruption Bureau of Ukraine to investigate corruption, as provided in its law Governance/ Anti-Corruption Prior Action Met" ### Key macroeconomic and fiscal indicators (selected series and projections as reported) - Real GDP (percent change): "1/3.4-28.85.32.53.05.52.5-3.55.34.54.34.24.14.04.04.0" - Fiscal balance 2/ (percent of GDP): "-4.0-15.6-19.6-14.2-18.7-7.5-19.2-9.5-2.7-2.1-1.7-1.1-0.9-0.5-0.3" - Fiscal balance, excl. grants 2/ (percent of GDP): "-4.0-24.8-26.1-20.9-24.5-10.4-20.0-9.8-3.8-2.9-2.4-1.8-1.5-1.1-0.9" - Public and publicly-guaranteed debt (percent of GDP): "50.577.782.397.395.697.7106.6107.6102.698.594.089.184.379.474.5" - Gross reserves (end of period, billions of U.S. dollars): "30.928.5 40.541.842.643.044.949.152.454.057.762.867.070.775.5" - Months of next year's imports of goods and services: "4.53.85.15.55.15.45.45.76.05.96.06.26.36.46.6" - Current account balance (percent of GDP): "-1.95.0-5.4-5.8-8.1-6.9-14.3-10.5-5.9-4.4-4.3-4.3-4.2-3.9-3.9" - Net use of IMF resources for budget support (percent of GDP, as reported in BOP tables): "0.22.33.64.04.00.31.20.30.2-0.8-1.8-1.1-1.3-1.4-1.1" - Broad money (end of period, percent change): "12.020.823.013.915.415.813.311.910.19.59.49.39.29.29.2" - Base money (percent change, memorandum): "11.219.623.313.816.717.913.212.712.411.011.011.011.010.510.0" ### Financial sector and external financing highlights - Gross external financing requirements and sources — financing needs and sources summarized in reported series: - "A. Total financing requirements20.3 31.939.945.146.929.142.830.922.419.424.221.923.922.422.3" - "B. Total financing sources20.00.7 9.710.711.0 9.9 9.016.115.316.819.819.520.719.119.4" - "C. Financing needs (A - B)0.331.130.234.335.919.233.814.77.12.64.42.43.13.32.9" - "D. Official financing1.029.239.935.639.020.436.119.010.44.28.07.67.37.07.7" - Balance of payments (selected lines as reported): - "Current account balance-3.98.0-9.7-10.6-14.9-13.2-27.1-21.7-13.0-10.4-10.8-11.4-11.9-11.9-12.6" - "Financial account balance-5.58.5-20.9-12.9-18.9-15.2-30.2-26.3-16.7-12.0-14.5-17.7-17.3-17.0-18.4" - "Overall balance 3.5-0.613.02.34.12.03.14.63.71.63.66.35.45.15.9" ### Governance, anti‑corruption, and institutional reforms emphasized in benchmarks - Multiple structural benchmarks target governance and anti-corruption institutions and processes, including: - restoration of "asset declaration of public officials" and "reinstating the NACP’s function to examine and verify them" (End-July 2023; Not Met (implemented with delay)) - "Amend the AML/CFT Law to re-establish enhanced due diligence measures on politically exposed persons consistent with the risk-based approach consistent with the FATF standards." (End-September 2023; Not Met (implemented with delay)) - Measures to "enhance the institutional autonomy and effectiveness of the SAPO" (End-December 2023; Met) - Adoption of legislation and audits related to the National Anti-Corruption Bureau of Ukraine (End-February 2025 milestone missed at end-September 2024; prior action on appointing independent auditors Met) *Source: Excerpt from IMF staff report and accompanying tables in the provided content unit.* ### 1. Ukraine: Proposed EFF Schedule of Reviews and Available Purchases ### 1. Ukraine: Proposed EFF Schedule of Reviews and Available Purchases ### Existing Fund credit — stock, obligations, and service (end of period) - Stock 1/: 9,597 7,861 6,363 5,450 4,838 3,893 2,947 2,002 917 334 - Obligations2/: 2,536 2,437 2,078 1,391 1,033 1,304 1,238 1,192 1,286 740 - Principal (repurchases): 1,780 1,736 1,498 913 612 946 946 946 1,085 583 - Interest charges: 756 701 580 478 421 358 293 246 201 156 - of which: Surcharges: 167 154 107 68 46 22 10 0 0 0 ### Prospective purchases and combined stock - Prospective disbursements: 4,003 2,022 1,449 795 000 000 000 - Prospective stock 1/: 1,670 3,692 5,140 5,935 5,935 5,549 4,876 3,953 2,964 1,974 - Prospective obligations2/: 111 943 394 444 462 841 1,084 1,246 1,196 1,117 - Prospective principal (repurchases): 0 0 0 0 3 866 749 239 899 89 - of which: Surcharges: 171 128 170 178 176 154 103 33 32 - Stock of existing and prospective Fund credit 1/: 11,267 11,553 11,503 11,385 10,773 9,442 7,823 5,955 3,881 2,308 ### Ratios and relative measures (existing + prospective) - In percent of quota 2/: 560 574 572 566 536 469 389 296 193 115 - In percent of GDP: 8.2 8.2 7.5 6.9 6.2 5.1 4.0 2.8 1.7 1.0 - In percent of exports of goods and nonfactor services: 26.5 26.0 22.5 19.8 17.3 14.1 10.9 7.7 4.7 2.6 - In percent of gross reserves: 35.5 34.6 31.5 29.3 26.9 22.1 16.8 12.0 7.4 4.1 - In percent of public external debt: 14.6 11.3 9.9 9.4 8.8 7.5 6.0 4.4 2.8 1.6 ### Obligations to the Fund from existing and prospective Fund credit - Obligations: 2,547 2,631 2,417 1,835 1,495 2,145 2,322 2,438 2,482 1,857 - In percent of quota: 126.6 130.8 120.1 91.2 74.3 106.6 115.4 121.2 123.4 92.3 - In percent of GDP: 1.9 1.9 1.6 1.1 0.9 1.2 1.2 1.2 1.1 0.8 - In percent of exports of goods and nonfactor services: 6.0 5.9 4.7 3.2 2.4 3.2 3.2 3.2 3.0 2.1 - In percent of gross reserves: 8.0 7.9 6.6 4.7 3.7 5.0 5.0 4.9 4.7 3.3 - In percent of public external debt service: 95.1 82.7 74.2 43.1 36.1 41.9 50.3 48.5 47.3 39.7 - pj - 1/ End of period. - 2/ Repayment schedule based on repurchase obligations and GRA charges. Includes service charges. --- ### Projections — Availability dates, amounts, and conditions (Millions of SDR) - Availability Date: March 31, 2023 - Amounts: 2,011.8 2,678.5 100.0 150.0 449.0 - Condition: Board approval of the EFF - Availability Date: June 15, 2023 - Amounts: 663.90 883.91 33.0 183.0 473.0 - Condition: First review and continuous and end-April 2023 performance criteria - Availability Date: October 13, 2023 - Amounts: 663.90 883.91 33.0 166.0 465.0 - Condition: Second review and continuous and end-June 2023 performance criteria - Availability Date: February 29, 2024 - Amounts: 663.90 883.91 33.0 199.0 478.0 - Condition: Third review and continuous and end-December 2023 performance criteria - Availability Date: June 15, 2024 - Amounts: 1,669.82 2,223.17 83.0 149.0 521.0 - Condition: Fourth review and continuous and end-March 2024 performance criteria - Availability Date: September 1, 2024 - Amounts: 834.88 1,111.55 41.5 190.5 531.0 - Condition: Fifth review and continuous and end-June 2024 performance criteria - Availability Date: December 1, 2024 - Amounts: 834.88 1,111.55 41.5 199.0 560.0 - Condition: Sixth review and continuous and end-September 2024 performance criteria - Availability Date: March 1, 2025 - Amounts: 684.02 917.54 34.0 200.0 559.1 - Condition: Seventh review and continuous and end-December 2024 performance criteria - Availability Date: June 15, 2025 - Amounts: 603.54 809.58 30.0 147.0 567.4 - Condition: Eighth review and continuous and end-March 2025 performance criteria - Availability Date: August 31, 2025 - Amounts: 402.42 539.80 20.0 167.0 579.4 - Condition: Ninth review and continuous and end-June 2025 performance criteria - Availability Date: December 1, 2025 - Amounts: 331.98 445.31 16.5 100.5 574.2 - Condition: Tenth review and continuous and end-September 2025 performance criteria - Availability Date: March 1, 2026 - Amounts: 699.79 941.28 34.8 101.3 599.7 - Condition: Eleventh review and continuous and end-December 2025 performance criteria - Availability Date: August 31, 2026 - Amounts: 748.72 1,007.11 37.2 88.5 599.7 - Condition: Twelfth review and continuous and end-June 2026 performance criteria - Availability Date: March 10, 2027 - Amounts: 794.67 1,069.57 39.5 76.7 598.8 - Condition: Thirteenth review and continuous and end-December 2026 performance criteria - Total: 11,608.25 15,506.69 577.0 - Memorandum item: Quota: 2,011.8 - Source: IMF staff calculations. - 1/ Based on WEO August 2024 forecasts for annual average USD/SDR exchange rates. --- ### Quantitative Performance Criteria and Indicative Targets (end of period; millions of Ukrainian hryvnia, unless indicated otherwise) ### I. Quantitative Performance Criteria (selected) - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (- implies a deficit) 2/: - QPC Adjustor Adjusted QPC Actual Status QPC EBS/24/74 Proposed QPC EBS/24/74 Proposed IT - Figures include: 250,000 0 250,000 466,499 Met 368,313 415,410 415,410 310,000 254,800 660,000 546,800 751,000 - Floor on tax revenues (excluding Social Security Contributions): - 880,400 ... 880,400 1,001,994 Met 1,398,600 2,042,250 2,042,250 485,000 485,000 850,000 1,019,600 1,622,200 - Ceiling on publicly guaranteed debt: - 47,900 5,879 53,779 7,071 Met 47,900 47,900 47,900 53,626 62,860 53,626 62,860 62,860 - Floor on net international reserves (in millions of U.S. dollars) 3/: - 25,300 -33 25,267 25,792 Met 28,800 26,300 26,300 23,800 23,800 24,800 24,800 23,000 ### II. Indicative Targets (selected) - Indicative target (aggregate): -725,996 0 -725,996 -555,702 Met -1,123,107 -1,557,208 -1,557,208 -215,000 -342,400 -370,000 -719,000 -1,146,900 - Ceiling on general government arrears: - 2,000 ... 2,000 1,654 Met 1,800 1,600 1,800 1,600 1,800 1,600 1,800 1,800 - Floor on social spending: - 262,500 ... 262,500 291,447 Met 390,000 537,800 537,800 130,000 135,000 250,000 270,000 410,000 - Ceiling on general government borrowing from the NBU 4/ 5/: - -2,884 0 -2,884 -3,079 Met 0 0 0 -984 -984 -4,100 -4,100 -1,500 ### III. Continuous performance criterion - Ceiling on non-accumulation of new external debt payments arrears by the general government: - 0... 00Met 0 00 0 0 00 0 ### IV. Memorandum items (selected) - External project financing (in millions of U.S. dollars): 251 ... ... 216 ... 605 1,496 1,496 142 142 426 426 851 - External budget financing (in millions of U.S. dollars) 6/: 12,936 ... ... 12,936 ... 25,745 32,565 35,832 4,236 8,041 10,794 17,626 24,073 - Budget support grants (in millions of U.S. dollars): 1,050 ... ... 1,050 ... 10,506 12,114 10,574 429 429 965 965 1,286 - Budget support loans (in millions of U.S. dollars) 6/: 11,887 ... ... 11,887 ... 15,239 20,451 25,258 3,807 7,612 9,830 16,662 22,787 - Interest payments: 161,780 ... ... 133,701 ... 284,320 429,820 429,820 67,000 86,700 190,600 244,800 366,600 - NBU profit transfers to the government: 38,000 ... ... 38,643 ... 38,000 38,000 38,000 0 0 34,400 63,861 63,861 - Spending from receipts resulting from sales of confiscated Russian assets and transfers of bank accounts: - 0 ... ... 15,091 ... 0 23,743 23,743 0 0 0 0 0 - Spending on gas purchases, PSO compensation and transfer to GTSO: - 0 ... ... 0 ... 60,000 60,000 60,000 0 0 0 0 0 - Cash balance of the general government, excluding budget support grants, treasury report at current exchange rates (- implies a deficit; in billions of Ukrainian hryvnia): - -671.7 ... ... -590.5 ... -1,046.6 -1,562.1 -1,741.1 -181.8 -342.4 -363.6 -719.0 -1,146.9 - Sources: Ukranian authorities and IMF staff estimates and projections. - Notes: - 1/ Definitions and adjustors are specified in the Technical Memorandum of Understanding (TMU). - 2/ Targets and projections for 2024, and 2025 are cumulative flows from January 1, 2024, and 2025, respectively. - 3/ Calculated using program accounting exchange rates as specified in the TMU. - 4/ From end of previous quarter. - 5/ For December 2024 onwards, calculated using the projected redemptions of government bonds as of September 10, 2024 - 6/ Excludes prospective IMF disbursements under the EFF. --- ### Annex I. Risk Assessment Matrix — Key risks, likelihoods, expected impacts, and policy responses ### External Risks - Intensification of regional conflicts. - Likelihood: High - Expected Impact: High. Further destruction of capital stock (including the energy system); outward migration; internal displacement; stalled recovery; sharp growth decline; curtailed export recovery; rising import needs; widened fiscal and external financing needs; potential monetary financing and higher inflation; weakened bank and SOE balance sheets; increased poverty. - Policy Response: - Maintain appropriate macroeconomic policies to safeguard macroeconomic and financial stability and prepare contingency plans for the materialization of downside risks. - Mobilize domestic financing to help meet fiscal financing needs and seek additional external financing that is grant-based or on highly concessional terms. - Enhance and update contingency plans, including for the energy and financial sectors. - Global growth slowdown. - Likelihood: Medium - Expected Impact: High. Recessions in key donor countries could reduce or delay disbursement of committed external financing and shift the financing mix toward less advantageous and more expensive sources. - Policy Response: - Prioritize spending and seek additional revenue measures. - Mobilize domestic financing to plug financing gaps. - Diversify external financing sources and obtain financing that is grant-based or on highly concessional terms. - Commodity price volatility. - Likelihood: High - Expected Impact: Medium. High energy prices could strain consumption and business activity and widen fiscal and external financing needs; low/volatile agricultural prices could affect sowing decisions. - 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. - Likelihood: High - Expected Impact: High. Shortfalls or delays could necessitate financial repression, monetary financing, and sharp compression in spending, intensifying macro-financial risks and dampening 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. - Likelihood: Medium - Expected Impact: High. Declining real incomes and worsening inequality could amplify unrest, prompting 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. - Likelihood: Medium - Expected Impact: High. Poor governance, corruption, retrenchment of oligarchic interests, and lack of oversight on external funding could reduce incentives for reform 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. - Likelihood: High - Expected Impact: Medium. Loss of the Black Sea corridor would severely affect the balance of payments, exacerbate financing gaps, and undermine recovery; prolonged closure of other transit routes would further curtail exports. - Policy Response: - Urge partners for a quick resolution to minimize disruption to transit routes. - Diversify supply chains. - Accelerate the reconstruction of Danube Deep Sea shipping lanes, repair of railroads with external financing and further expansion of the Black Sea corridor. ### Structural Risks - Deepening geoeconomic fragmentation. - Likelihood: High - Expected Impact: High. Inward-oriented policies and weakened international cooperation could cause trade and FDI reconfiguration, supply disruptions, protectionism, payments systems fragmentation, higher costs, financial instability, and lower growth; Ukraine is exposed as a trade-dependent economy. - 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. *Source: IMF staff calculations and IMF staff estimates and projections contained in the reported material.* ### Annex II. Sovereign Risk and Debt Sustainability Analysis ### Annex II. Sovereign Risk and Debt Sustainability Analysis ### Overview and conclusions - This updated Sovereign Risk and Debt Sustainability Analysis (SRDSA) is based on a baseline reflecting the recently concluded debt exchange of Ukraine’s sovereign Eurobonds; all other claims the authorities are seeking to restructure maintain their pre-restructuring terms. - The SRDSA continues to find high risks and that debt sustainability relies on finalizing all elements of the authorities’ debt restructuring strategy. - Restoration of sustainability requires three ingredients: - (i) completing the remainder of the restructuring strategy with sufficiently deep debt treatments; - (ii) fiscal adjustment (authorities plan a revenue-based fiscal adjustment under the program); and - (iii) financing on sufficiently concessional terms during and after the program (official donors have provided commitments for exceptional financial support and assurances of a debt restructuring before the final review of the program). - With program policy commitments, assurances from official creditors, and a credible process for external debt restructuring of remaining claims, staff assesses public debt as sustainable on a forward-looking basis. ### SRDSA baseline and downside scenarios; macro and financing assumptions - The SRDSA follows Fund policies for lending under exceptionally high uncertainty and considers both baseline and downside scenarios. - Macroeconomic revisions and projections: - Real GDP growth for 2024 is projected at 3 percent. - Growth in 2025 has been revised down reflecting the extended war assumption; subsequent years are little changed. - Real GDP is projected to exceed its pre-war level starting in 2031. - Inflation has risen a little recently; near-term projections were raised modestly; medium-term inflation outlook is unchanged. - In the downside, the materialization of the shock was shifted to the third quarter of 2024, and the war’s duration has been lengthened to mid-2026. - The primary deficit is higher in the next few years before broadly converging to the medium-term path envisaged in previous reviews. - Financing assumptions and donor commitments: - Total official external financing (excluding the IMF) over the program period is now US$125.1 billion. - ERA financing comprises an addition of US$33.1 billion relative to the Fourth Review baseline. - Pending finalized proposals, staff conservatively assumes ERA financing constitute loans on terms similar to the EU’s MFA (assumed terms: 10-year grace period, 25-year final maturity, and no interest). - Staff will monitor ERA and ULCM proposals and incorporate contractual terms and statistical treatment when final proposals are made available. - A portion of the U.S. financing will be channeled through the World Bank’s SPUR facility; staff continues treating this transaction as a contingent liability. - After the program, no commitments from external donors; budget support disbursements from these partners are expected to be lower, around US$5–12 billion per year. - Baseline envisages return to market access only in 2029. ### Coverage and contingent liabilities - Disputed claims with Russia remain excluded from the debt stock following Fund procedures: - 2013 Eurobonds amounting to US$3 billion (subject to ongoing legal proceeding in the United Kingdom). - Two bilateral loans with Russia amounting to about US$0.6 billion. - These disputed debts entail contingent liability risks, particularly in case of an adverse judgment on the Eurobonds. - Pending an agreement on restructuring, pre-restructuring SRDSAs incorporate projected payments on Ukraine's GDP warrants consistent with their projected growth paths over 2024–33 under a passive policy assumption. ### Debt trajectories, risk signals, and staff assessments - End-2023 debt outturn estimate: 82 percent of GDP (same as Fourth Review). - Debt-to-GDP ratios in both baseline and downside follow previous SRDSA trajectory—rising at first before resuming a downward trend over the medium run. - Gross financing needs (GFN) are lower in the outer years of the projection horizon in both baseline and downside, consistent with: - the restructuring of the Eurobonds; - revisions to local currency debt issuance and rollovers amid the Eurobond restructuring; and - assumed concessional ERA financing terms. - Mechanical tools and staff judgments: - Staff concurs with mechanical tools that debt remains unsustainable in the pre-restructuring baseline and downside scenarios, and that risks are high. - Medium-term tools continue to indicate risks at high levels; overall risk metrics from both tools are very high—consistent with a finding of unsustainable debt in the absence of debt restructuring. - Long-term risks remain assessed as high given extremely high uncertainty, including risks from refinancing concessional debt extended under the program on less favorable terms. ### Debt restructuring targets (post-ERA financing treatment) - ERA financing is treated as neutral for the DSA targets assessment due to the ERA/ULCM multi-level risk mitigation structure and assurances from G7 members and the EC. - Debt restructuring targets: - Public debt excluding ERA liabilities should reach 65 percent of GDP by 2033. - Gross financing needs excluding ERA debt service should average 8 percent of GDP in the post-program period (2028–33). - Complementary targets: - Bring public debt (excluding ERA liabilities) to 82 percent of GDP by 2028. - Achieve debt service flow relief on external obligations of 1–1.8 percent of GDP per year. - The Eurobond restructuring has provided substantial progress toward realizing these savings. ### Staff forward-looking assessment and required conditions - Staff continues to assess debt as sustainable in a forward-looking sense conditional on: - (i) fiscal adjustment (authorities’ program incorporates a meaningful revenue-based fiscal adjustment to be implemented over the duration of the program); - (ii) substantial concessional financing (official bilateral donors committed substantial financing on concessional terms and a debt standstill during the program); and - (iii) debt restructuring, including GDP warrants (which pose important fiscal risks if left untreated). - Staff judges there is a credible process to treat remaining external commercial debt in the restructuring perimeter consistent with targets developed by Fund staff. ### Annex II. Box 1 — Key features and metrics of the 2024 Eurobond restructuring - Exchange process: - Agreement-in-principle reached as of August 2024; August exchange offer supported by 97.38 percent of all bondholders; settlement occurred on August 30. - Overall relief and maturity extension: - Nominal total debt service haircut (on both principal and interest): 36 percent. - NPV haircut at a 5 percent discount rate: around 48 percent. - Average maturity extension: 4.2 years. - Restructuring perimeter and instruments: - Affected 13 series of sovereign Eurobonds amounting to US$23.4 billion (including capitalized interest arising from the standstill). - Included publicly-guaranteed bonds issued by Ukravtodor. - Bondholders received a package composed of series of two types of bonds, rated at CCC+ by S&P. - Features of new bond types: - Type A bonds: four series; 40 percent of original claim; vanilla bonds with step-up coupons ranging from 1¾–4½ percent during the program period and 6–7¾ percent post-program; maturities spread over next 5–12 years. - Type B bonds: four series; 23 percent of original claim; zero coupon through February 2027 and coupons that step-up over 2027–33; maturities 6–12 years ahead; no debt service payments during the program period; contingent principal increase capped at 12 percent in 2029 depending on nominal and real GDP overperformance in 2028. - Key metrics (million U.S. dollars unless otherwise indicated): - Total cumulative debt service restructured (2024-36): Pre-restructuring 31,707 → Post-restructuring 20,294 → Pct. change (haircut) -36.0 - Interest: Pre 12,038 → Post 6,420 → Pct. change -46.7 - Principal (and stock of debt restructured): Pre 19,670 → Post 13,874 → Pct. change -29.5 - Net present value at discount rate of: - 5 percent: Pre 24,320 → Post 12,614 → Pct. change -48.1 - 9 percent: Pre 20,231 → Post 8,906 → Pct. change -56.0 - 12 percent: Pre 17,871 → Post 6,983 → Pct. change -60.9 - Additional features: - Most favored creditor and loss reinstatement provisions in case of a second-stage restructuring. - Participating creditors receive a consent fee, resulting in total payments during the program of just under US$1 billion. - Cross-default clause between the bonds and Ukraine’s GDP warrants was eliminated by the exchange; GDP warrants to be restructured in due course. - Remaining risks noted by staff: - Need to treat remaining claims in the restructuring perimeter, including GDP warrants which pose substantial fiscal risks if left untreated. - High maturities of restructured claims after 2033 require proactive debt management. ### Annex II. Box 2 — ERA Initiative and ULCM (operational structure and risk mitigation) - Objective and amounts: - G7 Leaders committed to provide Ukraine US$50 billion in financing by leveraging windfall revenues from immobilized Russian assets under the Extraordinary Revenue Acceleration Loans for Ukraine (ERA) Initiative. - ERA financing expected to be available by end-2024 and fully disbursed to Ukraine by 2027. - EC proposed exceptional MFA loan up to €35 billion (US$39 billion). Canada announced CAD5 billion. Other contributions in progress. - ERA modalities and ULCM purpose: - Each contributor is developing its own financing modality; collectively to amount to US$50 billion. - The Ukraine Loan Cooperation Mechanism (ULCM) will provide non-repayable financial support to Ukraine to repay ERA financing over time, funded by extraordinary revenue streams from immobilized Russian assets (currently held mainly in Euroclear) and contributions from other countries. - ULCM funds can only be used to cover repayments of ERA financing; contributors receive a share of accumulated revenues pro-rata to ERA financing. - Staff assessment of sufficiency and neutralization in the DSA: - Understandings on the ULCM and discussions with the European Commission provide sufficient assurance to neutralize the impact of eligible ERA financing on the DSA. - Servicing on a flow basis is considered almost guaranteed while assets remain immobilized. - Size of immobilized assets: US$173 billion in June 2024, projected to reach US$217 billion by 2027—much larger than the US$50 billion ERA financing. - Waterfall envisaged for repayments: - Use of profits accruing in the ULCM that year; - If insufficient, use of the buffer accumulated in the ULCM (given expected extended grace periods under loan agreements); - If still insufficient, use of reparations or equivalent financial settlement of war damages to Ukraine. - European Council conditions on removal of sanctions (requiring compensation for war-related damages) support assessment that Ukraine should be able to service obligations arising from ERA. - For temporary shortfalls, the EU has legal and budgetary flexibilities to temporarily compensate for delayed payments, providing protection around the EC’s MFA component of ERA financing. *Source: Annex II. Sovereign Risk and Debt Sustainability Analysis (from the provided content unit).* ### Annex II. Figure 1. Ukraine: Risk of Sovereign Stress ### Annex II. Figure 1. Ukraine: Risk of Sovereign Stress ### Overall assessment and key judgment - Overall: High - Near term: n.a. (1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement.) - Medium term: High - Long term: High - Debt stabilization in the baseline: Source: Fund staff. - Note: "The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and new financing." ### DSA Summary Assessment and sustainability judgement - Sustainability assessment: Unsustainable in a pre-restructuring scenario (2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement.) - Final assessment (mechanical signal deleted before publication in certain cases). - Key conditional statement: "Debt sustainability on a forward-looking basis is contingent on treatment of the remaining external commercial claims following the recent Eurobond exchange, strong policy commitments, and financing assurances and specific and credible assurances of debt relief that achieves GFNs that average of 8 percent of GDP over 2028-33 and public debt of 65 percent of GDP by 2033 (in a post-restructuring scenario and excluding ERA financing)." - Complementary targets: set for 2028 debt levels and for flow relief over 2024-27. ### Policy message and recommendations - Restoring medium-term external viability requires: - policy commitments; - specific and credible safeguards, commitments, and exceptional financing from creditors and donors, including debt relief; - achieving a manageable level of gross financing needs such that debt stabilizes at a sustainable level. - With the assumed commitments and assurances, the pre-restructuring baseline underlines the impact of high projected primary deficits and an anticipated slow recovery from the war. - Medium-term modules signal high sovereign stress risks, notably: - a wide fanchart pointing to very high forecast uncertainty; - the GFN module finds persistently high financing needs are a major vulnerability, especially in the near term. ### Medium-term risk diagnostics (mechanical and module findings) - "Medium-term risks are assessed as high. The fanchart indicates very high uncertainty around the debt trajectory, and the financeability tool finds high liquidity risks compared with relevant comparators." - The overall risk of sovereign stress continues being high in the baseline scenario, and that vulnerability is amplified in the downside scenario. ### Additional notes on publication and scope - 1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published. - 2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ("with high probability" or "but not with high probability") is deleted before publication. *Source: Fund staff.* ### Annex III. Downside Scenario ### Annex III. Downside Scenario ### Scenario assumptions and macroeconomic effects - Shock timing and intensity: - Shock assumed to start in 2024Q4. - Underlying assumption: a more intense war running through mid-2026 (war assumed to wind down by mid-2026 versus in the last quarter of 2025 in the baseline). - Assumed impacts: stronger negative effects on firm and household sentiment, slower pace of migrant return, further large-scale energy infrastructure damage and power outages relative to the baseline. - Key macro outcomes (selected): - Real GDP growth: 1 percent in 2024 (versus 3 percent growth in the baseline) and -2.5 percent growth in 2025. - Subsequent recovery is more subdued than in the baseline due to greater capital stock damage, worsened labor force dynamics, and weakened balance sheets; output remains below pre-war levels for longer. - FX market: imbalances resurface and persist longer, producing higher nominal depreciation before convergence to the baseline trend; staff assumes some FXI especially for 2025–26, contributing to a lower path of reserves compared to the baseline. ### Financing gap and debt-sustainability implications - Cumulative financing gap: - Estimated at US$187.1 billion for the downside scenario. - This is US$35.7 billion higher than the baseline forecast for 2023Q2–27Q1 (US$151.4 billion). - Financing composition and requirements: - Additional financing would need to be in the form of highly concessional loans (close to grant terms), including from ERA (assumed to remain neutral for the DSA). - Given exceptional financing in the five-year post-program period (up to the US$7.1 billion per year described in the program request), the scenario would also require some mix of: - Additional grants in the program period, - Highly concessional financing consistent with assurances received, - A further debt treatment to ensure debt sustainability. - These measures would bring total public debt and gross financing needs to targets consistent with sustainable debt, underpinning debt sustainability on a forward-looking basis. ### Policy response and contingency measures - Authorities' track record and preparedness: - Since the start of the war, authorities implemented revenue measures, streamlined capital and lower-priority expenditures, identified additional financing, and implemented measures to maintain financial stability and protect FX reserves, including FX controls. - Authorities stand ready to react decisively, largely in line with those outlined at the Fourth Review. - Contingency measures reconfirmed: - A mix of increases in tax revenues, seeking further external financing on highly concessional terms, monetary tightening, mobilization of domestic financing, and likely further adjusting FX policies and CFMs (to be justified and temporary). - Fiscal-side specifics: - Given the very tight expenditure envelope in the envisaged 2025 Budget, the bulk of the adjustment would come from tax measures similar in nature to those in the baseline, such as VAT increases, and accelerating excise tax alignment with the EU. - Some spending to be made contingent on available financing (e.g., capital and social expenditures constrained to highest priority categories). - Additional contingency measures if shocks exceed the downside scenario: - Further revenue boosts—examples cited: - Increasing the military tax supplement to the PIT, - Additional taxes on luxury goods (jewelry, automobiles, precious metals), - Additional excise duties/fees. - Mobilizing domestic bond financing on a larger scale (both in UAH and FX if required). - Monetary-financing options within program parameters, possibly including administrative measures requiring banks to hold a stipulated amount in or a minimum holding period of government securities (differentiated by banks’ liquidity conditions). - Secondary purchases of government bonds by the NBU as a primary market backstop; consideration of instruments such as inflation- or exchange-rate-linked bonds. - If renewed high pressures on the exchange rate but reserves remain adequate: a combination of expanded FX controls, proactive FX policies, and adjustments to the monetary policy stance. - Ultimately, spending under certain categories would be contingent on the flow of highly concessional/grant-based external financing. ### Fiscal and key external projections (selected exact figures from downside tables) - Real economy (percent change, selected years): - Real GDP: 3.4 (2021); -28.8 (2022); 5.3 (2023); 1.0 (2024); -2.5 (2025); 0.0 (2026); 4.0 (2027); 3.8 (2028–33, repeated as 3.8 in table). - Labor and prices: - Unemployment rate (ILO, period average, percent): 9.8 (2021); 24.5 (2022); 19.1 (2023); 17.0 (2024); 16.8 (2025); 14.0 (2026); 13.1 (2027); 11.6 (2028); 11.2 (2029); 10.6 (2030); 9.6 (2031); 9.1 (2032); 8.7 (2033). - Consumer prices (period average): 9.4 (2021); 20.2 (2022); 12.9 (2023); 6.6 (2024); 12.6 (2025); 8.9 (2026); 6.6 (2027); 5.2 (2028); 5.0 (2029–33). - Public finances (percent of GDP, general government balances): - Fiscal balance: -4.0 (2021); -15.6 (2022); -19.6 (2023); -18.5 (2024); -21.8 (2025); -18.4 (2026); -8.0 (2027); -3.7 (2028); -3.2 (2029); -2.6 (2030); -2.2 (2031); -1.7 (2032); -1.5 (2033). - Fiscal balance, excl. grants: -4.0 (2021); -24.8 (2022); -26.1 (2023); -27.8 (2024); -26.0 (2025); -21.4 (2026); -10.2 (2027); -4.7 (2028); -4.0 (2029); -3.5 (2030); -3.0 (2031); -2.5 (2032); -2.2 (2033). - Public and publicly-guaranteed debt (percent of GDP): - 48.9 (2021); 77.7 (2022); 82.3 (2023); 97.0 (2024); 117.5 (2025); 132.1 (2026); 134.3 (2027); 131.9 (2028); 128.7 (2029); 124.7 (2030); 120.5 (2031); 116.2 (2032); 111.9 (2033). - Balance of payments and reserves: - Current account balance (percent of GDP): -1.9 (2021); 5.0 (2022); -5.4 (2023); -10.7 (2024); -12.8 (2025); -11.9 (2026); -6.6 (2027); -3.8 (2028); -3.7 (2029); -4.0 (2030); -4.1 (2031); -3.8 (2032); -3.8 (2033). - Gross reserves (end of period, billions of U.S. dollars): 30.9 (2021); 28.5 (2022); 40.5 (2023); 33.0 (2024); 35.2 (2025); 40.5 (2026); 42.5 (2027); 43.7 (2028); 46.8 (2029); 52.3 (2030); 57.4 (2031); 62.2 (2032); 68.4 (2033). - Months of next year's imports of goods and services: 4.5 (2021); 3.8 (2022); 4.6 (2023); 4.0 (2024); 4.2 (2025); 4.9 (2026); 5.2 (2027); 5.0 (2028); 5.2 (2029); 5.5 (2030); 5.7 (2031); 5.9 (2032); 6.1 (2033). ### Program robustness and outlook - Staff conclusion: - Wide-ranging discussions with the authorities reconfirm that the program remains robust in the face of the downside scenario. - Authorities’ strong policy commitments and track record, together with renewed financing assurances from international partners and expected debt relief, provide confidence that program objectives—maintaining macroeconomic and financial stability, restoring debt sustainability, and ensuring medium-term external viability—could be met even under the updated downside scenario. - The debt sustainability analysis based on this downside scenario reconfirms that additional financial assurances provided by international partners would restore debt sustainability on a forward-looking basis. *Source: IMF staff estimates and projections as presented in "Annex III. Downside Scenario."* ### Annex III. Table 3b. Ukraine: Balance of Payments (Downside Scenario), 2021–33 ### Annex III. Table 3b. Ukraine: Balance of Payments (Downside Scenario), 2021–33 ### Major current account and component projections (Percent of GDP) - Current account balance (2021–2033): -1.9 5.0 -5.4 -10.7 -12.8 -11.9 -6.6 -3.8 -3.7 -4.0 -4.1 -3.8 -3.8 - Goods (net) (2021–2033): -3.3 -9.1 -16.1 -21.3 -20.3 -19.3 -20.8 -18.3 -17.8 -16.9 -15.7 -14.5 -13.7 - Exports (2021–2033): 31.6 25.4 19.4 19.9 20.5 24.8 24.8 25.8 26.7 27.6 28.8 30.0 31.2 - Imports (2021–2033): -34.9 -34.5 -35.6 -41.2 -40.8 -44.1 -45.5 -44.2 -44.4 -44.5 -44.5 -44.5 -44.9 - Services (net) (2021–2033): 2.0 -6.9 -5.0 -8.1 -6.5 -4.1 3.7 6.7 7.3 7.4 7.2 7.0 6.8 - Receipts (2021–2033): 9.2 10.3 9.2 7.9 8.2 9.1 12.4 14.0 14.9 15.1 15.0 14.9 14.8 - Payments (2021–2033): -7.2 -17.2 -14.2 -16.0 -14.8 -13.2 -8.7 -7.3 -7.6 -7.7 -7.8 -7.9 -8.0 - Primary income (net) (2021–2033): -2.9 5.3 2.7 3.5 4.2 3.8 3.6 2.9 2.4 1.5 1.1 0.8 0.6 - Secondary income (net) (2021–2033): 2.3 15.7 13.1 15.1 9.9 7.7 6.9 4.9 4.4 3.9 3.3 2.9 2.4 ### Capital and financial account projections (Percent of GDP) - Capital account balance (2021–2033): 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Financial account balance (2021–2033): -2.8 5.3 -11.7 -7.7 -14.5 -15.0 -7.9 -4.4 -5.3 -7.2 -7.0 -6.5 -6.8 - Direct investment (net) (2021–2033): -3.8 -0.1 -2.6 -1.5 -0.9 -1.4 -3.1 -4.7 -4.6 -4.4 -4.6 -4.4 -4.3 - Portfolio investment (net) (2021–2033): -0.5 1.3 1.5 0.2 0.5 0.0 0.2 0.1 0.6 -0.5 -0.7 -0.6 -0.7 - Financial derivatives (net) (2021–2033): 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Other investment (net) (2021–2033): 1.4 4.1 -10.6 -6.4 -14.1 -13.6 -5.0 0.2 -1.3 -2.3 -1.7 -1.5 -1.9 - Other investment: assets (2021–2033): 3.9 13.0 6.5 10.2 7.4 4.7 1.6 1.4 1.2 0.8 1.0 1.0 1.0 - Other investment: liabilities (2021–2033): 2.4 8.9 17.1 16.5 21.4 18.3 6.6 1.2 2.5 3.1 2.7 2.4 2.8 - Net use of IMF resources for budget support (2021–2033): 0.1 1.4 2.0 2.2 0.7 0.1 0.1 -0.4 -0.9 -0.5 -0.6 -0.6 -0.4 ### Sectoral financial flows (Percent of GDP) - Central Bank (2021–2033): 1.4 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - General government (2021–2033): 0.8 9.2 14.6 13.9 20.3 17.1 5.9 1.3 3.1 3.3 3.0 2.8 3.0 - Banks 3/ (2021–2033): 0.2 -0.3 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Other sectors (2021–2033): 0.0 -1.4 0.5 0.5 0.5 1.0 0.6 0.3 0.3 0.3 0.3 0.3 0.3 ### Balance, financing, and reserves (Percent of GDP and USD) - Errors and omissions (2021–2033): 0.9 -0.2 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Overall balance (2021–2033): 1.7 -0.4 7.3 -3.0 1.7 3.2 1.3 0.6 1.6 3.1 2.9 2.7 3.1 - Financing (2021–2033): -1.7 0.4 -7.3 3.0 -1.7 -3.2 -1.3 -0.6 -1.6 -3.1 -2.9 -2.7 -3.1 - Gross official reserves (increase: -) (2021–2033): -1.3 1.4 -6.4 3.5 -1.2 -3.0 -1.1 -0.6 -1.6 -2.6 -2.3 -2.1 -2.6 - Net use of IMF resources for BOP support (2021–2033): -0.5 -1.0 -0.9 -0.6 -0.4 -0.2 -0.2 0.0 0.0 -0.5 -0.6 -0.6 -0.4 ### Memorandum items (Levels and ratios) - Gross international reserves (USD billions) (2021–2033): 30.9 28.5 40.5 33.0 35.2 40.5 42.5 43.7 46.8 52.3 57.4 62.2 68.4 - Months of next year's imports of goods and services (2021–2033): 4.5 3.8 4.6 4.0 4.2 4.9 5.2 5.0 5.2 5.5 5.7 5.9 6.1 - Percent of the IMF composite metric (float) (2021–2033): 104.4 103.6 124.3 89.0 83.7 84.4 84.6 85.3 87.6 95.7 101.5 107.0 114.1 *Sources: National Bank of Ukraine; and IMF staff estimates and projections.* ### 9. Based on our successful implementation of the program targets for end-June 2024, our ### 1ukrea2024003-print-pdf - 9. Based on our successful implementation of the program targets for end-June 2024, our ### IMF program request and financing adjustments - Request completion of the Fifth Review and a disbursement in the amount of SDR 834.88 million (41.5 percent of quota), to be channeled for budget support. - Request rephasing of purchases under the EFF over 2025–27 (totaling SDR4.265 billion) within the existing envelope of the program to: - accommodate quarterly monitoring in 2025 given continued exceptionally high uncertainty amid a prolonged war, and - allow modest frontloading of IMF financing consistent with higher fiscal financing needs. - A memorandum of understanding between the National Bank of Ukraine (NBU) and the Ministry of Finance (MOF) has been established to govern the mechanism of servicing of the government’s obligations to the Fund by the NBU on behalf of the MOF. - Rationale offered: track record of good program performance, strong commitments going forward, steadfast progress on debt restructuring, and increased external support from the G7 as safeguards for IMF resource use. ### Policy commitments, consultation, and transparency - Authorities state the policies in the attached MEFP are adequate to achieve program objectives in both the baseline and a downside scenario, while acknowledging exceptionally high uncertainty. - Authorities commit to consult with the IMF on adoption of these measures and in advance of any revisions to the policies contained in the MEFP, in line with the IMF’s policies on consultation. - Authorities will refrain from policies inconsistent with program objectives and MEFP commitments. - Authorities will continue to provide IMF staff with data and information needed to monitor program implementation, adhering to the data provision requirements in the attached Technical Memorandum of Understanding (TMU). - Authorities consent to IMF publication of the letter, the MEFP, the TMU, and accompanying Executive Board documents. ### Context: war impact, external financing, and EU accession - Russia’s invasion continues to cause major human, social, and economic costs (around a quarter of the population displaced; ongoing missile strikes including on electricity infrastructure). - The EFF arrangement anchors economic policy and helped mobilize an external financing package totaling US$151.4 billion over the program period (2023Q2–27Q1). - Authorities note the war will likely last longer than assumed at the time of the 4th Review; defense appropriations in the 2025 budget will be aligned to hostilities continuing at the current level of intensity for most of 2025. - EU accession negotiations officially launched on June 25; EU integration and the Ukraine Plan and €50 billion Ukraine facility in 2024–27 expected to support budgetary needs, recovery, reconstruction, and modernization. ### Economic outlook, growth, inflation, external positions, and reserves (selected figures) - Growth: - 2024Q1 growth reached 6.5 percent y/y. - Estimated growth for January to August 2024: 3.9 percent y/y. - Growth expected to remain between 3 and 4 percent in 2024. - Energy sector damage: around 50 percent of energy capacity either damaged or destroyed. - Inflation: - Decelerated from 26.6 percent y/y in end-2022 to 3.3 percent y/y in May. - Picked up to 7.5 percent y/y in August. - Expected to edge up further to up to 9 percent by end-year. - Current account and reserves: - 2024 current account deficit expected to widen to US$14.9 billion (from US$9.7 billion in 2023). - With higher external loan financing expected in 2024, reserves expected to end the year at US$42.6 billion (113.5 percent of the ARA metric). - Gross reserves projected to reach US$44.9 billion at end-2025 or 104.7 percent of ARA, supported by G7 financing. - Exchange rate and FX: - Under the managed flexible exchange rate regime, the hryvnia depreciated through end-July 2024 by a cumulative 12.2 percent since the transition. - FX interventions remain sizeable to fill the structural deficit. - Banking and credit: - Credit growth recovering; state support in lending (5-7-9 program) role declining; mortgage lending dominated by subsidy program (eOselya). - Gross non-performing loans continue to fall; loan default rates declining and approaching pre-war levels. - Banking system remains profitable and highly liquid amid strong deposit growth. ### Risks, scenarios, and policy responses - Main downside risks: prolonged/intensified war, sustained security risks, further damage to energy infrastructure, interruption of export transit routes, recurrence of supply chain disruptions, external financing shortfalls or delays, and difficulties in mobilizing higher domestic financing. - Authorities commit to decisive responses under a downside scenario, including: - Taking additional feasible fiscal measures (additional tax policy measures and spending measures based on efficiency gains), guided by the National Revenue Strategy (NRS). - Identifying additional domestic financing as needed to close financing gaps without compromising economic/financial stability or debt sustainability. - Deploying foreign reserves, adjusting monetary policy stance, and recalibrating FX controls to maintain macrofinancial stability. - Relying on partner readiness to provide additional financial resources sufficient to close financing gaps and preserve debt sustainability under the downside scenario. - Upside scenario policy focus: catalyzing high and sustained investment, supporting inward migration and return of migrants, rebuilding human capital, improving business environment, implementing EU accession reforms, and establishing frameworks for post-war reconstruction to absorb official resources and catalyze private capital inflows. ### Fiscal performance to end-June 2024 (exact program outcomes and targets) - Tax revenues (excluding social security contributions): UAH 1,002.0 billion, exceeding the floor of UAH 880.4 billion (Quantitative Performance Criterion). - End-June non-defense cash primary balance of the general government excluding grants: UAH 466.5 billion (at program exchange rates), above the program’s floor of UAH 250.0 billion (Quantitative Performance Criterion). - Overall balance excluding grants: UAH -555.7 billion (at program exchange rates), exceeding the floor of UAH -726.0 billion (Indicative Target). - Issuance of government guarantees: UAH 7.1 billion, below the adjusted ceiling of UAH 53.8 billion (Quantitative Performance Criterion). - Accumulation of overdue accounts payable (domestic arrears): UAH 1.7 billion as of end-June, below the ceiling of UAH 2.0 billion (Indicative Target). - Social spending at end-June: UAH 291.4 billion, respecting the floor of UAH 262.5 billion (Indicative Target). - Note on end-September targets: with the IMF Executive Board’s consideration of the Fifth Review occurring in mid-October, the three fiscal quantitative performance criteria for end-September have become controlling; final data to evaluate these targets will be shared with the IMF around October 25, and waivers of applicability are requested. All indications suggest these targets are on track to be met. *Source: Memorandum of Economic and Financial Policies, attached letter and program documents (excerpt).* ### 11. The revised outlook for the war has led us to recalibrate fiscal policies for the ### 11. The revised outlook for the war has led us to recalibrate fiscal policies for the ### Fiscal recalibration and immediate priorities - Defense spending needs are higher this year and expected to be higher over the medium term. - Budget Declaration for 2025–27 internalizes the revised outlook and acknowledges that significant additional external financing and domestic resource mobilization are needed to continue executing planned budgets. - Supplementary budget adopted by Parliament in September to finance national defense; a package of revenue measures is being designed to be adopted in parallel with the supplementary budget. ### Supplementary budget: expenditures, revenues, and balance (2024) - Expenditures: Supplementary budget envisages net expenditures of UAH 4,815 billion, about UAH 410 billion higher than originally budgeted. - Social safety net: Commitment to ensure adequate resources for war veterans and vulnerable groups; floor on social programs (Indicative Target) to safeguard this spending. - Revenues: Package of measures currently in Parliament includes: - raising the Military Tax rate from 1.5 to 5 percent; - broadening the base of Military Tax by extending it to taxpayers in the Simplified Tax System; - introducing presumptive taxation on fuel stations; - increasing the corporate tax rate applied to non-bank financial institutions (excluding insurance) to 25 percent (the rate already applied to banks); - intention to avoid additional exceptional taxes on bank profits. - Balance: Overall balance excluding grants expected to reach UAH –1,850 billion or around 24.5 percent of GDP in 2024. - Financing: Deficit to be financed primarily through budget support from international donors. - Monitoring: Progress in budget implementation monitored by: - floor on the non-defense primary balance of the general government excluding grants (Quantitative Performance Criterion); - floor on the overall cash balance of the general government excluding grants (Indicative Target). ### 2025 Budget and financing (2025) - Submission: 2025 Budget submitted on schedule and aligned with a longer-war expectation and program financing parameters. - Expenditures: Total expenditures in the 2025 Budget expected at UAH 5,056 billion. - Deficit: Overall deficit excluding grants envisaged to be UAH 1,712 billion next year (20 percent of GDP). - Financing: Deficit to be financed mainly through external partners; largest contributions expected from funds backed by the G7’s ERA mechanism. - ERA disbursement administration (consistent with program fiscal paths 2024-2027Q1): - transparently incorporated in the budget; - accounted for in treasury reporting; - disbursed into the treasury single account; - not directed to any special fund without prior agreement from the donor country. ### Contingency planning and further tax measures - Readiness: Prepared to take further tax measures promptly when needs arise; room for maneuver tightly constrained. - Preferred instrument: Increases in the main rate of VAT regarded as the most efficient potential source of additional revenue and central to contingency planning. - Policy objective: Restore fiscal and debt sustainability through revenue-based fiscal adjustment. ### Medium-term fiscal framework and sustainability targets - Budget declarations: Intend to entrench the practice of multi-year budget declarations; next year’s declaration to cover 2026-28 and serve as an anchor (proposed end-June 2025 Structural Benchmark). - Medium-term target: Complete return to fiscal and debt sustainability by targeting a primary surplus of around ½-1½ percent of GDP in the medium term, after the end of the war. - Fiscal adjustment: Sustained revenue effort to meet post-war spending needs (recovery and reconstruction and emerging post-war social priorities) while reducing the need for external financing, aligned with the National Revenues Strategy. ### Reconstruction needs - RDNA-3: Rapid Damage and Needs Assessment (RDNA-3), published on February 15, 2024, estimated reconstruction needs of US$486 billion over the next 10 years. - Subsequent attacks: Attacks on energy and other infrastructure have pushed damages up further. - Priority areas: Largest needs concentrated in housing, transport, and commerce and industry. - Financing principles: Seek highly concessional financing; ensure reconstruction financing mechanisms are consistent with integrated public investment management and fit into the medium-term budget framework. ### Financing strategy and donor support - Financing gap: Larger financing gap due to likelihood of a longer war; gap stands at US$151.4 billion over the program period. - Amounts received: Since the program start, received US$57.9 billion, of which US$24.6 billion was disbursed between January and September 17, 2024. - Expected receipts (remainder of year): Additional US$16.8 billion expected for the remainder of the year. - Firm commitments (Oct 2024–Sep 2025): Assurances for US$36.4 billion of financing (excluding IMF financing), including US$11.7 billion from the US$50 billion ERA mechanism. - Prospects beyond Sep 2025: Key partners have assured continued support and remainder of ERA financing will be available. ### Domestic financing and banking sector engagement - Domestic bond financing as of end-August 2024: Net mobilized UAH 88.9 billion (around US$2 billion), implied rollover rate of 141 percent so far this year. - Issuance features: - Continued matching of issuance yields and maturities to market demand; - Efforts to lengthen maturities; - About UAH 25 billion issued as designated benchmark bonds that banks may use to meet reserve requirements. - Strategy to sustain bank financing: - Study flow of liquidity into the banking system, including bank-by-bank and bank-group analyses; - Develop targeted strategies to encourage increased uptake of government bonds; - Joint Working Group under the Financial Stability Council (FSC) to support measures. - Objective: Successful placement of domestic securities, coupled with timely external concessional financing, to execute the budget as planned, avoid arrears, avoid monetary financing, and safeguard macroeconomic and financial stability while restoring debt sustainability. ### Debt management and Eurobond restructuring - Eurobond exchange: Settlement on August 30, 2024; important impacts on public debt burden and structure. - Medium-Term Debt Strategy (MTDS): Will be updated upon completion of current plans for treatment of external commercial claims, including GDP-linked securities. - Capacity building: Commitment to strengthen debt management capacity by increasing staffing and training. - Domestic debt market development: Maintain attractiveness of locally-issued instruments and diversify investors (including encouraging non-resident participation) to facilitate international capital market access in the medium term and support reconstruction. ### Treasury cash, liquidity management, and TA - Efforts to strengthen treasury cash and liquidity management to avoid vulnerabilities and strengthen budget execution and commitment controls. - Diagnostic assessment: Conducted with FAD TA based on international best practices examining roles of finance ministries, treasuries, central banks, and debt management agencies. - Ongoing review: Continue to review diagnostic findings and may seek further TA to improve predictability of cash and liquidity management. ### Fiscal structural reforms: public finances agenda - Objectives (public finances): - Raise adequate revenues for reconstruction and social spending, guided by efficiency, fairness, and simplicity of the tax system via the National Revenue Strategy (NRS); - Prepare public investment and public financial management frameworks for the post-war era by strengthening public investment processes, project management cycle, and commitment controls; - Reform and strengthen the pension system and social safety net; - Enhance fiscal transparency and management of fiscal risks; - Ensure fiscal sustainability and predictability of budget policy by restoring the medium-term budget framework (MTBF). ### Revenue mobilization and National Revenue Strategy (NRS) implementation - NRS adoption: Adopted in December 2023; aims to establish a fair and competitive tax framework to generate sufficient revenues for post-war development while maintaining fiscal and debt sustainability. - Strategic goals: Improve tax revenues by closing opportunities for tax evasion, increasing compliance, and combating the shadow economy. - Implementation steps: - Detailed implementation plans with specific timetables for tax administration, customs, and tax policy reforms; - Created NRS Steering Committees at SCS and STS to supervise implementation. - Commitment: Continue to abstain from tax policy and administrative measures that may adversely affect the tax base and refrain from introducing new categories of taxpayers in existing preferential regimes. ### Near-term tax measures and tax privileges assessment - Near-term focus: Raise revenues from excises, align with EU acquis, and streamline tax privileges. - Actions taken: Measures to increase excise rates as a first step in gradual increase to EU minimum levels over the medium term; work on medical cannabis taxation legislation continues. - Tax privileges methodology: - Developed and adopted a formal assessment methodology for tax privileges and guidelines specifying: - (i) number of topics on tax privileges to be evaluated in an annual cycle; - (ii) standardized evaluation template; - (iii) publication process of underlying assessments (Structural Benchmark, end-September 2024, met). - Methodology to be phased in and applied to all relevant topics, targeting the most significant tax expenditures first and leading to a regular evaluation cycle covering all topics over a number of years. ### Medium-term and future tax policy reforms - Planned reforms guided by the NRS: - Develop a comprehensive package for post-war taxation of carbon emissions based on environmental protection; - Analyze and assess taxation of extractive industries; - Define principles of taxation of virtual assets aligned with EU rules, especially regarding information exchange and OECD Global Forum initiatives. - These areas will be supported by TA from IMF FAD and other development partners. - Equity and simplified tax system (ST) reforms: - When conditions allow, consider moves to make the tax system more equitable (e.g., more progressive PIT). - Comprehensive reform of the simplified tax (ST) system to limit scope for abuse, minimize opportunities for medium and large businesses to avoid taxes or hide sales volumes, and prevent use of ST to move labor relations to civil law. - PIT and ST reforms require administrative reforms, including safeguarding confidentiality of tax data in STS systems and providing tax authorities access to data about volume of funds on taxpayers’ bank accounts. - Digital platform reporting and international data exchange: - Developing legislative amendments to introduce reporting requirements for digital platform operators and international data exchange in line with EU Council DAC 7 Directive / OECD Model reporting rules. - Objective: Enable STS to obtain data from digital platform operators and international authorities about incomes of private individuals who receive incomes without registration of private entrepreneurship or use the ST system, expanding the tax base. - Submission timeline: Submit relevant legislative amendments to Parliament by end April 2025 (proposed Structural Benchmark, end-April 2025). - Anti-tax-evasion rules: - Developing legislative amendments to implement rules that take into account the requirements of the EU Anti-Tax Avoidance Directive (EU ATAD) and best international practices to prevent tax evasion and protect the tax base from erosion and profit shifting. *Source: 1ukrea2024003-print-pdf - 11. The revised outlook for the war has led us to recalibrate fiscal policies for the* ### 26. Near-term reform efforts at the State Tax Service (STS) focus on building public trust ### 26. Near-term reform efforts at the State Tax Service (STS) focus on building public trust ### STS: public trust and digital compliance measures - Publish results of an independent taxpayer survey in October 2024. - Improve excise tax administration, including for tobacco: - Develop a track and trace system in cooperation with the Ministry of Digital Transformation. - Operationalize the track and trace system by January 1, 2026. - Approve a long-term Digital Development Plan for the STS in accordance with the NRS implementation plan (by the end of 2024). - Plan will include measures for gradual consolidation of IT platforms and information resources, and their administration by an independent administrator. - Ensure confidentiality and protection of data in STS systems (including information received from taxpayers and tax agents): - By end-2024 develop the concept of using de-personified data on taxpayers by tax authorities (see NRS section 4.2.3), until the risk of tax non-compliance is detected. - Changes to systems will be operational by end-2026. - Strengthen risk-based tax administration: - Developed methodological documents to operationalize the tax risk management system. - Will adopt an Overall Compliance Improvement Plan to comprehensively identify, assess, analyze, and mitigate major types of tax risks. - Launched a pilot of the new compliance risk management system in July 2024. - IT and reporting enhancements: - Finalizing the IT framework for the e-audit program to automatically verify consistency of tax declarations with other data; e-audit fully operational by end-2025. - Implement IT solutions for SAF-T UA (electronic format of data submission) for large taxpayers by end-March 2025. - Organizational and international cooperation reforms: - Organizational restructuring to reflect the functional review (by end-2024) to better align structure with functionally organized tax administration and modern Compliance Risk Management practices. - Improve efficiency of information exchange with foreign competent authorities; obtained positive assessment from OECD Global Forum on Informational Security Management Maturity in June 2024. *Source: 1ukrea2024003-print-pdf - 26. Near-term reform efforts at the State Tax Service (STS) focus on building public trust* ### 38. We will continue to enhance transparency in the management and spending of ### 1ukrea2024003-print-pdf - 38. We will continue to enhance transparency in the management and spending of ### Transparency in management and spending of budgetary funds and special accounts - Fund for the Liquidation of the Consequences of the Armed Aggression: - Supported restoration of destroyed and damaged property in the amount of UAH 38.1 billion in Budget 2023. - In 2024, continues to serve 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 which stood at about UAH 8.7 billion as of end-June 2024. - In 2025, control over commitments and appropriations will be kept with the MoF as prescribed by the budgetary legislation. - 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 continue transparency and accountability of these accounts. ### Strengthening Public Investment Management (PIM) - Implementation status and framework: - Implementing the 2023 Roadmap to reform the PIM framework addressing: (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. - Reforms will follow principles of budget unity, coherence, and predictability and strengthen coordination between the MOF, MOE, Ministry of Infrastructure, and other line ministries. - A detailed Action Plan with timeline finalized to provide clear linkages between the MTBF and national reconstruction priorities, specifying a gatekeeper role for the MOF (Structural Benchmark, end-December 2024, met). - First stage of the Action Plan covering 2024–25 is being executed. - Key actions and milestones: - Strategic Investment Council (SIC) established to define the project pipeline; in September 2024 the SIC endorsed the list of public investment projects for the 2025 budget. - Legal amendments to be enacted (in line with Action 1 under the Action Plan) to: - Integrate PIM into the budget process so only appraised and selected projects are included in the budget. - Define functions of participants in the PIM process. - Introduce medium-term planning of public investment, including prioritization of ongoing projects. - Establish mandatory use of a unified IT platform (DREAM; IT systems of the MOF and the MOE). - The amended Budget Code will give MOF a clear mandate to verify—and report in annual budget documents—that all projects financed from the budget (and all PPPs and guarantee-backed projects) were appraised and selected in the prescribed manner (Proposed Structural Benchmark, end-January 2025). - By end-February 2025, Cabinet will approve secondary legislation required to implement the Budget Code amendments. - Upon adoption of the Budget Code amendments, CMU will approve a methodological framework underpinning the PIM process (Proposed Structural Benchmark, end-February 2025) including procedures and criteria for: - Preparation of projects, formation of the single project pipeline, appraisal, selection, financing mechanisms, implementation, monitoring, and evaluation. - Principles for PIM procedures: - i. Degree of scrutiny commensurate with scale and complexity of the project. - ii. Project review decisions will be timely to speed up delivery. - iii. Procedures will include mechanisms to abandon or modify projects at any stage; MOF as gatekeeper will have the right to trigger such mechanisms, especially for larger projects. - iv. Conflicts of interest will be avoided when officials appraise proposals from their own ministry. - v. Source of financing considered only after decision to proceed; availability of finance will not inform the decision, including for externally financed projects. - vi. Review by MOF, MOE and MOI will be conducted in an integrated fashion to capture interdependencies between technical, economic, and financial reviews. - Further legislative and IT milestones: - By end-2025, enact legal amendments (Action 31) to improve integration of PIM into medium-term budget planning and fiscal risk management covering: - Use and recording of multiannual budget commitments and contingent liabilities for public investment projects. - Determination of contingent liabilities that may arise from PPPs. - Management and disclosure of fiscal risks related to public investments. - Public investment budgeting at the local level. - Finalize required IT infrastructure by end-2025 and increase institutional capacity of agencies participating in the PIM process. ### External Debt Strategy - Strategic objectives: - Restore debt sustainability on a forward-looking basis as announced in March 2023. - Treatment of external public debt remains necessary to close financing gaps during the program period, reduce gross financing needs to manageable levels (including after the program), and place public debt on a sustainable path. - Strategy designed to create conditions for private sector participation in post-war reconstruction and preserve financial stability; goal to restore public debt sustainability and ensure full financing of the program, including in a downside scenario. - Recent progress: - Eurobonds: - Agreement-in-principle on restructuring of US$23.4 billion of sovereign Eurobonds (including capitalized interest arising from the debt service standstill that ended August 2024) and US$0.7 billion of government guaranteed bonds issued by Ukravtodor. - Debt operation delivers significant maturity lengthening, flow relief during the program, and nominal and NPV haircuts. - Debt exchange offer opened on August 9 and closed on August 27, 2024. - Creditors holding over 97 percent of the bonds consented to the offer. - The debt exchange settled on August 30, thus achieving an important step of the strategy. - Other commercial claims: - Intend to pursue treatments of: (i) GDP warrants; (ii) government guaranteed bonds of Ukrenergo; and (iii) several external commercial loans. - Contact established with holders of GDP warrants and Ukrenergo bonds; a moratorium on government payments on the respective instruments was introduced. - External financial advisors engaged; commitment to a credible restructuring process with transparency for information and communication. - Official bilateral debt: - Group of Creditors of Ukraine (GCU) committed to a two-step process involving an extension of the debt standstill and 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—extension of the standstill until 2027—was formally concluded in December 2023. - Will seek treatments on comparable terms with other official creditors, including guaranteed loans. - Conditions and contingencies: - Full implementation of the strategy expected to allow delivery of debt sustainability targets under the program’s baseline scenario. - If conditions worsen relative to the scenario prevailing at the penultimate review (or while exceptionally high uncertainty persists), a further treatment of external commercial claims would be required, alongside restructuring of official bilateral claims. - Further treatment expected once conditions of exceptionally high uncertainty abate, or at the latest by the penultimate review of the program. - Legal and financial advisors retained; commitment to regular information sharing with creditors on potential ranges of outcomes and timelines. - Fiscal risk management: - Continue to strictly limit issuance of guarantees (Quantitative Performance Criterion). - Provide adequate space to facilitate guarantees on loans from IFIs and foreign governments for projects, including recovery and reconstruction. ### Monetary and Exchange Rate Policies - Policy objectives: - Aim to safeguard price and external stability and ensure an adequate level of international reserves. - Continue 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 the easing cycle by cutting the key policy rate (KPR) by 200 bps this year, at a faster pace than envisaged at the beginning of the year. - Kept the KPR on hold at 13 percent at July and September MPCs. - Will maintain a tight monetary stance pending resolution of uncertainty on key inflation determinants, while standing ready to resume the easing cycle if inflationary pressures abate. - Plan to steer monetary policy towards sustaining moderate inflation through 2025, followed by its return toward the target of 5 percent over the relevant policy horizon. - Intend to maintain sufficiently positive real interest rates to support price and external stability. - Operational and liquidity measures: - Update of monetary policy operational design to the floor system, with the key policy rate on the overnight CD; use of 3-month CDs linked to retail hryvnia term deposit growth to support real returns and deposit volumes. - Technical adjustments made to operational design, including reducing the spread between rates on 3-month CDs and overnight CDs, and the spread between the KPR and the refinancing rate (most recently in September). - Increased reserve requirements and the share of these requirements that can be met with eligible domestic bonds to 60 percent to strengthen banks' liquidity flexibility and support uptake of government bonds in the primary market for additional financing needs in 2024. - Will monitor impacts and may consider instruments beyond overnight maturity over time to increase average maturity of sterilization operations, while considering implications for the primary government bond market. - Exchange rate regime and interventions: - Managed flexibility exchange rate regime operationalized to enhance FX market self-balancing and role as a shock absorber while safeguarding reserves. - Since transition to managed flexibility, transactions excluding NBU participation have more than tripled, and their share more than doubled. - Spread between exchange rates on the cash and official exchange rates remained compressed, not exceeding 1.3 percent in July-August 2024. - FX interventions used to fill war-related structural FX deficit of the private sector (while accommodating the structural surplus of FX in the public sector) and to reduce excessive exchange rate volatility provided it moves in both directions; level otherwise determined by market conditions. - 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. - International reserves and performance against targets: - Met the end-June 2024 Quantitative Performance Criterion on net international reserves thanks to robust current account performance supported by private transfers, lower-than-expected outflows from FX liberalization measures, and a better-than-expected services balance which more than offset lower financial flows from a moderation in net FDI and trade credit liabilities. - Preliminary data suggest the end-September 2024 NIR PC was met, helped by, inter alia, higher FX debt issuance. - Commitment to achieving the NIR targets for the remainder of the year and through 2025 despite exceptionally high risks. *Source: 1ukrea2024003-print-pdf - 38. We will continue to enhance transparency in the management and spending of* ### 49. We continue to carefully adjust FX controls to support the economic recovery, while ### 49. We continue to carefully adjust FX controls to support the economic recovery, while maintaining FX market stability and accommodating national and international security considerations. ### FX controls and liberalization - Cautiously eased FX controls in line with the Strategy, including: - Further easing external loan repayments for corporates’ Eurobond financing. - Facilitating international leasing. - Increasing fund transfer limits for specific entities. - Objectives: - Improve the investment environment. - Facilitate debt management. - Promote capital inflows into Ukraine. - Safeguards and monitoring: - Reforms consider macroeconomic conditions and outlook and consistency with the overall policy mix. - Vigilant alignment with the FX liberalization roadmap under the Strategy to safeguard macroeconomic stability. - Continue close monitoring, including via bank-level data, to detect and address potential circumvention (e.g., schemes using specific MCC codes for purchases of jewelry and real estate abroad). ### NBU Independence and Governance - Avoiding monetary financing: - If unexpected critical needs arise or external disbursements are delayed, first explore: drawing down excess government deposits or tapping the government debt market. - Monetary financing from the NBU will be requested 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. - An NBU resolution was adopted in September 2024. - Avoid indirect forms of monetary financing outside core NBU functions (e.g., directed liquidity to banks for primary-market government securities purchases). - Direct financing of off-budget programs by the NBU will be avoided altogether. - Commitment to NBU independence and institutional effectiveness: - A strong, independent NBU is critical for macroeconomic stability and the eventual transition back to a full-fledged inflation targeting framework with a floating exchange rate. - Governance arrangements: - 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 MOF and NBU. - Financial autonomy: - Continue adhering to profit retention rules; distribution of NBU profits to the state budget will follow procedures in the NBU Law. - Refrain from using NBU profit for earmarked spending; direct this revenue to the General Fund of the State Budget. - Recognize costs from monetary policy implementation via liquidity absorption (interest expenses on NBU CDs) as necessary and justified; these costs have decreased in line with recent monetary easing. - Safeguards Assessment and legal/operational improvements: - July: NBU Council conducted a self-assessment assisted by external consultants with recommendations to improve oversight and collective fitness. - Continue working with IMF staff to develop and adopt amendments to the NBU law to: - Establish appropriate selection criteria for the Council and strengthen financial autonomy safeguards. - Clarify counterparty eligibility for refinancing operations and emergency liquidity assistance. - Further strengthen NBU’s status as a secured creditor. - Ensure vacant NBU Council positions are promptly filled. - Financial reporting and EU accession readiness: - Improve conceptual framework and content of NBU financial reporting, studying experiences of European national central banks and ESCB legal/accounting framework with IMF and partners’ technical assistance. - Assess readiness to transition to financial reporting in line with ESCB standards. - Unwinding wartime unconventional measures: - Intend to carefully unwind nonstandard wartime measures; ensure they are well-targeted, clearly communicated and time bound. - As structural liquidity surplus unwinds, adjust monetary policy operational framework and assess merits of reverting to a corridor system. - Phase out wartime measures when conditions permit to strengthen the monetary policy toolkit, safeguard NBU credibility and independence, and support return to inflation targeting with a floating exchange rate. ### Financial sector: stability, supervision, and resilience - Emergency measures and operational continuity: - Wide-ranging emergency measures have preserved financial stability. - Majority of bank branches remain operational; online banking services available to clients with internet connectivity; non-cash payment system functioning normally; liquidity robust for most banks. - “Power Banking” network (introduced late 2022) includes over 2,400 branches or about 55 percent of the total, providing services during prolonged power outages. - Despite heavy attacks to energy infrastructure in September, 98.5 percent of branches in the Power Banking network remained open and operational during prolonged electricity disruptions. - 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. - Bank diagnostics and resilience assessments: - NBU continues detailed bank diagnostics to ensure prudent and consistent asset valuation, inform triage and modalities of balance sheet cleanup. - Completed a resilience assessment of banks comprising 90 percent of system assets in December 2023: - Found minor capital needs in five banks, mostly 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. - Annual resilience assessments will resume in 2025, including asset quality reviews and stress testing under baseline and adverse scenarios and involving external auditors. - NBU will assess key financial and operational risks under various downside scenarios in consultation with IMF staff and update contingency plans accordingly (Structural Benchmark, end October 2024). - In line with the Terms of Reference adopted by the NBU in January 2023: - (i) complete an independent asset quality review (AQR) once conditions stabilize; and - (ii) carry out a subsequent bank viability assessment. - Current prohibition on bank capital distributions remains until independent AQR findings are fully reflected in banks’ regulatory ratios and financial statements; banks will not face fiscal measures that erode capital buffers. - Interim regulatory activities informed by supervisory observations and resilience assessments. - Contingency planning and minimizing fiscal cost: - Priorities: preserve financial stability and ensure financial and operational readiness to respond to shocks. - NBU and Deposit Guarantee Fund (DGF) prepared contingency plans in consultation with stakeholders and IMF staff. - Financial Stability Council approved plans related to potential adverse rulings from constitutional challenges against the DGF Law and updated contingency plan for litigation risks concerning past bank resolution decisions. - Bank rehabilitation framework (Structural Benchmark, end-December 2024): - DGF, MOF and NBU will prepare framework in consultation with IMF staff based on existing roles and responsibilities; will include: - (i) measures to strengthen operational readiness, including regularly updated bank recovery and contingency plans; - (ii) close key outstanding legislative and operational gaps in early intervention, temporary administration, and resolution frameworks by end-December 2024, per an updated roadmap prepared in September 2024 by the DGF and NBU in consultation with IFIs; - (iii) revive NBU-DGF coordination committee to improve information sharing between NBU and DGF; - (iv) ensure DGF continues to have adequate financial backstops. - NBU reinstated requirements for banks to update recovery plans; first submissions received in September. - Based on Financial Stability Council recommendations, DGF Administrative Board approved quantum and timeframe for achieving the deposit insurance target coverage ratio. - Maintain emergency financial backstops at least until the target ratio is reached. - NBU will align frameworks for counterparty eligibility in monetary policy operations with international best practice and coordinate with lender-of-last-resort operations; framework preserves past reform progress and considers EU accession goals. - Roles of financial safety net stakeholders during Martial Law: - Will refrain from changing allocation of roles and responsibilities of financial safety net stakeholders during Martial Law. - DGF’s current role in safeguarding deposits and addressing insolvent banks will be maintained. - In consultation with IFIs: - Initiated hiring of a new Managing Director in September 2024. - Financial Stability Council established a working group in August 2024 with NBU, MoF, and DGF representatives to review DGF governance arrangements (scope includes Administrative Board composition, accountability, legal protection, decision-making functioning, internal controls, and Managing Director appointment procedures). - Working group will prepare legislative proposals to close gaps relative to good practice by end-March 2025. - New appointment procedures will engage an independent HR firm and introduce a nomination committee with voting representatives and IFIs as observers. - State ownership and privatization strategy: - Decisions consistent with strategy to reduce state ownership in banking sector. - Any decision that could increase state ownership will be taken in consultation 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. - Any 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). - Preparing and implementing a framework to inform decisions on additional banks under state control to preserve value, ensure effective operational management, and decide on their future. - Analysis of banking system state and wartime developments continues; capital management plans developed and business plans adjusted for SOBs needing capital increases. - MoF instructed SOBs to maintain best practice risk appetite frameworks. - Once independent AQR concluded, results will update general SOB strategy and strategies for individual majority-public banks, including privatization in line with Financial Sector Strategy. - Draft law on SOB privatization prepared in consultation with IFIs and submitted to Parliament in September 2024. - Preparing two systemic state-owned banks for sale, Sense Bank and Ukrgasbank: - Plan to appoint an internationally recognized financial advisor by end-December 2024 using a transparent procedure and in consultation with IFIs. - Privatization of SOBs will be excluded from the general privatization law. - Take steps to facilitate fully operational SOB supervisory boards, including Sense Bank. - 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 to align with financial sector development targets. - Aligning financial and credit market infrastructure with international good practice: - Financial reporting: - Restore legislative obligations to submit financial statements and audit reports for financial institutions for the 2023 financial year and for business entities outside occupied territories for the 2024 financial year. - NBU fully restored prudential reporting requirements for NBFIs. - September 2024: restored requirements for mandatory quality control of services by audit companies, including verification of audit reports. - Expand capabilities of the Financial Reporting Collection Center to ensure stakeholder access to financial reports in XBRL format by end-December 2025; tasks include budget allocation and software integration for reporting entities, state users, and the Center. - Bank capital rules: - NBU issued regulation to align banks’ regulatory capital structure with the EU Capital Requirements Directive and Regulation in December 2023 and for banking groups in July 2024. - Calculation of capital adequacy ratios considers updated capital structure since August 2024. - July 2024: NBU adopted regulations on procedure for calculating the leverage ratio of banks and banking groups. - With World Bank support, close key gaps in regulatory capital requirements by end-June 2025 and other gaps thereafter. - Implementation of new requirements will be phased to facilitate bank integration into business plans. - To align with the EU Directive, NBU will prepare legislative amendments to increase banks’ minimum share capital to the equivalent of EUR 5 million by end-January 2025 with a six-month transition period for existing banks. - NBU will continue monitoring economic conditions and relax controls and reinstate pre-war regulations when safe, based on banks' adherence to new capital requirements, resilience assessments, and the banking system’s role in lending and domestic debt market participation. - Property valuations law: - SPF will close gaps with international standards in consultation with NBU, NSSMC and IFIs: - By end-June 2025, submit to Parliament amendments to the law “On Valuation of Property, Property Rights and Professional Valuation Activities in Ukraine” to close gaps with international valuation standards (in coordination with the World Bank). - By end-December 2025, propose an implementation roadmap with transitional arrangements, supportive regulation/guidance, steps to strengthen valuers’ profession including 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 real estate market transparency, strengthen systemic risk analysis and bank collateral valuations, proposing: - (i) a publicly accessible database of real estate transaction prices with detailed metadata including structural parameters of primary and secondary market; - (ii) residential and commercial property price indexes. - Ministry of Justice and NBU will implement reforms to launch databases and publish indices in 2025 per the proposal’s timeframe. - Virtual assets: - NBU and NSSMC will prepare legislative update with IMF technical assistance and IMF staff consultation 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 (NPEs/NPLs): - NBU, in consultation with IFIs, aligned definition of non-performing exposures with Article 47a and Article 178 of Regulation EU 575/2013. - Amendments come into force from January 1st, 2025, strengthening monitoring by supervisors and banks. - Further steps to strengthen banks’ NPL workout capacity and revive the secondary market for NPLs in line with the NPL strategy approved by the Financial Stability Council. - NBU’s status as a secured creditor: - Will strengthen NBU's status as a secured creditor per the IMF's Safeguards Assessment Report. - Submit to Parliament by end-December 2024 law amendments reflecting coordinated NBU and DGF positions to strengthen mechanisms for extraordinary satisfaction of NBU claims through collateral, management, and sale of collateral. *Source: 1ukrea2024003-print-pdf - 49. We continue to carefully adjust FX controls to support the economic recovery, while* ### 62. We are fully committed to further strengthening banking supervision. ### 62. We are fully committed to further strengthening banking supervision. ### Strengthening NBU supervisory governance - Implemented “supervisory panels” as a consulting body to the NBU Supervisory Committee to provide additional independent review by relevant subject matter experts. - Undertook a survey of the effectiveness of the new supervisory panels in end-September 2024, in consultation with IMF staff. - Commitment: ensure any future transfers of bank ownership, including following seizures during Martial Law, can only take place with due regard to the Law of Ukraine on Banks and Banking and following formal notification, review, and approval of the process by the NBU. ### Transition to risk-based supervision (NBU commitments and timelines) - Prepare and implement a supervisory risk assessment methodology to inform supervisory engagement priorities (Structural Benchmark, end-December 2024). - Apply this methodology to all banks and prepare a supervisory action plan by end-December 2024. - Adjust organizational structure for bank supervision to leverage efficiencies during transition to a risk-based approach. - Continue to develop expertise for effective supervision, in particular for supervision of information and communications technology risks as part of operational risk. - Further improve professional capacity of bank supervision, including development of professional profiles needed and a multi-year training program for new hires. ### AML/CFT and banking supervision - Continue strengthening risk-based AML/CFT supervision of banks, payment service providers and non-bank financial institutions, particularly in relation to 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 the FATF standards. - Financial sanctions applied to such entities will be established by the laws of Ukraine and the regulatory legal acts of the National Bank of Ukraine. ### Supervision of banking hybrid business models - Recognize growing importance of hybrid models, including Banking-as-a-Service. - Prepare an oversight framework concept note, by end-October 2024 and in consultation with IMF staff, addressing specific risks (operational resilience, critical third parties, AML/CFT) and aligning with international standards and best practices. --- ### 63. Strengthening the legal, regulatory, and supervisory framework for NBFIs and financial markets ### Legal and regulatory updates - Legislation passed in December 2021–July 2023: Financial Services and Financial Companies (#1953), Insurance (#1909) and Credit Unions (#3254). - Most provisions of these laws came into force in January 2024; NBU prepared implementing regulations. - Rules for insurance intermediaries apply from January 2025, and Solvency II will apply from January 2027. - NBU and DGF plan to initiate development of a deposit insurance framework for credit unions and a guarantee framework for life insurance companies after Martial Law is lifted and once required regulations are fully implemented. ### Capital and reporting requirements for NBFIs - NBU increased capital requirements for financial companies which came into effect in July 2024. - NBU developed a supervisory risk assessment methodology that distinguishes between types of NBFIs. - By end-December 2025, NBU will test this methodology to refine it and transition to a risk-based approach for supervising NBFIs. - NSSMC will prepare draft regulation for financial intermediaries by end-December 2024 to bring capital requirements in line with the EU acquis; the regulation will be enacted by end-December 2025 following consultation with IFIs. ### NBFI governance and supervision - NBU will continue to strengthen review of NBFIs and their ownership structures to ensure compliance with transparency standards and that owners meet requirements for business reputation and financial/property status. - Strengthen NBU legal capacity: establish effective procedures for addressing violations in the provision of financial services and limited payment services, including strengthening the regulator's role. ### Payments market reform and timelines - Draft law (#11043) passed public consultation stage and is ready for second reading; aims to align with PSD2 (2015/2366) and international good practice. - To prioritize supervisory activities of payment service providers (in consultation with IFIs): - Prepared a concept note for a supervisory risk assessment methodology in August 2024 and will implement the methodology by end-December 2024. - Will develop the reporting system. - Will strengthen supervision capacity through hiring specialists and building analytical competence. - Prepared a concept note in June 2024 on regulatory requirements for person to person (p2p) and other such electronic payments to identify and restrict abnormal behavior and implement reforms as quickly as possible. - Developed a concept note in August 2024 on the establishment of a public register to record card holder and merchant violations and its potential use by market participants and government agencies (cyber police, SSU, ESBU, and SFSU). - By end-December 2024, NBU will prepare a legislative proposal to: - (i) extend supervisor’s authority to limit operations of payment service providers non-compliant with regulatory requirements; and - (ii) establish two public registers to be used by banks when establishing business relations and servicing customers: the first register of persons with a high risk of payment transactions related to illegal activities, and the second of business entities to promote correct use of payments activity codes. - By end-December 2024, NBU will prepare a concept note on measures to strengthen the risk-based approach by banks and non-bank payment service providers when establishing business relationships with new clients. ### Capital market regulation and IOSCO alignment - Law (#3585) on the NSSMC enacted in April 2024 enhancing NSSMC’s powers, independence and institutional capacity. - Conduct screening to become signatory of IOSCO’s multilateral MoU by end-June 2025 with full implementation of the other provisions of the law by end-June 2026. - NSSMC to enhance operational efficiency of NBU’s capital controls, including regulatory harmonization and aligning capital flow restrictions for securities accounts with those applied to bank accounts by end-December 2024. ### Related parties and insurance transparency - Submitted a draft law to Parliament to strengthen supervisory powers to capture economic interdependencies and related party risks; facilitate adoption by Parliament by end-December 2024. - Adopted a regulation in February 2024 requiring auditors to confirm that insurers have acceptable assets and to assess their value for the 2023 financial year. - Will assess feasibility of updating disclosure requirements for insurance and reinsurance brokers by end-December 2025. --- ### 64. Enhancing credit and financial market infrastructure ### Capital market infrastructure and foreign investor access - NBU and NSSMC implemented mechanisms for foreign investors to directly access marketable debt instruments (municipal bonds and other Ukraine reconstruction-related debt instruments). - NSSMC, National Depositary (NDU), and NBU will target establishment of a direct link between the Central Securities Depository (CSD) and foreign CSDs by end-July 2025. - NBU, NSSMC, and MOF, in consultation with IFIs, will develop a targeted model for capital market infrastructure development to facilitate foreign investor engagement by end-November 2024. ### Secondary market and central counterparty - Largest stock exchange for domestic government bonds is undercapitalized; NSSMC has agreed recapitalization terms with owners. - To mitigate risks to functioning of the secondary government bond market, NBU and NSSMC coordinated to facilitate launching by Settlement Center, an NBU majority owned central counterparty, of contract making and clearing services for over-the-counter transactions in government bonds. ### War risk insurance and financial inclusion - FSC working group finalized a draft law establishing a fully functional war insurance system and presented it to the FSC in August 2024; draft law to be submitted to Parliament by end-December 2024 following public consultation. - War restricts access to financial services in conflict-adjacent areas, liberated territories, and for certain population groups; IFIs’ ability to comprehensively assess financial inclusion is restricted. - Collated fresh data with World Bank assistance using a best-efforts approach and will update financial inclusion strategy in consultation with IFIs by end-December 2024. - NBU prepared a legislative draft proposal for a specialized and restricted banking license in July 2024 to address financial inclusion challenges; 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; and - (iii) have limits imposed on lending and funding operations. ### Lending development strategy and consumer protection - Financial Stability Council approved a strategy to support bank lending focusing on: - Providing a unified policy approach to support fresh credit, including a prioritized interagency NPL resolution action plan informed by the 2023 NBU resilience assessment. - Targeting subsidized lending instruments to key priority sectors during the war and developing credit infrastructure to support banks’ risk management and lending decisions. - NBU regulation and supervision will continue to apply to institutions providing financial services to a large volume of clients. - NBU to coordinate with stakeholder authorities and prepare detailed action plans for the Strategy’s second (implementation) phase, including exchange of information, protection of creditors’ rights, and tackling NPLs. - Responsible consumer lending: - Submitted to parliament in February a draft law on improving state regulation and the functioning of credit bureaus; facilitate adoption by Parliament by end-December 2024. - Enhance supervision of credit bureaus by establishing requirements for ownership and internal controls within six months of the law being adopted and signed by the President. ### Monetary derivative instruments - In consultation with IFIs and via technical assistance, NBU will prepare a concept note by end-December 2024 setting out steps, conditions and timing needed to introduce and develop the derivative financial instruments (including forwards) market. --- ### 65. Recovery of assets from failed banks - Reconfirm 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. --- ### H. Governance and Anti-Corruption ### Governance of Reconstruction - Strategy for post-war reconstruction will meet highest standards of transparency and accountability. - Develop a single digital ecosystem for public investment management (PIM) based on Ministry of Economy’s Prozorro digital procurement system, Ministry of Finance’s IT systems, the Digital Restoration EcoSystem for Accountable Management (DREAM) and other relevant systems and registries. - Conduct comprehensive audits of reconstruction funds and performance audits of selected projects, with timely publication of audit reports. - Integrate mechanisms to prevent and identify corruption risks and refer cases to anti-corruption institutions as appropriate. - NABU and the State Agency for Restoration and Development to continue cooperation and exchange of information under memorandum of understanding. ### Strengthening audit institutions - Enact a law to enhance independence, mandate and effectiveness of the Accounting Chamber of Ukraine (ACU) to fulfill constitutional oversight and audit all public funds (proposed Structural Benchmark, end-December 2024). - Law provisions to include: - (i) enhance independence via improved selection process for ACU members with decisive vote of independent experts with international experience and improved dismissal procedures; - (ii) establish that ACU has a minimum of 11 members; - (iii) enable ACU to select audit scope free from direction or interference and have full and timely access to all relevant information and databases; - (iv) empower ACU to exercise external audit function on all public funds (including local government agencies, SOEs and off-budget funds); - (v) establish formal procedures in the legislature for reviewing and monitoring external audit reports and following up on recommendations with commensurate financial and technical resources; - (vi) establish a periodic peer review mechanism by independent experts with international audit experience for ten years from enactment of the law. - Enacted law expected to require ACU to independently determine priorities and funding and submit proposed budget to the Ministry of Finance during preparation of the budget declaration and state budget; if disagreements persist and CMU unable to settle, both ACU and Ministry of Finance shall submit information and calculations alongside draft state budget to Parliament, with final decision by the Verkhovna Rada Budget Committee. ### Anti-Corruption and rule of law reforms - Reform agenda aims to combat corruption, sustain public confidence in rule of law, and advance EU membership goals; committed to preserving independent, competent, and trustworthy anti-corruption institutions. ### Strengthening anti-corruption institutions and procedures - Amend Criminal Procedural Code to: - (i) enable Prosecutor General to delegate to SAPO the management of extraditions and mutual legal assistance requests in relation to corruption investigations; - (ii) remove mandatory dismissal of pre-trial investigations due to lapse of time limits of pre-trial investigation after notice of suspicion; - (iii) upon expiration of timelines and motion of defendant or affected parties, enable investigating judge to compel prosecutors to decide on pre-trial investigation or reject the motion (Structural Benchmark, end-October 2024, proposed to be reset for end-December 2024). - Provide full legal certainty on timelines of pre-trial investigation after notice of suspicion has been filed. ### External audits and capacity enhancements - External audit of NABU’s effectiveness with participation of three independent experts with international experience to be completed and report published (Structural Benchmark, end-September 2024; missed and proposed for end-February 2025). - Cabinet of Ministers issued resolution on September 3 appointing independent experts nominated by international partners (Prior Action). - Terms of reference and criteria/methodology approved by commission will be published after consultation with IMF staff. - Audit report to include clear, reasoned, evidence-based conclusions and prioritized recommendations on NABU’s effectiveness and operational/institutional independence. - Ensure NABU by end-July 2025 has access to independent and competent forensic experts to effectively conduct complex corruption investigations. - Develop an implementation plan in the post-Martial Law period to provide resources, equipment and technological solutions for NABU to independently intercept communications (wiretapping); NABU and law enforcement agencies finalizing memorandum of understanding on implementation plan. - Enact by end-December a law to enhance corporate criminal liability (applicable to private and public legal entities resident or non-resident in Ukraine and covering domestic corruption offenses) consistent with international standards to support accession efforts to the OECD Anti-Bribery Convention. - Commit to conduct an external independent audit of SAPO and publish the audit report consistent with the two-year period provided in the December 2023 amendments to the SAPO law. ### High Anti-Corruption Court (HACC) appointments and PCIE - Initiated nomination and appointment process for new members of the Public Council of International Experts (PCIE) to vet candidates for 24 new vacancies to the HACC (15 first instance, 9 appellate). - Enact a law to extend PCIE’s mandate for completion of selection process for all 24 vacancies. - Ensure open and competitive selection and adequate provision for staffing and office needs. - Monitor impact of May 2024 procedural code amendments allowing matters to be heard at first instance by one HACC judge or a panel of three HACC judges based on severity of penalty, and monitor potential impact on judicial efficiencies and resources due to list of high-level public officials whose cases would automatically be heard by a panel. *Source: 1ukrea2024003-print-pdf - 62. We are fully committed to further strengthening banking supervision.* ### 70. The NBU is taking steps to ensure that risk-based implementation of AML tools helps ### 70. The NBU is taking steps to ensure that risk-based implementation of AML tools helps ### Anti‑Money Laundering, Beneficial Ownership, and PEPs - Following legal amendments to the definition of politically exposed persons (PEPs), the NBU conducted a thematic inspection of selected financial institutions’ compliance with enhanced customer due diligence on PEPs. - With IMF capacity development support, the NBU issued guidance in August for financial institutions and other covered non-bank institutions on the application of a risk-based approach regarding PEPs; the guidance is consistent with the FATF standards and includes relevant case examples. - Planned improvements to the beneficial ownership regime to enhance transparency in public procurement, detect conflicts of interest, and prevent misuse of companies: - The Ministry of Justice updated software to facilitate submission by companies of their beneficial ownership information (including information on the ownership structure and the possibility of entering several citizenships), made fully operational in September. - Beneficial ownership information will continue to be publicly available through the Unified State Register of Legal Entities, Entrepreneurs and Public Associations. - By end-December 2024, the operational framework for obtaining adequate, accurate and up-to-date beneficial ownership information will be enhanced. ### Rule of Law and Judicial Reforms - Commitment to enact a law to establish the High Public Disputes Court (HPDC) with first instance and appellate chambers to hear administrative cases against national state agencies (e.g., NBU, NABU, NACP). - Judges will be properly vetted for professional competence and integrity using a decisive and crucial vote of independent experts with international experience following the PCIE model (Structural Benchmark, end-December 2024). - The HPDC will have authority over cases belonging to the competence of the liquidated Kyiv District Administrative Court related to appeals of acts of state agencies with nationwide authority, and administrative cases against procedures of selection commissions and external audit commission that include participation of independent experts (such as NACP, NABU, and SAPO). - The PCIE model will be leveraged to assess the integrity of candidates to the HPDC. ### Corporate Governance in State-Owned Banks (SOBs) and State-Owned Enterprises (SOEs) - SOBs governance actions and timelines: - Review the framework for setting and paying remuneration to Senior Management of all SOBs by end-December 2024 in consultation with IFIs; remuneration principles include being internationally competitive, consistent, proportionate to functions, duties, responsibilities, and considering part-time nature of roles and Martial Law restrictions. - Implement a procedure for conducting performance assessments for all SOBs in 2025; the first such performance assessment will be conducted by the MoF for each of the banks in end-July 2025. - In December 2025, the MOF will publish the key findings of its first annual assessment, together with the CMU’s proposed actions to address the findings. - SOE corporate governance under law #3587-IX (entered into force in March 2024): - Develop secondary legislation to operationalize SOEs’ financial planning process, including financial indicators designed with IMF TA consistent with the gatekeeper role of the MOF to limit quasi-fiscal risks and help safeguard debt sustainability. - The CMU approved the regulation for the financial indicators in August 2024 (No. 984). - If necessary, review the financial indicators after two years of application in early 2027 before the next SOE financial planning season in 2028; changes would be made through a CMU resolution if necessary. - Implement a revamped nomination process and effective independent evaluation procedure for SOE supervisory board activity, consistent with OECD standards. - Energy corporate governance reforms: - Ensure an independent evaluation of the GTSO supervisory board one year after its appointment. - Complete formation of the full supervisory board of Ukrenergo (7 members), with independent members constituting the majority (proposed Structural Benchmark, end-December 2024). - Develop a framework for assessing supervisory board activity and launch independent evaluations of the supervisory boards of Naftogaz and Ukrenergo in November 2024 and conclude and publish by end-January 2025. ### Strengthening SOE Management and State Ownership Policy - Explore options to strengthen SOE management (including centralized modes) in close consultation with international partners; define roles and mandates of key government institutions engaged in SOE management (MOF, MOE, CMU, SPFU). - Continue SOE reform agenda items after adoption of #3587-IX, including: - Implementing related secondary legislation for #3587-IX, including methodology for and conducting regular independent evaluations of SOE supervisory board activity. - Interim assessment of financial conditions and fiscal risks of SOEs in the state ownership policy. - Producing a comprehensive state ownership, dividend policy and privatization strategy (Structural Benchmark, end-October 2024). - Assess the financial viability of key SOEs as input to developing a framework to deal with quasi-fiscal costs, including legacy Public Service Obligations (PSOs). - Elements of the SOE state ownership policy: - Long-term priorities of SOE state ownership; SOE public policy objectives and rationales for SOEs remaining in state ownership (subject to regular reviews); the state’s role in governance of SOEs and its implementation (including roles and responsibilities of involved government agencies). - Indicators of financial efficiency of SOEs and commitment to regularly provide financial assessment of SOEs (including contingent liabilities, debts, and risks to public finances) according to established criteria; critical gatekeeper role of Ministry of Finance to safeguard public finances and debt sustainability (via tracking financial viability of SOEs and fiscal risk analysis). - Dividend policy (e.g., rationale, sectoral policy, impact on public finances, and post-war strategy) and remuneration policy for Board members and managers. ### Energy Sector Reforms and Immediate Priorities - Immediate priority: contain the adverse impact of the war on the energy sector via a multi-pronged approach with donor coordination through the Multi-Donor Coordination Platform (MDCP) and the G7+ energy group. - Damage and resilience: - Recent large-scale attacks have damaged or destroyed around a half of our generating capacity, especially thermal and hydroelectric power. - Repair and restoration rely mostly on company working capital, with continued donor support on equipment; additional donor financial assistance is needed for repairs and decentralized electricity generation support programs, including gas generation projects. - Approved a law to temporarily exempt VAT and customs duties from energy equipment imports, expanded the role of 5-7-9 and the BDF to support the energy sector and are implementing SOB energy support lending programs. - Gas supply and PSOs for 2024/25 heating season: - For the upcoming 2024/25 heating season, plan additional gas imports for domestic consumption of up to 2-3 bcm, while additional gas could be stored by non-residents for EU country needs under the baseline. - Naftogaz has secured additional financing for gas imports from the EBRD and bilateral donors. - If Naftogaz faces a liquidity shortfall, PSO compensation in 2025 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 2025. - 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 0.8 percent of GDP). - Potential reform measures once conditions allow: - Additional gradual tariff increases (subject to a new tariff methodology and social considerations during the war). - Securing external financing and providing transparent and exceptional direct budget support to energy SOEs pending available budgetary resources. - Post-war, restore and enhance competition in wholesale and retail gas markets, and gradually increase 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; the roadmap will be based on technical analysis of the financial condition of the sector, in coordination with the European Commission. - GTSO and transmission industry adjustments: - Updated strategies to rightsize the system and identify alternative gas supply sources to prepare for the zero-transit scenario when the transit contract expires at end-2024. - Adopted draft law #11083 (formerly #6133) in late August to allow a special regime of operations for GTSO to reduce operational expenditures and maintenance for non-critical gas transmission purposes. - Plans to install gas turbines for electricity generation to help address the energy deficit during the upcoming winter season. - NEURC independence and capacity: - Commit to align the Law of Ukraine 'On the NEURC’ with European legislation to ensure NEURC’s functional independence by adopting amendments to the law #3354-IX by end-December 2024 to exempt regulatory decisions by NEURC from the state registration procedure (proposed Structural Benchmark, end-December 2024) and to implement Article 5 prohibiting state bodies from interfering with NEURC’s activities. - Appointed two new NEURC Commissioners based on competition in line with the Law of Ukraine ‘On the NEURC.’ - Ensure NEURC has sufficient staff to effectively take on an expanded mandate, including REMIT implementation in line with EU regulations and supporting energy decentralization plans. - District Heating Companies (DHCs) arrears: - DHCs have accumulated a significant stock of arrears to Naftogaz due to accumulated tariff differentials and the impact of the war. - A desk review by a reputable audit firm will analyze the debts before and after February 2022 (Structural Benchmark, end-October 2024) to clarify the stock of arrears and the financial situation of DHCs ahead of the 2024/25 heating season. *Source: 1ukrea2024003-print-pdf - 70. The NBU is taking steps to ensure that risk-based implementation of AML tools helps* ### 81. Program implementation is being monitored through quarterly reviews via ### Program implementation is being monitored through quarterly reviews via quantitative performance criteria, indicative targets, and structural benchmarks ### Monitoring and review schedule - Program implementation is monitored through quarterly reviews via quantitative performance criteria, indicative targets, and structural benchmarks. - The program will be monitored through the continuous performance criterion (PC) on the non-accumulation of external payments arrears and standard continuous PCs. - The Sixth, Seventh, and Eighth Reviews are expected to take place on or after December 1, 2024; March 1, 2025; and June 1, 2025, respectively, based on quantitative performance criteria for end-September 2024, end-December 2024, and end-March 2025, respectively, and corresponding structural benchmarks. - The authorities commit to providing IMF staff all data needed for adequate monitoring of the program, including as detailed in the attached TMU. The complete schedule of reviews is presented in the companion staff report. ### Quantitative performance criteria (QPCs) and indicative targets (key figures and statuses) - The quantitative performance criteria and indicative targets are presented in Table 1 (end of period; millions of Ukrainian hryvnia, unless indicated otherwise). - Selected QPC outcomes and statuses (as presented): - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (– implies a deficit): - QPC: 250,000; Adjustor: 0; Adjusted QPC: 250,000; Actual: 466,499; Status: Met - Other proposed values shown in table include: 368,313; 415,410; 415,410; 310,000; 254,800; 660,000; 546,800; 751,000 - Floor on tax revenues (excluding Social Security Contributions): - QPC: 880,400; Actual: 1,001,994; Status: Met - Other proposed values shown: 1,398,600; 2,042,250; 2,042,250; 485,000; 485,000; 850,000; 1,019,600; 1,622,200 - Ceiling on publicly guaranteed debt: - QPC: 47,900; Adjustor: 5,879; Adjusted QPC: 53,779; Actual: 7,071; Status: Met - Recurrent QPC values shown: 47,900; 47,900; 47,900; 53,626; 62,860; 53,626; 62,860; 62,860 - Floor on net international reserves (in millions of U.S. dollars) 3/: - QPC: 25,300; Adjustor: -33; Adjusted QPC: 25,267; Actual: 25,792; Status: Met - Other QPC values shown: 28,800; 26,300; 26,300; 23,800; 23,800; 24,800; 24,800; 23,000 - Selected indicative targets and outcomes: - Overall indicative target value (presented in table): -725,996; Adjustor: 0; Adjusted: -725,996; Actual: -555,702; Status: Met - Ceiling on general government arrears: - QPC/IT: 2,000; Actual: 1,654; Status: Met - Recurrent IT values shown: 1,800; 1,600; 1,800; 1,600; 1,800; 1,600; 1,800; 1,800 - Floor on social spending: - IT: 262,500; Actual: 291,447; Status: Met - Other IT values shown: 390,000; 537,800; 537,800; 130,000; 135,000; 250,000; 270,000; 410,000 - Ceiling on general government borrowing from the NBU 4/ 5/: - IT: -2,884; Adjustor: 0; Adjusted: -2,884; Actual: -3,079; Status: Met - Program IT and projections include: 0; 0; 0; -984; -984; -4,100; -4,100; -1,500 ### Memorandum items (selected) - External project financing (in millions of U.S. dollars): - 251; ...; ...; Actual: 216; ...; Projections: 605; 1,496; 1,496; 142; 142; 426; 426; 851 - External budget financing (in millions of U.S. dollars) 6/: - 12,936; ...; ...; 12,936; ...; Projections: 25,745; 32,565; 35,832; 4,236; 8,041; 10,794; 17,626; 24,073 - Budget support grants (in millions of U.S. dollars): - 1,050; ...; ...; 1,050; ...; Projections: 10,506; 12,114; 10,574; 429; 429; 965; 965; 1,286 - Budget support loans (in millions of U.S. dollars) 6/: - 11,887; ...; ...; 11,887; ...; Projections: 15,239; 20,451; 25,258; 3,807; 7,612; 9,830; 16,662; 22,787 - Interest payments: - 161,780; ...; ...; Actual: 133,701; ...; Projections: 284,320; 429,820; 429,820; 67,000; 86,700; 190,600; 244,800; 366,600 - NBU profit transfers to the government: - 38,000; ...; ...; Actual: 38,643; ...; Projections: 38,000; 38,000; 38,000; 0; 0; 34,400; 63,861; 63,861 - Spending from receipts resulting from sales of confiscated Russian assets and transfers of bank accounts: - Table shows Actual spending: 15,091; Projections: 0; 23,743; 23,743; projected zeros across other periods - Spending on gas purchases, PSO compensation and transfer to GTSO: - Actual: 0; Projections: 60,000; 60,000; 60,000; zeros in memorandum items for other periods - Cash balance of the general government, excluding budget support grants, treasury report at current exchange rates (– implies a deficit; in billions of Ukrainian hryvnia): - -671.7; ...; ...; Actual: -590.5; ...; Projections: -1,046.6; -1,562.1; -1,741.1; -181.8; -342.4; -363.6; -719.0; -1,146.9 ### Structural benchmarks (overview, timing, and status) - Structural Benchmarks are summarized in Table 2. Selected benchmarks, timing, and status: - Enact the second supplementary Budget 2023 — Fiscal — End-April 2023 — Met - Submit to Parliament a draft law to restore and strengthen Article 52 of the Budget Code to minimize ad hoc amendments to the budget law — Fiscal — End-May 2023 — Met - Prepare an action plan to address weaknesses identified in taxpayers’ perception survey as input into National Revenue Strategy roadmap — Fiscal — End-May 2023 — Met - Submit to Parliament a draft law reinstating articles of Budget Code that establish limits on issuance of public guarantee with clear criteria — Fiscal — End-May 2023 — Met - Enact amendments to the Budget Code and related regulatory framework to enhance transparency and accountability of the special accounts and consolidate them within general government as a special fund — Fiscal — End-May 2023 — Met - Prepare a conditions-based strategy to move to a more flexible exchange rate, ease FX controls and transition to inflation targeting — Monetary and Exchange Rate — End-June 2023 — Met - Adopt the draft law on tax policy and administration prepared under the PMB — Fiscal — End-July 2023 — Not Met (implemented with delay) - Transfer the GTSO shareholding directly to the Ministry of Energy and adopt the new charter — Energy/Corporate Governance — End-July 2023 — Not Met (implemented with delay) - Enact the law to restore asset declaration of public officials not directly involved in the mobilization and war efforts and reinstating the NACP’s function to examine and verify them — Governance/Anti-Corruption — End-July 2023 — Not Met (implemented with delay) - A broad set of subsequent benchmarks cover fiscal governance, anti-corruption measures, financial sector governance, PIM reforms, energy sector governance, and SOE corporate governance with timings through End-June 2025 and statuses varying between Met, Not Met (implemented with delay), Missed, or pending (see Table 2 for full list in the source). - Key future-timed benchmarks (selected): - Adopt Budget Code amendments in line with Action 1 under the June 2024 PIM Action Plan — Fiscal — End-January 2025 - Appoint the new Head of the ESBU based on the selection process — Fiscal — End-February 2025 - CMU to approve a methodological framework underpinning the PIM process — Fiscal — End-February 2025 - Submit legislative amendments to Parliament to introduce tax reporting requirements for digital platform operators — Fiscal — End-April 2025 - Appoint a permanent head of SCS — Fiscal — End-June 2025 - Submit a 2026-28 Budget Declaration on time and in line with program parameters — Fiscal — End-June 2025 ### Technical Memorandum of Understanding (TMU) — definitions, exchange rates, and reporting - The TMU sets out definitions of variables subject to targets, methods used to assess program performance, and information requirements to ensure adequate monitoring of the targets. - Exchange rates for program accounting (kept fixed over the program period) are specified as follows (as of March 13, 2023): - Official exchange rate of the Ukrainian hryvnia to the U.S. dollar: 36.5686 - Swiss Franc: 0.9107 Swiss Franc per U.S. dollar - Euro: 0.933 euro per U.S. Dollar - Pound Sterling: 0.8226 pound per U.S. dollar - Australian Dollar: 1.5435 dollars per U.S. dollars - Canadian Dollar: 1.3715 dollars per U.S. dollar - Chinese Renminbi: 6.875 yuan per U.S. dollar - Japanese Yen: 133.960 yen per U.S. dollar - Norwegian Krone: 10.565 per dollar - SDR accounting exchange rate: 0.748641 SDR per U.S. dollar - Official gold holdings valued at 1,902.6 dollars per fine ounce - The accounting exchange rates are kept fixed over the program period; the program exchange rate may differ from the actual exchange rate set in Ukraine’s foreign exchange market. - The general government is defined to include the central (state) government (including the road fund), all local governments, all extra budgetary funds (including the Pension and Unemployment Funds of Ukraine), and special accounts providing resources to key spending units. The government will inform IMF staff immediately of the creation or any pending reclassification of any new funds, programs, or entities. ### Definition of debt for program purposes - Debt is defined consistent with paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (IMF Executive Board Decision No.16919-(20/103), adopted October 28, 2020). - Under this definition: - “Debt” means a current liability created under a contractual arrangement through provision of value in the form of assets (including currency) or services and which requires the obligor to make one or more payments in the form of assets (including currency) or services at future dates to discharge principal and/or interest. - Primary forms include: - Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements) - Suppliers’ credits (deferred payment contracts) - Leases (debt equals the present value at lease inception of all lease payments expected during the agreement, excluding payments for operation, repair, or maintenance) - Arrears, penalties, and judicially awarded damages arising from failure to make payments under a 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) does not give rise to debt. *Sources: Ukrainian authorities and IMF staff estimates and projections; Technical Memorandum of Understanding (TMU) as presented in the MEFP excerpt.* ### 6. For program purposes, Gross Domestic Product is compiled as per the System of National ### 1ukrea2024003-print-pdf - 6. For program purposes, Gross Domestic Product is compiled as per the System of National ### Definitions and scope - GDP compilation - For program purposes, Gross Domestic Product is compiled as per the System of National Accounts 2008 and excludes territories that are or were in direct combat zones and temporarily occupied by Russia. - External financing (see Table B) - Budget support loans and grants: unearmarked financial support for general government financing, including financing from official multilateral creditors (e.g., World Bank, European Commission) and official bilateral creditors. - Project support loans and grants: earmarked financial support for specific projects, included as part of government financing, from official multilateral creditors (e.g., European Investment Bank, World Bank Group, European Bank for Reconstruction and Development) and official bilateral creditors. - Defense expenditures - Include expenditures of the defense and security sector pursuant to the Law of Ukraine “On National Security of Ukraine”, covering total amounts of all current (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: payments for services, performance of works, targeted activities, grants, gifts, charitable contributions, proceeds from sale of products or property, and other activities in the prescribed manner. - Proceeds of sales of confiscated Russian assets or bank account balances - Recorded below the line as deficit financing sources with counter-entry into deposits of the Treasury Single Account; proceeds directed toward the Fund for the Liquidation of the Consequences of the Armed Aggression are included here. - Overdue accounts payables (domestic arrears) - Defined by Order of the Ministry of Finance No. 372 dated April 2, 2014: payments due on the 30th day after the deadline for mandatory payment per legal contract; if no deadline is specified, the 30th day after confirmation of goods received/works done/services rendered. - Budgetary arrears on social payments and wages: arrears of the consolidated budget on wages, pensions, and social benefits of the central or local governments; wage arrears timeframe follows the 30-day rule; arrears in the security and defense sector may be presented in aggregated form during Martial Law. - Wages: all forms of remuneration for standard and overtime work in all subcategories, including defense and security service. - Arrears of social funds (Pension and Unemployment Fund of Ukraine): arrears regarding all insurance benefits of these funds, defined as unpaid at the 30th day after the deadline; excludes unpaid pensions to individuals who continue to reside in territories that are or were in direct combat zones and temporarily occupied by Russia. ### Net International Reserves (NIR) — Floor (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 readily available claims on nonresidents in convertible foreign currencies, consistent with BPM6 and SDDS (Table 6.1, item A). - Exclusions from usable reserves include, inter alia: - any assets denominated in foreign currencies held at, or claims on, domestic institutions; all foreign currency claims of the NBU on domestic banks; NBU deposits held at the Interbank Foreign Currency Exchange Market and domestic banks for trading purposes; - any precious metals or metal deposits, other than monetary gold and gold deposits, held by the NBU; - any assets corresponding to claims of commercial banks in foreign currency on the NBU and any reserve assets that are (i) encumbered; or (ii) pledged as collateral; or (iii) frozen; - any reserve assets not readily available for intervention in the foreign exchange market (e.g., not fully under NBU control or lacking liquidity/marketability at the book price). - Reserve-related liabilities comprise: - all short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign currencies with remaining maturity of one year or less; - the stock of IMF credit outstanding; - the nominal value of all derivative positions (including swaps, options, forwards, and futures) of the NBU and general government implying the sale of foreign currency or other reserve assets (notional value of commitments, not market value); - all foreign exchange liabilities of the NBU to resident entities not already excluded from reserve assets, excluding foreign exchange liabilities to the general government or related to deposit guarantees. - Table A summarizes components of NIR (types of foreign reserve asset or liability mapped to NBU balance sheet and memorandum accounts). Definitions will be adjusted to reflect any changes in accounting classifications introduced during the program. ### NIR adjustors - Downward adjustments to NIR targets: - full amount of cumulative shortfall in external budget support financing disbursements (paragraph 7; Table B) relative to baseline projections; - full amount of cumulative shortfall in net issuance (gross issuance minus redemption and interest payments) of central government domestic foreign exchange securities relative to baseline (Table C); - amount of a reserve currency when the NBU repays non-reserve currency provided under a central bank swap agreement (both principal and interest due). - Upward adjustments to NIR targets: - amount converted into a reserve currency if the NBU converts non-reserve currency provided under a central bank swap agreement into a reserve currency through an outright sale; - amount used (drawn) of reserve currency provided under a central bank swap agreement with maturity over 1 year. - Adjustors apply symmetrically at time of conversion/use and repayment. ### Ceiling on General Government Direct Borrowing from the NBU (Indicative Target) - Definition - Net of redemptions and repayments, defined as cumulative change in stock of outstanding claims on the general government held by the NBU, including general government securities, direct loans and credits, other accounts receivable, and overdraft transfers from the NBU in accounts of the general government. - Stock of general government securities held by the NBU measured at face value as reported on NBU’s balance sheet; changes exclude securities acquired as collateral under loans provided by the NBU and exclude loans to the Deposit Guarantee Fund. - Change measured relative to stock as of end of the preceding quarter over the latest as of assessment and adjusted for exchange rate valuation effects using program exchange rates. - For the Fifth Review, the preceding quarter is March 2024, and the latest as of assessment is June 2024. - Preconditions for activating monetary financing - Drawing down of government deposits (consistent with paragraph 50 of the MEFP), underpinned by a mutually agreed framework between MOF and NBU in consultation with the IMF, and a NBU resolution adopted in September 2024. - Adjustors and reset rules - If shortfall in external financing (Table B) occurs and primary issuances on government bonds during the 3-month period prior to request exceed 132 percent of actual redemptions over same period, the ceiling will be adjusted upward by the smaller of: (i) amount of the shortfall in external financing adjusted for additional primary issuances; or (ii) a cap equivalent to gross borrowing of UAH50 billion every quarter. - The ceiling resets every quarter (June 30, 2024, September 30, 2024, and December 31, 2024 for 2024 targets; March 31, 2025, June 30, 2025, and September 30, 2025 for 2025 targets) and is not carried over between quarters. - The amount of the 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. - If a 15-business-day interval for reaching agreement and making payments (including as stipulated in the MOF–NBU Memorandum of Understanding on IMF obligations) falls past the relevant test date, the ceiling will be subject to an automatic upward adjustor by the amount of the payment. ### Overall cash balance of general government excluding budget support grants (Indicative Target) - Definition and measurement (cumulative from January 1 of calendar year; positive = surplus, negative = deficit) - Measured by net financing flows excluding valuation changes: - Total net treasury bill sales (in hryvnias and foreign currency) per NBU registry: cumulative funds realized from primary auction sales and government securities issued for recapitalization of banks and SOEs, less cumulative principal redemption on treasury bills. Treasury bill issuances and redemptions exclude bonds issued to recapitalize Naftogaz and other SOEs (including State Housing Financial Corporation). - Other net domestic banking system credit to general government per NBU monetary statistics (all non-treasury bill financing in domestic or foreign currency extended to general government by banks less change in government deposits in banking system) plus any other financing not reflected in NBU monetary statistics. - Total receipts from privatization (including change in stock of refundable participation deposits and sale of nonfinancial assets) and proceeds from uncompensated seizures. - Total proceeds from sales of confiscated Russian assets and bank account balances. - Change in sub-accounts 3551 and 3559 for pre-payments ahead of delivery of goods and services. - Difference between disbursements and amortizations on any bond issued by general government or the NBU to nonresidents for financing the general government. - Difference between disbursements of foreign loans attracted by the State (including budget support, project support, including on-lent to public enterprises) and amortization of foreign credits by the general government (including on-lent project loans, e.g., budgeted payments on behalf of the Agency for the Restoration and Development of the Infrastructure of Ukraine per paragraph 97 of this TMU). - Net sales of SDR holdings in the IMF’s SDR department. - Net change in general government deposits in nonresident banks or other nonresident institutions. - Net proceeds from any promissory note or other financial instruments issued by the general government. - Accounting conventions - All flows to/from the budget in foreign currency (including issuance of foreign currency denominated domestic financial instruments) accounted for based on paragraph 3 of TMU, except external disbursements and amortizations of municipal governments and commercial bank direct credit (accounted at current exchange rates). - Financing changes from exchange rate valuation of foreign currency deposits excluded from computation. - Government deposits in banking system exclude VAT accounts used for electronic administration and escrow accounts of taxpayers used for customs clearance. ### Non-Defense Cash Primary Balance of the General Government excluding budget support grants (Quantitative Performance Criterion) - Definition - Non-Defense Cash Primary Balance = Overall Balance of the General Government excluding budget grants (section C) less interest payments (total interest paid on domestic and external debt, consistent with budget treasury codes 2410 and 2420) less defense spending of the state budget general fund (paragraph 8). - Measured on a cumulative basis, starting from January 1 of each calendar year. - Adjustors for balances in Parts C and D - Upward adjustment: full amount of any increase above projected stock of budgetary arrears in state budget and social funds (definition excludes domestic arrears in territories that are or were in direct combat zones and temporarily occupied by Russia). - Automatic downward adjustor: full amount of shortfall in cumulative proceeds from external budget support loans (in hryvnia evaluated at program exchange rates) relative to program projections (consistent with NIR adjustors). - Automatic downward adjustor: full amount of government bonds issued for purposes of bank recapitalization and DGF financing, up to a cumulative maximum amount to be set in future reviews; amount included in targets is zero. - Automatic upward adjustor: full amount of profits transferred by the NBU in excess of UAH 38 billion for all remaining test dates in 2024, UAH 0 billion for end-March 2025, and UAH 63.9 billion for the remaining test dates in 2025. - Automatic downward adjustor: 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, automatic downward adjustor up to a cumulative maximum amount of UAH 23.7 billion corresponding to 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 UAH 23.7 billion amount reflects the balance of the Fund for the Liquidation of the Consequences of the Armed Aggression, which stood at UAH 8.7 billion as of July 1, 2024. - For the period of Martial law, data from territories that are or were in direct combat zones and temporarily occupied by Russia are excluded from the adjustor. *Italic: Source — 1ukrea2024003-print-pdf - 6. For program purposes, Gross Domestic Product is compiled as per the System of National (IMF technical memorandum excerpts provided).* ### 23. The floor on tax revenues is measured on a cumulative basis starting from January 1 ### 23. The floor on tax revenues is measured on a cumulative basis starting from January 1 ### Floor on Tax Revenues (cumulative) - Measured on a cumulative basis starting from January 1st of each calendar year. - Includes total tax revenues and fees as defined by the national tax legislation, including pension fees imposed on certain transactions. - Excludes Social Security Contributions tax. - The cumulative targets defined in this manner are set out in Table 1 of the MEFP. ### Floor on the General Government Social Spending (Indicative Target) - Defined as spending on social programs through the General Fund and Special Funds covering categories reflected in budget treasury code 2700. - Includes social insurance and social assistance programs on budget (including but not limited to social assistance to low-income families, housing utility subsidies, child support, support to internally displaced persons, etc.), and transfers to the Pension Fund. - The Indicative Target is set in hryvnias on a cumulative basis starting January 1st of each calendar year. ### Ceiling on the General Government Domestic Arrears (Indicative Target) - Derived based on the definition provided in paragraph 11 of this TMU (excluding arrears of local governments) and reporting format set in paragraph 81 of this TMU. - Target is cumulative starting January 1st of each calendar year, as described in the table of paragraph 81 and covers arrears of the state budget (general and special funds) and social funds (as defined in paragraph 11). - The stock of arrears measured in that way will not exceed the stock of arrears at end December 2022. - The arrears computation does not cover 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) - For the continuous PC on the non-accumulation of new external payment arrears, arrears are defined as external debt obligations of the general government that have not been paid when due in accordance with the relevant contractual terms (taking into account any contractual grace periods). - This PC excludes arrears on external financial obligations of the government subject to rescheduling. - For purposes of this PC, “external” is defined as debt payments to non-residents. ### Ceiling on Publicly Guaranteed Debt (Quantitative Performance Criterion) - 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 and for test dates in 2025 the ceiling will be UAH 62.86 billion. - In both 2024 and 2025, the ceiling is consistent with 3 percent of current year revenues of the state budget general fund (as defined in the Budget Code). - 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 selected donor-financed projects - For test dates in 2024, eligible projects listed include: - loan to UGV to purchase equipment for gas extraction; - loan to Naftogaz for additional procurement of natural gas; - loan to Ukrhydroenergo for emergency restoration of hydropower plants; - working capital loan to Ukrenergo; - loan for Boryspil International Airport for reconstruction of flight zone 2; - loan to Urkhydroenergo for recovery equipment; - loan to Urkhydroenergo for installation of energy storage. - Adjustor caps: - Capped at UAH 38.7 billion in 2024 and discussed in program reviews. - In 2025, the adjustor will be capped at UAH 115 billion. - Projects subject to the adjustor in 2025 will be discussed in subsequent program reviews. ### Other Continuous Performance Criteria - During the period of the EFF, Ukraine will not: - (i) impose or intensify restrictions on the making of payments and transfers for current international transactions; - (ii) introduce or modify multiple currency practices; - (iii) conclude bilateral payments agreements that are inconsistent with Article VIII; - (iv) impose or intensify import restrictions for balance of payments reasons. ### Official Exchange Rate - 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; the official exchange rate against the USD is determined based on a series of transactions in the interbank FX market. - Ukraine's de jure exchange rate arrangement is floating. - The de facto exchange rate arrangement has been reclassified from stabilized to floating, effective October 3, 2023. - Starting from October 3, 2023, the 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, which are reported to the NBU via trade information systems before 3 p.m. on the same day. - The official exchange rates for other currencies are determined by the NBU on the basis of the official exchange rate against USD and cross rates of the relevant foreign currencies. - The official exchange rates are 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. - Also, there are foreign currencies for which the official exchange rate is set by the NBU on a monthly basis. ### Reporting Requirements — National Bank of Ukraine (NBU) - Monthly sectoral balance sheets for the NBU and other depository corporations (banks) according to the standardized reporting forms (SRFs), no later than the 25th day of the following month (except SRFs for the end of the reporting year, which should be provided no later than the 41st day after the reporting year). - Weekly provision of 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 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; results of any foreign exchange auctions. - Quarterly information on indicators of FX interventions approved by the NBU Board (in case of any changes) and immediate notification of updates to FX interventions methodology documentation. - Daily information on balances held in analytical accounts 2900 “Accounts payable per transactions for the foreign exchange, banking and precious metals purchase and sale on behalf of banks’ clients.” - Continued public provision on NBU web site of daily holdings of domestic government securities and information on primary auctions and secondary market sales. - Provision to IMF of detailed information on daily holdings of government securities broken down by type of holders at primary market prices at the rate fixed on the day of auction; domestic government securities sales from the beginning of the year at the official rate as of the date of placement; domestic government securities in circulation by principal debt outstanding at the official exchange rate as of the date of placement; reports on each government securities auction; data on purchase and redemption of domestic government bonds from the Ministry of Finance in the NBU’s portfolio; and monthly report on government securities holdings in the format agreed with IMF staff, broken down by currencies and by holders—non-resident investors, resident non-bank, and resident banks (the latter further broken down by bank group: State Participation, Foreign Banking, and Private Capital). - Daily transactions (volumes and yields) on the secondary market treasury bills (including over-the-counter transactions and breakout for any NBU transactions). - 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. - Daily and monthly data on 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 CDs issuance) in formats and timeliness agreed with IMF staff. - Monthly information on collateral pledged to the NBU for loans (by bank and loan type as well as by collateral type, haircut, and currency). - Monthly bank-by-bank information on NBU refinancing, broken down by operations (with indications of their settlement and maturity dates), and collateral pools, broken down by asset types and securities (with their values before and after haircuts). Monthly reporting will separately identify banks that are under temporary administration or liquidation. - Monthly, but not later than 30 days after the expiration of the reporting month (except end-of-year data due 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. - Daily and monthly (no later than the 25th day after the termination of the report month, except end-of-year data due no later than the 41st day after the report year): depository corporations surveys, including domestic claims, NBU loans and liabilities with banks, detailed information on loans of the banking sector provided to the general government with breakdowns by central (state) government and local budgets and the DGF, national and foreign currency, by loan and by security, and information on balances of government funds held at the NBU (including Single Treasury Account account 3240 L and Treasury foreign currency account 3513 L) and computation of Target on General Government Borrowing from the NBU in a format agreed with IMF staff. - Monthly projections for external payments falling due in the next 12 months. - Quarterly data on actual settlement of external obligations reflecting separately principal and interest payments and actual outturns for both the public and private sectors, provided within 80 days following the end of the quarter. - Quarterly stock of short- and long-term external debt for both public and private sectors; stock of external arrears reported on a continuous basis. - Daily data on foreign exchange export proceeds and foreign exchange sales; import transactions for goods and services; amounts of foreign exchange transferred from abroad to the benefit of physical persons to be paid in cash without opening an account; foreign exchange wires from Ukraine abroad for current foreign exchange nontrade transactions on the basis of orders of physical persons; sales and purchases of foreign exchange cash by individuals (including through banks, exchange offices, and UkrPoshta). - Weekly data on volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons. - Monthly data on certain transfers of non-cash FX from Ukraine to the benefit of non-residents; monthly aggregated data on number and amounts of e-limits granted to legal entities and physical individuals and on transfer and purpose of foreign exchange outside Ukraine within the e-limits. - Daily data on foreign assets and liabilities of the overall banking system (excl. the NBU); banks’ open foreign exchange positions by main groups of banks; deposits and loans on aggregate basis for the overall banking system (excl. the NBU) broken down by households and legal entities, maturity, and by national and foreign currency. - Daily data on deposits and credits for the overall banking system (excl. the NBU) without deposits and credits of banks in liquidation starting from the beginning of 2014 broken down by households and legal entities, and by national and foreign currency. - Weekly data on foreign assets and foreign liabilities (broken down by domestic and foreign currency) for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group. - Monthly foreign assets for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group broken down by type (cash and deposits, government securities, nongovernment securities, loans, other) and foreign liabilities by type, holder (banks, other financial institutions, nonfinancial corporate, and individuals) and remaining maturity (less than one month, one to three months, three to 12 months and over 12 months). For foreign credit lines from banks and for securities, the rollover rates will also be provided. - Daily bank-by-bank data for the largest 35 banks on the liquidity ratio and amounts of cash and cash equivalents, available funds in NBU accounts (excl. reserve requirements), correspondent accounts with well-known international banks (excl. encumbered accounts), and deposits from customers. - Daily bank-by-bank data for State Participation Group, Foreign Banking Group, and Private Capital Group banks on total assets and liabilities; loans and claims (by households, legal entities, and banks); and foreign exchange net open position, reported by domestic and foreign currency. Deposits data reported by households and legal entities and by maturity (current accounts, saving accounts, and time deposits). - Aggregate data on deposits and credits excluding those banks in liquidation since 2014 for the banking sector and bank groups. - Daily aggregated data on main currency flows, including government foreign receipts and payments by currencies as well as interbank market operations by currencies; continued daily information on exchange market transactions including the exchange rate. - Monthly information on reserve requirements at the individual bank level, including breakdown between reserve requirements fulfilled by reserves and that by government securities. - Monthly bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: average interest rate on deposits to customers (by domestic and foreign currency, non-financial corporations and households, and by maturity—demand and time accounts). - Weekly average interest rate on interbank borrowings (by domestic and foreign currency, and by maturity—overnight, 1–7 days, and over one week) to be provided after Martial Law is cancelled. - Monthly data for the entire banking sector, and on an aggregated and bank-by-bank basis for State Participation Group, Foreign Banking Group and Private Capital Group banks—risk weighted assets and other risk exposures (for calculation of capital adequacy ratios); regulatory capital, Tier 1 capital, Common Equity Tier 1 (CET1) capital, Tier 2 capital; regulatory capital adequacy ratios (НРК); Tier 1 capital adequacy ratio (НК1); CET1 capital adequacy ratio (НОК1); loans and claims by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; deposits by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; and foreign exchange net open position, split between total foreign exchange assets (long position) and foreign exchange liabilities (short position), and between on- and off-balance sheet. *Source: 1ukrea2024003-print-pdf - 23. The floor on tax revenues is measured on a cumulative basis starting from January 1* ### 50. The NBU will provide the IMF, on a monthly basis, in an agreed format, data for the entire ### NBU, DGF, and Ministry of Finance Data Reporting Obligations ### A. National Bank of Ukraine (NBU) — Monthly and periodic reporting - Provide to the IMF, on a monthly basis, in an agreed format, data for the entire banking sector and on a bank-by-bank basis for State Participation Group, Foreign Banking Group and Private Capital Group banks: - Amount of loans and claims (by households in domestic and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign currency, maturity, and by borrower classification categories). - Collateral for loans and claims (by type of collateral, legal entities in domestic and foreign currency, households in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories). - Provisions on loans and claims (by households in domestic and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories). - Large exposures (loans equal to or greater than 10 percent of equity), refinanced loans, and restructured loans (by households, legal entities, and banks) (after Martial Law is cancelled). - The average interest rate on new loans to customers (by non-financial corporations and households; accrued interest on loans (by domestic and foreign currency)). - Securities and debt financial instruments, with government securities reported separately (by domestic and foreign currency). - Provide to the IMF, on a monthly basis, in an agreed format, bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: - Amount of deposits of related parties (by domestic and foreign currencies, and households and legal entities). - Deposits of related parties pledged as (cash cover) collateral (by domestic and foreign currencies, and households and legal entities). - Other liabilities to related parties (by domestic and foreign currencies). - Related-party loans (by households, legal entities, and banks). - Counterparty names and amounts of the largest 20 loans to related parties. - Collateral for loans and claims on related parties (by type of collateral, legal entities, households, and banks in domestic and foreign currencies, as well as by borrower classification categories). - Provisions on loans and claims on related parties (by households, legal entities, and banks in domestic and foreign currencies, as well as by borrower classification categories). - Provide to the IMF, on a monthly basis, aggregate and bank-by-bank and by region data on: - Loans and provisions (by households and legal entities, domestic and foreign currencies, and by debtor classification categories), and by asset class (e.g. corporate, and retail). - Deposits (by households and legal entities, and domestic and foreign currencies). - Due from banks (by domestic and foreign currencies). - Report to the IMF, on a monthly basis, data for the entire banking sector as well as on a bank-by-bank basis for State Participation Group, Foreign Banking Group and Private Capital Group showing: - Nonperforming loans (NPLs), including migration from NPLs to performing loans (PLs); migration from PLs to NPLs; the form of NPL repayments (cash, loan sales, collateral sales, etc.); write-offs; and other factors (e.g., exchange differences and revaluations) (and compared with banks’ respective timebound plans for reducing NPLs once these are approved). - Report to the IMF, on a monthly basis, data for the entire banking sector as well as on a bank-by-bank basis by bank groups for State Participation Group, Foreign Banking Group and Private Capital Group on cumulative income statements, including: - Total revenues; interest revenues (from loans to households, loans to legal entities, interbank loans, placements with the NBU, securities); revenues from fees and commissions; total expenses; interest expenses (on deposits to legal entities, deposits to households, interbank borrowing, borrowing from NBU, securities issued); fees and commissions paid; salaries and other staff compensation; other operational expenses; net earnings before loan loss provisions; loan loss provisions; net earnings after loan loss provisions; taxes paid; and net earnings. - Upon request, provide banks’ net expected outflow of cash for a 30-day period. - Report to the IMF, on a monthly basis, the amount by which State Participation Group, Foreign Banking Group and identified Private Capital Group banks' regulatory capital has been increased, disclosing the instrument or transactions by which the regulatory capital has been increased (e.g., capital injection, conversion of subordinated debt to equity, etc.). - Report to the IMF, on a monthly basis, data for the entire banking sector as well as on a bank-by-bank basis by bank groups for State Participation Group, Foreign Banking Group and Private Capital Group 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. - On a monthly basis, inform the IMF of any regulatory and supervisory measures against banks violating NBU regulations on capital adequacy, liquidity ratio, large exposures, and related or connected lending, as well as about decisions on declaring a bank as problem or insolvent, including banks whose license has been revoked without declaring the bank insolvent. - Continue to provide detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter. - Inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, banks, or nonbank entities and individuals; in such case, provide information on outstanding interest and principal payments. - Inform IMF staff of any changes to reserve requirements for other depository corporations. - Communicate (electronically) to the IMF staff any changes in the accounting and valuation principles applicable to the balance sheet data and notify the staff before introducing any changes to the Charts of Accounts and reporting forms of both the NBU and the commercial banks. - NBU Internal Audit Department to provide an assurance report to the Fund, no later than six weeks after each test date, confirming that: - (i) the monetary data are in accordance with program definitions and have been verified and reconciled to accounting records; and - (ii) that there have been no changes to the chart of accounts or valuation methods that would impact the data reporting. - Continue to provide the IMF with a copy of the annual management letter from the external auditor within six weeks of completion of each audit; this will remain in effect for the duration of the arrangement and for as long as credit remains outstanding. - Monthly, provide to the IMF and the Ministry of Finance data on the monthly coupons and principal to be paid for the period till the end of current and next year (in hryvnia and foreign currency, separately) on the outstanding stock of government securities held by NBU and the public (broken down by resident banks, resident non-bank; and non-resident investors). Data on resident banks will be further broken down by bank group (State Participation, Foreign Banking, and Private Capital) and include ISIN-level. Annually, provide information on hryvnia-denominated securities that are indexed (i.e., to inflation; USD), broken down by the type of the owner. - Provide on a monthly basis to the IMF detailed information on the government’s deposits at the NBU and at commercial banks in the breakdown of currency consistent with paragraph 20 and in an agreed format. ### B. Deposit Guarantee Fund (DGF) — Monthly reporting - Provide, on a monthly basis, data on the total number and volume of household deposits broken down in groups by deposit size; reported bank-by-bank for the largest 35 banks and on aggregate for the remaining banks. - Report to the IMF on a monthly basis and bank-by-bank for all banks in the banking system the amount of insured deposits and total household deposits, reported by domestic and foreign currency in an agreed format. - Report to the IMF on a monthly basis and bank-by-bank the total insured deposits and remaining insured deposits to be paid by the DGF for the banks under liquidation and under provisional administration, by domestic and foreign currency in an agreed format. - Report to the IMF on a monthly basis the financial position of the DGF, including information about the cash balance, bond holdings, credit lines, and loans, in an agreed format. - Report to the IMF on a monthly basis the financing arrangements of the DGF, including information about contracted financing from MoF, in an agreed format. - Report to the IMF on a monthly basis a one-year forecast of the amount and type of financial resources that the DGF expects to receive from MoF, NBU and other entities, the amount that DGF expects to pay out to insured depositors in banks in liquidation, and the amount of asset recoveries expected by DGF, in an agreed format. ### C. Ministry of Finance (MoF) — Monthly, quarterly, semi-annual, and annual reporting - Provide the IMF with the monthly consolidated balances (end-month) of other non-general government entities, including SOEs, holding accounts at the Treasury no later than 25 days after the end of the month. - Treasury to continue providing to the IMF reports on daily operational budget execution indicators, daily inflow of borrowed funds (by currency of issuance) to the state budget and expenditures related to debt service (interest payments and principals) including data on government foreign exchange deposits, in a format agreed with IMF staff; 10-day and monthly basis data on the execution of the state, local, and consolidated budgets on the revenue side and data on revenues from the social security contributions, including by oblast breakdown; monthly data on funds deposited with the Single Treasury Account; information on balance of funds as of the 1st day of the month on account #3712 “accounts of other clients of the Treasury of Ukraine”; inflow to the State budget from placing Treasury or any other liabilities to households in foreign and domestic currency and their redemption. - Continue to provide in electronic form monthly and quarterly treasury reports, including on accounts payable by budget institutions no later than 25 and 35 days after the end of the period, respectively. Continue to provide the final fiscal accounts at the end of each fiscal year, no later than March of the following year; reports to include expenditure data by programs and key spending units, as well as based on standard functional and economic classifications. Quarterly reports to contain standard information on budget expenses to cover called government guarantees. - Report data on the public wage bill (excluding SOEs) in line with the template agreed with the IMF staff, including all payment categories, including defense wages. Provide quarterly Treasury reports on expenditure under the medical guarantee program by economic classification. - Report quarterly information on municipal borrowing and amortization of debt in format agreed with IMF staff. - Together with NBU, on a monthly basis, provide information about redemptions of domestic bonds and bills in favor of residents (banks, non-banks) and non-residents. Together with NBU, on a weekly basis, provide information on face value of government bonds redeemed and face value of government bonds placed during the week. - 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. - 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. - 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. 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. - 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. - 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). - Provide monthly information, no later than 25 days after the end of each month, on the balances of sub-accounts 3551 and 3559. - 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. - Also report the accumulation of any budgetary arrears on external and domestic debt service. - 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. - Provide data on external and domestic credit to key budgetary spending units as well as nongovernment units that is guaranteed by the government on a monthly basis no later than 25 days after the end of the month. - 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, Employment 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. 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. - Provide, no later than 15 days after the end of each month, monthly data on the budgetary costs associated with the recapitalization of banks and SOEs, including 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. 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. ### D. State Tax Service (STS) and State Customs Service (SCS) - STS and SCS to 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. - STS to 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). *UKRAINE — INTERNATIONAL MONETARY FUND* ### 92. The STS will continue to provide monthly reports 1.P0 on actual tax revenue and 1.P6 on tax ### D. Ministry of Economy, National Commission in Charge of State Regulation in Energy and Utilities (NEURC), GTSO, Naftogaz and Ministry of Development of Communities Territories and Infrastructure ### Tax reporting and tax arrears (STS) - 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 reporting will include the following table items: - Total stock, o/w Principal Interest Penalties - Tax Arrears of Taxpayers Undergoing Bankruptcy Procedures - Total Tax Arrears net of Taxpayers in Bankruptcy - Taxes from Code 11010000 to 31020000 ### Tax appeals (STS) - 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. ### 5-7-9 loan program (Ministry of Finance) - The Ministry of Finance will provide on a monthly basis: - Information about the number and amount of loans under the 5-7-9 program. - A breakdown by sectors of loans. ### Naftogaz Group and GTSO cash flows - 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. - Naftogaz Group monthly reporting will also include: - Information on volumes and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households, heating utilities, budget institutions, and industries). - The main revenue, expenditure, and financing items. - Updated information on the company’s financial liabilities, with a schedule of loan-by-loan interest and principal payments. ### Consolidated financial information for large SOEs (Ministry of Economy) - 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, reporting 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. ### Road infrastructure budget execution (Agency for the Restoration and Development of the Infrastructure of Ukraine) - The Agency will provide monthly reports on the execution of budgetary programs associated with road construction and maintenance, including borrowing (disbursements, interests, and amortization) in line with the format agreed with IMF staff. ### Revisions to GDP data (State Statistics Service) - 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. *Source: 1ukrea2024003-print-pdf* ### 99. The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data ### The Ministry of Social Policy quarterly data submission; Statement by Mr. Vladyslav Rashkovan, Alternate Executive Director for Ukraine (October 18, 2024) ### Social assistance data reporting - 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. - Data will be presented in an agreed excel format and 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. ### Macro outlook in wartime - Russia’s attacks have destroyed or significantly damaged half of generating capacity, especially thermal and hydroelectric power, since spring, causing massive and lengthy electrical outages. - Over a quarter of the Ukrainian population has been displaced either as refugees or internally displaced. - Most migrants abroad plan to return once security, economic factors, and housing improve; their share has been declining, raising risks of labor shortage for post-war recovery. - Economy has shown remarkable resilience in recent months, but risks remain exceptionally high; expected continuation of Russia’s invasion at least through 2025, generating budget spending pressures and raising financing needs. - Authorities have developed a multi-pronged strategy to deal with the energy crisis and are executing it with international donors and partners. ### Monetary and exchange rate policies - Headline consumer inflation accelerated to 8.6 percent yoy in September; core inflation accelerated to 7.3 percent yoy in September. - Inflation uptick driven by food inflation due to drought, pass-through of higher business costs for raw food inputs, energy, and labor, and effects of prior hryvnia depreciation. - NBU suspended interest rate easing in July 2024 and kept the key policy rate on hold at 13 percent in September. - Policy objective: bring inflation back to its 5 percent target in the coming years, maintain interest in hryvnia savings, ensure FX market sustainability. - NBU committed to transitioning toward full-fledged inflation-targeting with a floating exchange rate once prerequisites are in place; updated medium-term Monetary Policy Guidelines approved by the NBU Council in September. - Exchange rate policy: managed flexibility ensuring two-way ER movements while avoiding excessive volatility to preserve confidence in the hryvnia and safeguard reserves. - Further easing of FX controls to proceed gradually under the FX liberalization roadmap, aimed at improving the investment environment, facilitating debt management, promoting capital inflows, while considering national and international security. - NBU policy focus: safeguarding price and external stability, maintaining sufficiently positive real interest rates, and adjusting interest rate and exchange rate policies in response to changing risks. ### Budget and fiscal policies - 2024 tax collections have exceeded expectations, partly due to a special bank windfall profit tax applicable this year. - Revenues should benefit from legislation aligning fuel excises with EU directives, effective in September. - Recently adopted supplementary 2024 budget reflects intention to maintain a high level of defense preparedness. - 2025 fiscal outlook: - Ministry of Finance submitted the 2025 budget in September in line with the updated macro framework reflecting a longer war and program financing parameters. - Draft budget estimates total spending at 59 percent of GDP, about 10 percent of GDP higher than in the Fourth Review baseline. - On October 10, 2024, Parliament passed a bill of amendments to the Tax Code including: - (i) hiking the military tax rate from 1.5 to 5 percent; - (ii) broadening the base of military tax by extending it to taxpayers in the simplified tax system; - (iii) introducing presumptive taxation on fuel stations; - (iv) increasing the corporate tax rate applied to non-bank financial institutions (excluding insurance); - reintroduced a 50 percent windfall tax on bank profits earned in 2024, doubling the regular bank profit tax rate. - Next year’s deficit excluding grants planned to be ~20 percent of GDP, to be financed by domestic revenue measures, internal borrowings, and external partner support (largest contributions expected from financing backed by the G7’s ERA initiative). - National Revenue Strategy (NRS): - Approved by the Cabinet of Ministers at the end of 2023 as part of the current EFF program. - NRS anchors tax policy and administration reforms in the medium-term. - Authorities developed detailed implementation plans with specific timetables for tax administration, customs, and tax policy reforms. - A formal assessment methodology for tax privileges was adopted by the Ministry of Finance in September. - Rationalizing tax exemptions and improving targeting is a near-term reform priority. - Other revenue measures and reforms: - Customs code amended in line with international best practices. - Parliament adopted legislation to align fuel product excise taxes with EU requirements (over 2024–2028). - Draft legislation prepared to gradually align tobacco excise taxes and to introduce excises on sugary drinks. - Work underway to develop legislation on medical cannabis taxation. - Public investment management: - Action plan to implement the 2023 Public Investment Management (PIM) Roadmap approved ahead of schedule with IMF, World Bank, and European Commission support. - Roadmap establishes gatekeeper role for the Ministry of Finance and links MTBF with national reconstruction priorities. - Implementation begun with establishment of the Strategic Investment Council (SIC); SIC endorsed list of public investment projects for the draft 2025 budget in October. - Institutional appointments: - Government committed to appoint a new Head of the ESBU and a new Head of Customs under transparent procedures with independent international experts. ### Debt management and financing strategy - Successful Eurobond exchange in August regarded as a major achievement toward restoring debt sustainability and securing debt relief. - Authorities remain committed to further treatment of external commercial claims as needed in line with program parameters. - As of August 2024: - Net domestic bond financing of UAH 88.9 billion (almost US $2.2 billion) was mobilized, resulting in an implied rollover rate of 141 percent so far this year. - About UAH 25 billion were issued as designated benchmark bonds that banks may use to meet reserve requirements. - Revised borrowing plans: ambitious placement of large volume of government bonds on the domestic market with coordinated issuance strategy to avoid market disruption. - NBU adjusted reserve requirements (RR) to help direct liquidity toward the government bond primary market for the remainder of 2024. - Reliance on external donors’ commitments for scheduled financing; committed external support from EU, US, and others remains largest source of financing. - EU commitments include EUR 50 billion Ukraine Facility and several tranches of EU bridge financing. - US commitments include US $61 billion of supplemental appropriations for military and financial support. - A Joint Declaration of Support for Recovery and Reconstruction of Ukraine adopted by more than 30 countries in September; main points include comprehensive reconstruction support and coordination through the Ukrainian Donor Platform. - G7 partners confirmed willingness to grant approximately US $50 billion in additional funding under the ERA initiative. - Authorities emphasize ERA should not undercut or replace existing support programs. - ERA financing will be administered as budget support and will be: - (i) transparently incorporated in the budget; - (ii) accounted for in treasury reporting; - (iii) disbursed into the treasury single account; - (iv) not directed to any special fund without prior agreements with donor countries. ### Governance policies - Advances in anti-corruption and audit institutions: - Further amendments to the Criminal Procedural Code will be enacted to strengthen procedures for corruption investigations. - External audit of NABU’s effectiveness with three independent international experts will be completed and published. - A law will be enacted to enhance the organizational, functional, and financial independence and effectiveness of the Accounting Chamber of Ukraine (ACU). - Reconstruction transparency and digital tools: - Commitment that post-war reconstruction strategy will meet high standards of transparency and accountability. - Development of a single digital ecosystem for PIM based on: - updated Prozorro digital procurement system; - Ministry of Finance IT systems for planning and execution monitoring of state and local budgets and IFI projects; - the Digital Restoration Ecosystem for Accountable Management (DREAM); - other relevant systems and registries. - SOE and energy governance reforms: - Implementation of SOE governance law and preparation of state-ownership strategy including dividend policy and privatization strategy. - Commitment to advance energy corporate governance reforms, including independent evaluation of the GTSO supervisory board and formation of the full supervisory board of Ukrenergo. - Judicial and rule-of-law reforms: - Commitment to advance rule of law and judicial reforms. - Following dissolution of the Kyiv District Administrative Court, a law will be enacted to establish the High Public Disputes Court (HPDC) to hear administrative cases against national state agencies. ### Concluding remarks, program implementation, and requests - Authorities remain committed to policies of the current IMF-supported program to restore fiscal and debt sustainability and medium-term external viability. - Program implementation highlights: - Completed the prior action, implemented two out of three September structural benchmarks (SB), and delivered a few others in advance. - Implementation of one SB on the National Anticorruption Bureau (NABU) audit requested to be rephrased for reasons beyond authorities’ control. - Met all four program quantitative performance criteria (QPCs) and Indicative targets (IT) for June. - Requested waivers of applicability for all four end-September QPCs as data are not yet available; the four end-September QPCs comprise: - (i) the floor on the non-defense cash primary balance of the general government, excluding budget support grants; - (ii) the floor on tax revenues; - (iii) the ceiling on publicly guaranteed debt; - (iv) the QPC on net international reserves. - Authorities expect to meet all four QPCs and data to confirm outcomes will be available in the coming weeks. - Authorities believe mitigation factors, including financial assurances from key donors (including ERA), remain in place and lessen business, financial, strategic, and reputational risks for the Fund. - Authorities request rephasing of purchases under the program over 2025–27 to accommodate quarterly monitoring in 2025 given exceptionally high uncertainty amid a prolonged war. - Authorities request completion of the fifth review and reiterate commitment to close policy dialogue with the Fund and alignment of conditionalities with other donors’ programs and Ukraine’s EU accession roadmaps. - EU accession context: - European Commission initiated official screening of compliance of Ukrainian legislation with EU law; Ukrainian delegations participated in the third round of bilateral meetings in Brussels in early October. - Recent discussions focused on the Economic Criteria area and negotiated Chapter 32, Financial Control, including state internal financial control, external audit, protection of financial interests, and public administration reform. *Statement by Mr. Vladyslav Rashkovan, Alternate Executive Director for Ukraine, October 18, 2024* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ukrea2024003-print-pdf.pdf_