## 1ukrea2025002-print-pdf ## Source details **Canonical URL:** [1ukrea2025002-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1ukrea2025002-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1ukrea2025002-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1ukrea2025002-print-pdf.pdf.json) --- ### Executive summary — context, outlook, and program position - Context and program status - Over three years of Russia’s war in Ukraine have produced severe social, humanitarian, and economic damage; the evolution of the war is subject to exceptionally high uncertainty. - Authorities remain committed to reforms and have fulfilled all necessary Fund policies to support completion of the Eighth Review. - Despite some structural reform delays, authorities met all quantitative conditionality for this review. - The program remains fully financed, but has limited space to absorb further shocks while achieving restoration of external viability by the end of the program. - Staff supports completion of the Eighth Review under the Extended Arrangement, enabling a purchase of SDR 373.53 million (18.6 percent of quota). - Outlook and risks - 2025 growth forecast maintained at 2–3 percent. - Inflation: headline reached 15.1 percent y/y in April; expected to decline to 9 percent y/y by end-2025. - Current account deficit excluding grants widened to US$25 billion (13.1 percent of GDP in 2024 compared to 11.8 percent of GDP in 2023). - Gross international reserves reached US$46.7 billion (5.4 months of prospective imports) as of end-April 2025. - Risks remain exceptionally high, mainly from the war; mitigants include decisive policymaking, contingency planning, and continued international support. ### Key recent outcomes (selected figures and developments) - Growth and activity - Real GDP expanded by 2.9 percent y/y in 2024, 0.6pp below the Seventh Review forecast. - Q4 2024 contraction driven by smaller-than-expected harvest; excluding agriculture, growth picked up in 2024Q4 relative to 2024Q3. - High-frequency indicators through May 2025 show stronger consumer sentiment and business activity; exports weaker than expected. - Prices and labor - Headline inflation 15.1 percent y/y (April); sequential m/m deceleration to 0.7 percent. - Food inflation 19.8 percent y/y. - Core inflation 12.1 percent y/y. - Labor shortages continue to restrain growth. - External sector and reserves - 2025Q1 current account deficit excl. grants reached US$8 billion compared to US$4.5 billion in same period last year. - Net FX sales through May amounted to US$14.6 billion versus US$11 billion in the corresponding period last year. - Financial sector - Nominal credit growth: 13.9 percent (y/y) in May 2025. - Net credit to legal entities: 9.4 percent of GDP (May 2025). - Net credit to individuals: 5.1 percent of GDP (May 2025). - Banking system liquidity coverage ratios and capital levels are more than triple and double required minima, respectively. - Net interest margin was 7.6 percent in 2024. - Nonperforming loans (NPLs) were 30 percent as of end-February 2025 (EU definition); NPLs to individuals 15 percent and to business 39 percent (business NPL ratio falls to 23 percent if well-provisioned debts of former owners of PrivatBank and debts predating the 2014–2016 crisis are stripped out). - Fiscal and program execution - All end-March QPCs, continuous PCs, and end-March ITs were met. - Tax collections totaled UAH 614 billion (exceeding floor of UAH 485 billion). - General government non-defense cash primary balance excluding grants UAH 381.4 billion (floor UAH 254.8 billion). - Cash balance excluding grants UAH -239.2 billion (floor UAH -410.5 billion). - Overdue accounts payable UAH 1.4 billion (ceiling UAH 1,800 million). ### Baseline macroeconomic outlook and projections - Growth and inflation - 2025 GDP growth: 2–3 percent y/y. - Inflation expected to decline to 9 percent y/y by end-2025. - Larger harvest expected to support growth in 2025H2. - Current account and reserves - 2025 current account deficit excluding grants forecast to increase relative to the Seventh Review by 1.7 percent of GDP. - International reserves end-2025 expected at US$53.4 billion (125.5 percent of ARA). - Fiscal baseline (2025) - Defense expenditure needs increased, necessitating Supplementary Budget with upward revisions of about 5.8 percent of GDP. - Incorporation into baseline yields deficit of UAH 1,960 billion (22.1 percent of GDP)—up by 2.5 percent of GDP from the Seventh Review. - General government expenditures projected UAH 511 billion higher than the Seventh Review; revenues excluding grants up UAH 261 billion from the Seventh Review. - Planned deposit accumulation for 2025 will be US$12.2 billion (about US$5 billion lower than Seventh Review), used for prefinancing 2026 deficit. - Key baseline indicators (selected rows from Text Table 2; sequence likely 2021–2033 as in source) - Real GDP growth (%): 2.9-2-3-4.5-4.8-0.6-0.0-0.0-0.0 - Inflation, eop (%): 12.0 9.0 7.0 5.0 0.0 0.0 0.0 0.0 - Current account (US$ billion): -13.7 -34.6 -28.3 -13.0 -0.3 -1.8 -5.0 -0.6 - Current account excl. grants (US$ billion): -25.0 -38.6 -28.8 -15.5 -0.3 -4.3 -5.0 -0.6 - FX reserves (US$ billion): 43.8 53.4 52.8 55.6 0.0 -3.4 2.0 1.5 - Overall fiscal balance (% GDP): -17.2 -21.3 -10.1 -4.6 0.0 -2.5 -0.4 -0.4 - Public debt (% GDP): 89.7 108.6 110.4 106.4 -0.1 -1.4 1.9 2.9 - Gross Reserves (% IMF composite metric (float)): 125.4 125.5 114.0 115.7 4.2 -1.9 7.8 6.6 - (Source: IMF staff estimates.) ### Downside scenario — updated and calibrated shock - Assumptions and macro impact - Assumes a longer and more intense war winding down by 2026Q2 with shock shifted to 2025Q3. - Calibrated cumulative GDP loss implies Real GDP growth at -1 percent y/y in 2025 and 0 percent y/y in 2026. - Policy responses in downside - Reserve buffers deployed to support FX market stability. - Primary fiscal deficits revised to reflect Supplementary Budget in 2025 and widen over 2026–27. - Deficit financing includes utilization of downside buffers built from disbursed ERA financing and higher domestic government bond issuance. - Selected downside indicators (Text Table 3 excerpts) - Real GDP growth (%): 2.9 -1.0 0.0 3.8 -0.6 1.0 0.5 0.0 - Inflation, eop (%): 12.0 13.0 9.0 7.5 0.0 0.0 0.0 0.0 - Current account (US$ billion): -13.7 -35.8 -28.4 -7.8 -0.3 -2.7 -5.0 -1.2 - FX reserves (US$ billion): 43.8 42.9 31.8 30.8 0.0 -2.4 3.3 -1.7 - Overall fiscal balance (% GDP): -17.2 -27.2 -22.4 -10.3 0.0 -3.5 -1.8 0.3 - Public debt (% GDP): 89.7 122.5 131.7 134.8 -0.1 4.8 3.5 3.0 - Gross Reserves (% IMF composite metric (float)): 125.4 102.6 70.1 65.5 4.2 -1.0 9.1 -1.0 ### Debt sustainability, financing assumptions, and CtR assurance - Financing and DSA framework - Total official external financing assumed US$139 billion (excluding the IMF) over program period; ERA disbursements comprise US$49.2 billion of total. - A portion of 2025 disbursements (US$12.2 billion) allocated as budget prefinancing and utilized in 2026. - Authorities will save an additional US$12.4 billion over 2025–27Q1 as contingent financing for downside. - Baseline envisages return to market access in 2029. - Capacity-to-repay (CtR) assurance - The joint and several CtR assurance from a significant group of creditors/donors (G7 plus Belgium, Lithuania, the Netherlands, Poland, Slovakia, Spain) at program approval remains valid. - Indicators under baseline: - Stock of total Fund credit expected to peak at 7.2 percent of GDP in 2025. - Stock of total Fund credit expected to reach 29.2 percent of gross reserves in 2026. - Debt service to the Fund would peak at 1.5 percent of GDP in 2025 and 5.9 percent of gross reserves in 2025. - Indicators under downside: - Outstanding credit to Fund would peak at 7.7 percent of GDP in 2026 and at 49.5 percent of gross reserves in 2027. - Debt service to the Fund peak at 1.5 percent of GDP in 2025 and 9.1 percent of gross reserves in 2026. - Staff DSA assessment and requirements - Mechanical and medium-term tools indicate debt remains unsustainable in pre-restructuring baseline and downside; debt sustainability relies on finalizing debt restructuring strategy, fiscal adjustment, and sufficiently concessional/grant-equivalent financing. - Debt restructuring targets (from Sixth Review): - 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 post-program period (2028–33). - Complementary targets: public debt (excluding ERA liabilities) to 82 percent of GDP by 2028 and debt service flow relief on external obligations of 1–1.8 percent of GDP per year. ### Fiscal policy and financing strategy (2025–28) - 2025 specifics - Supplementary Budget integrated into macroframework; any further shocks require fully counterbalancing measures. - Overall deficit excluding budget support grants projected at UAH 1,960 billion (22.1 percent of GDP). - Planned deposit accumulation for 2025: US$12.2 billion. - Expected 2025 ERA disbursements total US$35.9 billion. - Medium term (2026–28) - Budget Declaration for 2026–28 incorporated into program; 2026 overall deficit excluding grants expected 10.4 percent of GDP. - Revenue intentions under National Revenue Strategy aim to stabilize tax revenues at 37.8 percent of GDP over medium term (slightly lower than Seventh Review). - Longer-term target: primary surplus around ½ to 1½ percent of GDP essential for restoring sustainability. - Fiscal structural reforms and revenue mobilization - National Revenue Strategy implementation prioritized; key actions include digital platform reporting, IT consolidation across MOF/ST S/SCS, VAT collection improvements, and excise alignment. - Customs reform sequencing: (i) present SCS reform plan (Prior Action); (ii) engage external partners to identify financing between US$0.4–US$1.2 billion by end-August; (iii) appoint selection commission by end-August and head of SCS by end-2025 (reset proposed to end-December 2025). - Public investment management: SIC to approve annual update to Single Project Pipeline (proposed end-August 2025 SB); roll out project preparation training and finalize sectoral strategies (end-December 2025 SB). ### Monetary policy, exchange rate, and FX strategy - Monetary stance - Recommendation: NBU to maintain tight monetary stance; KPR held at 15.5 percent after 250 bps of hikes since December 2024. - Readiness to raise KPR if inflationary risks persist or expectations unanchor. - Transmission: improved via deposit rates and government bond yields; monitor 3-month CD limits and reserve requirements. - FX intervention and flexibility - NBU FXI strategy should support exchange rate flexibility to act as shock absorber and safeguard reserves. - Over-reliance on FXI for near-term price stability risks undermining inflation targeting transition. - Authorities requested tightening NIR target for end-September 2025 to safeguard buffers. - NIR floors lowered somewhat for end-December 2025 and end-March 2026 in view of reallocation of external financing. - FX liberalization sequencing - Continue conditions-based approach to FX liberalization with close monitoring; recent easing included increased financing limits for foreign branches and enhanced cross-border transfer capabilities. - Caution and close IMF consultation urged when calibrating new FX measures. - NBU governance and safeguards - Implement 2023 safeguards recommendations; legal amendments prepared to enhance secured creditor status, Audit Committee oversight, and Council fitness. - Vacancies on the NBU Council to be filled (target end-July 2025 where possible). ### Financial sector resilience, supervision, and market infrastructure - Resilience assessment and supervisory actions - NBU’s 2025 Resilience Assessment nearly complete; includes loan file reviews with external auditors and stress testing; expected completion by end-December 2025. - Legislative and operational changes to close gaps in early intervention, temporary administration, and bank resolution expected by end-December 2025. - NBU-DGF coordination revived; 2025 engagement plan for joint supervision and oversight of problem banks agreed. - Critical third-party risk and capital alignment - Steps to mitigate critical third-party risk: enhance requirements by end-March 2026 and implement by end-June 2026 (SB proposed reset to end-June 2026). - NBU aligned regulatory capital structure and leverage ratio calculations with EU rules; capital requirements to be implemented in 2025; legislative amendments submitted to parliament to increase minimum share capital to equivalent of EUR 5 million (six-month transition). - Market infrastructure and reconstruction financing - Close gaps in capital market infrastructure; NBU and NSSMC to prepare prioritized roadmap for financial market infrastructure reforms (proposed end-October 2025 SB). - Planned instruments: securitizations, covered bonds, loan syndications; NSSMC to prepare legislative proposals to align securitization/covered bonds with international standards (proposed end-March 2026 SB). - Local valuation standards to align with European (TEGOVA) and international (IVS) standards (proposed end-December 2025 SB). ### Governance, anti-corruption, and rule-of-law priorities - Anti-corruption measures and judicial reforms - Near-term priorities: enact amendments to Criminal Procedure Code, strengthen asset declaration verification and lifestyle monitoring, and enhance AML/CFT architecture. - NABU external audit published in May found NABU moderately effective; NABU to publish action plan within National Strategy 2025–2030. - Structural Benchmark met: publication of completed external audit of NABU. - SOE governance and state banks - Independent evaluations of supervisory boards of GTSO, Naftogaz and Ukrenergo finalized; new Naftogaz CEO appointed. - Revise selection and appointment processes for SOE supervisory board members; SOP review due end-December 2025. - SOB NomCom rules to be updated by end-August 2025. - Transparency and asset recovery - Asset declaration verification guidance due end-September 2025. - Publish UBO information for companies with direct or negotiated procurement contracts by September 2025 (changes to Martial Law procurement decree No.1178). ### Energy sector readiness and post-war roadmap (Box 1 highlights) - Wartime damages and needs - First half of 2024: approx. 9GW (around half) of generating capacity severely damaged or destroyed. - Early 2025: up to 50 percent of Naftogaz’s gas infrastructure attacked; gas storage down to historically low levels. - RDNA4: total damages in energy and extractives sectors US$20.5bn; recovery and reconstruction needs estimated at US$68bn. - Tariffs, PSOs, and legacy debts - Household electricity and gas prices cover roughly half of cost-recovery levels; District Heating Companies owe UAH 100 billion to Naftogaz. - 2023 gas price subsidies: EUR 2.9 billion for households and EUR 1.7 billion for DHCs (OECD, 2025). - Roadmap actions include reducing quasi-fiscal liabilities, ensuring cost-recovery-consistent utility prices, and targeted protection (HUS revision). - Roadmap timing and institutional arrangements - Authorities intend to adopt a roadmap for gradual liberalization within six months of end of Martial Law (also part of EU Ukraine Plan, Q2 2026). - Roadmap to cover PSO reforms, tariff methodologies, legacy debt mechanisms, and protection for vulnerable households. - Work to be advanced now with technical analysis and a working group of key stakeholders. ### Structural benchmarks, prior actions, and staff positions - Program conditionality and implementation - Prior action: authorities to submit to the CMU a reform plan for the State Customs Service (SCS) (met). - Structural benchmarks met: submission of draft law on reporting requirements for digital platform operators (end-April SB met); publication of completed external audit of NABU (met in May). - Staff supports resetting four SBs and adding four new SBs to reflect implementation timelines and policy priorities. - Requests by authorities - Modify the floor on non-defense primary cash balance to recalibrate NBU profit transfer adjustor. - Modify NIR floor to maintain buffers. - Reset SB deadlines for: permanent head of SCS; NSSMC fit and proper review; critical third-party risks; external assessment of NEURC. - Add SBs: SIC approval of updated Single Project Pipeline (end-August 2025); NBU and NSSMC roadmap for market infrastructure reforms (end-October 2025); implementation of TEGOVA/IVS valuation standards (end-December 2025); NSSMC legislative proposals on securitization/covered bonds (end-March 2026). - Request to rephase and backload purchases in 2025 to align with balance-of-payments needs. - Staff position - Staff supports completion of the Eighth Review and SDR 373.53 million purchase. ### Program monitoring, data, and reporting commitments - Monitoring and reporting framework - Program monitored through quarterly reviews via QPCs, ITs, and SBs; Ninth and Tenth Reviews expected on/after November 30, 2025 and February 28, 2026 respectively. - Extensive high-frequency data provision commitments by NBU, MoF, DGF, STS, SCS, Naftogaz, and other agencies (daily, weekly, monthly, quarterly, and semi-annual reporting as specified). - Key program accounting exchange rates fixed for program purposes (e.g., UAH/USD 36.5686 as of March 13, 2023; SDR accounting rate 0.748641 SDR per US$). - TMU defines NIR, adjustors, ceilings, floors, and reporting timetables. ### Principal risks and contingency planning - Principal program risks - Duration and intensity of the war, durability of international support, and reform momentum (exceptionally high risk). - Potential intensification of the war, reductions in external support, reform fatigue, and loss of export/transit corridors. - Contingency measures - Fiscal: revenue measures (VAT increases, excise alignment), constrain capital and lower-priority expenditures, mobilize domestic financing. - External: seek further concessional/grant financing; use ERA and donor buffers. - Monetary and FX: monetary tightening, deploy reserves, adjust FX policies and CFMs if necessary; possible temporary reintroduction of controls if pressures materialize. - Additional measures if shocks exceed downside: further taxes, larger domestic bond financing, possible administrative bank requirements, secondary NBU bond purchases, and spending contingent on concessional/grant financing. *Source: IMF staff report — Executive Summary and selected chapters and annexes from 1ukrea2025002-print-pdf (June 20–30, 2025).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Over three years of Russia’s war in Ukraine have produced severe social, humanitarian, and economic damage; the evolution of the war is subject to exceptionally high uncertainty. - Authorities remain committed to reforms and have fulfilled all necessary Fund policies to support completion of the Eighth Review. - Despite some structural reform delays, authorities met all quantitative conditionality for this review. - The program remains fully financed, but has limited space to absorb further shocks (including a more prolonged and intense war) while achieving restoration of external viability by the end of the program. - Staff supports completion of the Eighth Review under the Extended Arrangement, enabling a purchase of SDR 373.53 million (18.6 percent of quota). ### Outlook and risks - 2025 growth forecast maintained at 2–3 percent. - Trade-offs in 2025: a smaller-than-expected electricity deficit is offset by increased gas imports and weaker agricultural exports. - Inflation remains elevated but moderating; expectations broadly stable though vigilance is warranted. - War-related pressures require a Supplementary Budget for 2025; the medium-term fiscal path was revised with a more measured fiscal adjustment and modified expenditure profile reflecting authorities’ intentions. - Risks remain exceptionally high, mainly from the war; mitigants include decisive policymaking (recently tempered by waning reform momentum in Parliament), contingency planning, and continued international support. ### Focus of the review — policy priorities emphasized in discussions - Fiscal policy and debt sustainability - Implement fiscal policies to ensure financeable deficits and restore medium-term fiscal and debt sustainability. - Revised program frameworks reflect the Supplementary Budget for 2025 and the authorities’ Budget Declaration for 2026–28. - Large external disbursements under the program continue to provide adequate financing. - Domestic revenue mobilization is imperative to support fiscal adjustment and secure debt sustainability. - Further progress needed on fiscal structural reform agendas: customs, public financial management, medium-term budgeting, public investment management, and expenditure policies. - Monetary and exchange rate policy - Maintain a tight monetary stance to tackle still-elevated inflation and keep inflation expectations anchored. - Foster greater flexibility in the exchange rate to allow shock absorption, help prevent external imbalances, and safeguard reserves. - Continue the conditions-based approach to FX liberalization with close monitoring. - Financial stability and markets - Remain vigilant to financial stability risks. - Strengthen the bank rehabilitation framework and prepare a framework to address critical third-party risks. - Complete the updated NBU Resilience Assessment. - Close gaps in capital market infrastructure through a prioritized roadmap. - Urgently address operational and governance challenges at the National Securities and Stock Market Commission (NSSMC). - Governance and rule of law - Address slippages in governance reforms to tackle corruption and support EU accession on the rule of law. - Near-term anti-corruption priorities include enacting amendments to the criminal procedural code, strengthening the asset declaration system, and further enhancing the AML/CFT architecture. - Continue efforts to make the energy sector more resilient and decentralized, strengthen governance of energy SOEs, and foster independence of the energy regulator. ### Recent economic and program performance — key indicators and outcomes - Growth and activity - Real GDP expanded by 2.9 percent y/y in 2024, 0.6pp below the Seventh Review forecast; Q4 contraction driven by a smaller-than-expected harvest. - Excluding agriculture, growth picked up in 2024Q4 relative to 2024Q3, supported by energy repairs. - In 2025Q1 electricity situation improved with fewer aerial attacks, repairs, and new capacity. - High-frequency indicators through May 2025 show stronger consumer sentiment and business activity; exports weaker than expected. - Labor shortages continue to restrain growth. - Inflation - Headline inflation reached 15.1 percent y/y in April, decelerating sequentially to 0.7 percent m/m driven by slower core price growth. - Food inflation reached 19.8 percent y/y. - Core inflation decelerated to 12.1 percent y/y. - Inflation expectations stabilized after deteriorating through January. - External sector and reserves - Current account deficit excluding grants widened to US$25 billion (13.1 percent of GDP in 2024 compared to 11.8 percent of GDP in 2023). - 2025Q1 current account deficit excl. grants reached US$8 billion compared to US$4.5 billion during the same period last year. - Gross international reserves reached US$46.7 billion (5.4 months of prospective imports) as of end-April 2025, supported by strong official support and ERA disbursements. - Financial sector - Nominal credit growth: 13.9 percent (y/y) in May 2025. - Net credit to legal entities: 9.4 percent of GDP (May 2025). - Net credit to individuals: 5.1 percent of GDP (May 2025). - Banking system liquidity coverage ratios and capital levels are more than triple and double required minima, respectively. - Net interest margin was 7.6 percent in 2024. - Nonperforming loans (NPLs) were 30 percent as of end-February 2025 (EU definition); NPLs to individuals 15 percent and to business 39 percent (business NPL ratio falls to 23 percent if well-provisioned debts of former owners of PrivatBank and debts predating the 2014–2016 crisis are stripped out). - Fiscal, monetary, and FX policy actions - Authorities restrained the fiscal deficit in 2025Q1 via robust tax collections and tight control over nondefense expenditures, amid continued high defense needs. - Large external disbursements (especially through ERA) enabled financing the deficit and building deposit buffers; domestic government bond issuance scaled back, producing negative net domestic financing and savings from lower debt service. - At the June MPC meeting the NBU held its key policy rate (KPR) at 15.5 percent after 250 bps of hikes since December 2024; the NBU signaled readiness to act if inflation pressures persist or expectations become unanchored. - Nominal exchange rate appreciated 1.2 percent against the US dollar year to date through May. - Net FX sales through May amounted to US$14.6 billion versus US$11 billion in the corresponding period last year; FX interventions remain sizeable as they intermediate the public sector structural FX surplus to cover persistent private sector structural FX deficit. - Program conditionality and implementation - All end-March quantitative performance criteria (QPCs), continuous PCs, and end-March indicative targets (ITs) were met. - Structural benchmarks met by the review include: submission of draft law on tax reporting requirements for digital platform operators (end-April) and publication of the completed external audit of NABU (met in May). Progress well advanced on the end-June SB on the submission of the 2026–28 budget declaration. - As a prior action, authorities will submit to the Cabinet of Ministers of Ukraine (CMU) a reform plan for the State Customs Service (SCS). ### Program issues, requests, and staff position - Authorities’ requests - Modification of the floor on the non-defense primary cash balance of the general government to recalibrate an adjustor pertaining to the NBU’s profit transfers to the budget. - Modification of the NIR floor to maintain buffers amid elevated near-term risks. - Resetting of structural benchmarks (SBs) that need more time: appointment of the permanent head of the State Customs Service (SCS); completion of NSSMC fit and proper review; critical third-party risks; publication of external assessment of NEURC. - Addition of four new SBs: - SIC to approve updated Single Project Pipeline (end-August 2025). - NBU and NSSMC to prepare prioritized roadmap for financial market infrastructure reforms (end-October 2025). - Implementation of European and international valuation standards (end-December 2025). - NSSMC to prepare legislative proposals to align securitization and covered bonds frameworks with international standards (end-March 2026). - Prior action: authorities will submit to the CMU a reform plan for the SCS. - Request to rephase and backload purchases in 2025 to better align with updated balance of payments needs. - Staff assessment - Staff supports completion of the Eighth Review under the Extended Arrangement, enabling a purchase of SDR 373.53 million (18.6 percent of quota). ### Meetings and mission - Discussions held in Kyiv over May 20–27, 2025 with Prime Minister Shmyhal, Finance Minister Sergii Marchenko, NBU Governor Andriy Pyshnyy, and other senior officials. - Mission team included Gavin Gray (mission chief), Trevor Lessard and Sanaa Nadeem (deputy mission chiefs), Klaus Hellwig, Heiko Hesse, Geoffrey Keim, Andrea Manera, Sidra Rehman, Martina Hengge, Dermot Monaghan, Jonathan Pampolina, Priscilla Toffano, Ihor Shpak, Vladyslav Filatov, Taras Ivanyshyn; Vladyslav Rashkovan (OED) attended policy discussions; supported from HQ by Ritzy Dumo and Luis Omar Herrera Prada. *Source: IMF staff report — Executive Summary (June 20, 2025).* ### 8. Baseline: ### 8. Baseline ### Baseline macroeconomic outlook - The 2025 GDP growth forecast is maintained at 2–3 percent y/y, reflecting: - A smaller-than-expected electricity deficit broadly offset by higher gas import needs due to reduced domestic production capacity and more subdued agricultural exports. - The net impact of the Supplementary Budget is expected to be small, given an estimated large import component. - A larger harvest is expected to support growth in 2025H2. - Growth outlook for 2026 and beyond is unchanged, though growth contributions were revised to reflect the revised composition of the post-war fiscal consolidation and the GDP rebasing to 2021. - Inflation is expected to decline to 9 percent y/y by end-2025, driven by an expected reversal in food price base effects in 2025H2 and tight monetary policy. - The 2025 current account deficit excluding grants is forecast to increase relative to the Seventh Review (by 1.7 percent of GDP), reflecting: - (i) an increase in priority imports amid higher fiscal expenditures; - (ii) higher gas imports to offset losses from attacks on energy infrastructure; and - (iii) lower agricultural export volumes. - International reserves are expected to end the year lower (US$53.4 billion, 125.5 percent of ARA) than at the Seventh Review, primarily reflecting the wider current account deficit and some reallocation of external financing from 2025 to 2026. - Defense expenditure needs for 2025 have increased, necessitating a Supplementary Budget with upward expenditure revisions of about 5.8 percent of GDP; incorporation into the baseline results in a deficit of UAH 1,960 billion (22.1 percent of GDP)—up by 2.5 percent of GDP from the Seventh Review. - Over the medium-term, the updated baseline broadly reflects key fiscal policy intentions set out in the authorities’ Budget Declaration for 2026-28, resulting in modest revisions to the overall deficit, which narrows over the remainder of the forecast horizon. ### Key economic indicators under the Baseline scenario - Text Table 2. Ukraine: Key Economic Indicators under the Baseline Scenario - Real GDP growth (%)2.92-34.54.8-0.60.00.00.0 - Inflation, eop (%)12.09.07.05.00.00.00.00.0 - Current account (% GDP)-7.2-16.5-12.6-5.4-0.2-0.6-2.0-0.2 - Current account (US$ billion)-13.7-34.6-28.3-13.0-0.3-1.8-5.0-0.6 - Current account balance excluding grants (US$ billion)-25.0-38.6-28.8-15.5-0.3-4.3-5.0-0.6 - Goods trade balance (US$ billion)-30.4-41.6-38.6-36.3-0.3-5.1-3.9-0.5 - FX reserves (US$ billion)43.853.452.855.60.0-3.42.01.5 - Overall fiscal balance (% GDP)-17.2-21.3-10.1-4.60.0-2.5-0.4-0.4 - Overall fiscal balance, excl. grants (% GDP)-23.1-22.1-10.4-5.60.0-2.5-0.5-0.4 - Public debt (% GDP)89.7108.6110.4106.4-0.1-1.41.92.9 - Gross Reserves (% IMF composite metric (float))125.4125.5114.0115.74.2-1.97.86.6 - Source: IMF staff estimates. ### Downside scenario (updated) - Assumes a longer and more intense war winding down by 2026Q2; staff updated the downside by shifting the shock to 2025Q3. - Calibrated to a cumulative GDP loss over the projection period proportional to the loss to the Seventh Review baseline, implying: - Real GDP growth at -1 percent y/y in 2025 and 0 percent y/y in 2026; medium-term growth unchanged. - Policy responses under the downside: - Reserve buffers would be deployed to support FX market stability and prevent disorderly conditions. - Primary fiscal deficits revised to reflect the new Supplementary Budget in 2025 and widen over 2026–27 relative to the baseline. - Deficit financing includes utilization of downside buffers built from disbursed ERA financing and higher issuance on the domestic government bond market. - Staff notes exceptionally high risks to the downside scenario and flags alternative downside scenarios (different war duration or less durable peace) as conceivable but premature to model. - Text Table 3. Ukraine: Key Economic Indicators Under the Downside Scenario - Real GDP growth (%)2.9-1.00.03.8-0.61.00.50.0 - Inflation, eop (%)12.013.09.07.50.00.00.00.0 - Current account (% GDP)-7.2-17.5-14.2-3.7-0.2-0.6-2.3-0.5 - Current account (US$ billion)-13.7-35.8-28.4-7.8-0.3-2.7-5.0-1.2 - Current account balance excluding grants (US$ billion)-25.0-39.8-28.9-10.3-0.3-5.1-5.0-1.2 - Goods trade balance (US$ billion)-30.4-42.9-31.3-28.9-0.3-6.0-3.9-1.1 - FX reserves (US$ billion)43.842.931.830.80.0-2.43.3-1.7 - Overall fiscal balance (% GDP)-17.2-27.2-22.4-10.30.0-3.5-1.80.3 - Overall fiscal balance, excl. grants (% GDP)-23.4-28.1-22.7-11.5-0.3-3.7-1.80.3 - Public debt (% GDP)89.7122.5131.7134.8-0.14.83.53.0 - Gross Reserves (% IMF composite metric (float))125.4102.670.165.54.2-1.09.1-1.0 - Source: IMF staff estimates. ### Risks and enterprise risk assessment - Principal program risks remain exceptionally high and relate to: - Duration of the war, durability of international support, and maintaining reform momentum. - Potential intensification or prolongation of the war adversely affecting economic outcomes and program assumptions. - Reductions in external economic and military support undermining security, leading to weaker economic performance and open financing gaps. - Reform fatigue and challenges to political consensus, including populist pressures and increased opposition from vested interests. - Upside possibility: an earlier end to the war could unlock an upside scenario, conditional on adequate security guarantees, international support, and strong reforms. - Overall enterprise risk has increased since the Seventh Review, mainly due to higher strategic risk from war uncertainty; business risks have also risen. - Mitigants: - Safeguards under EHU policy, robust macroframeworks, ongoing international support, capacity to repay assurances from Fund members, and program design and authorities’ track record under the EFF. - Operational and reputational risks have increased given the challenging environment for staff and authorities. ### Fiscal policy and financing (2025) - The Supplementary Budget for 2025 has been integrated into the macroframework with mitigating measures, though it further erodes program buffers; any further shocks will require fully counterbalancing measures. - Revenues and expenditures: - General government expenditures are projected to be UAH 511 billion higher than in the Seventh Review, net of some expenditure savings identified by authorities. - Projections of higher revenues excluding grants (up UAH 261 billion from the Seventh Review), with expectations that the strong Q1 tax performance will be durable. - Both tax and non-tax revenues expected to be higher; tax revenues benefit from recently enacted tax measures and non-tax revenues are boosted by an extra NBU profit transfer from earnings on burgeoning foreign assets from frontloaded G7 ERA financial support. - 2025 deficit and financing: - The overall deficit excluding budget support grants is projected at UAH 1,960 billion (22.1 percent of GDP), up UAH 250 billion from the Seventh Review. - Authorities plan to finance the higher deficit by scaling up and aiming to extend the maturity of domestic bond issuance over the second half of the year. - A portion of ERA financing previously expected this year has been shifted to 2026. - Planned deposit accumulation for 2025 will now be US$12.2 billion, about US$5 billion lower than in the Seventh Review and used entirely for prefinancing the 2026 fiscal deficit. - Next year, the profile of ERA disbursements will enable accumulation of downside buffers of a similar magnitude as before, consistent with authorities’ commitments (MEFP ¶13). ### Fiscal policy in 2026–28 and beyond - Budget Declaration for 2026–28 incorporated into the program; document assumes war will wind down this year and sets out security needs, non-defense priorities, and revenue policies for the next three years. - 2026: - Overall deficit excluding grants of 10.4 percent of GDP expected. - Immediate post-war environment still requires high defense spending; public investment will increase; social expenditures will be affected by indexation of the minimum subsistence level and an increase to the medical guarantee program. - Revenues kept at adequate levels, with the tax-to-GDP ratio remaining at least at the 2025 level. - Prompt adoption and enactment of key tax legislation on sugary/carbonated beverages and income from digital platforms (¶15) and implementation of an enhanced method of collecting tax debts are important. - 2027–28: - Fiscal deficits expected to steadily narrow as gradual demobilization allows expenditure reductions, though defense needs viewed as permanently higher than previously envisaged. - Social expenditures reflect return to normal indexation formula and growth in medical guarantees. - Revenue intentions under the National Revenue Strategy aim to stabilize tax revenues at 37.8 percent of GDP over the medium term, slightly lower than expected in the Seventh Review. - Planned domestic revenue mobilization efforts are essential to restore debt sustainability and finance reconstruction; additional revenue measures may be needed if expenditure pressures materialize. - Any residual external financial support must be on terms consistent with restoring debt sustainability. ### Longer-term fiscal strategy - Maintaining a primary surplus of around ½ to 1½ percent of GDP remains essential for restoring fiscal and debt sustainability. - Key ingredients to restoring sustainability: revenue-based fiscal adjustment, debt restructuring (¶30), and concessional financing (including donor commitments; ¶33). - Both program scenarios envisage primary balances returning toward the upper end of this range over the longer term, consistent with authorities’ program commitments (MEFP ¶15). ### Fiscal structural reforms - National Revenue Strategy (NRS) implementation is essential for enhancing tax collection and improving the business climate; staff welcome progress reported for 2024. - Key measures and milestones: - Draft law on reporting requirements for digital platform operators (end-April 2025 SB, met) should be adopted quickly. - Working group established to develop operational plan (end-September 2025 SB) for consolidation of IT systems of MOF, STS, and SCS. - IT reform is a pre-condition for making the tax system more progressive and efficient; staff urged leveling the playing field between regular, “simplified,” and untaxed shadow economy taxpayers, including more stringent efforts to collect VAT from retail businesses. - Customs reform: - Selection of a new head of SCS delayed as CMU has yet to formally appoint the selection commission. - Authorities proposed sequencing: (i) present a detailed SCS reform plan (Prior Action); (ii) engage external partners to identify financing estimated between US$0.4–US$1.2 billion (by end-August); and (iii) appoint the selection commission (by end-August) and appoint new head of SCS by end-2025 (end-June SB, proposed reset to end-December 2025). - Staff considers the appointment process could have proceeded concurrently but will work with authorities’ proposal; noted considerable risks to timely completion and emphasized developing KPIs for the head of SCS balancing revenue mobilization, trade facilitation, governance, and risk reduction. - Public investment management reforms: - Strategic Investment Council to approve annual update to Single Project Pipeline (SPP) for the 2026 Budget (proposed end-August 2025 SB) with projects using rigorous appraisal methodologies. - Staff emphasized rolling out training on project preparation and finalizing sectoral development strategies in time for the 2027 Budget formulation (end-December 2025 SB). ### Monetary and exchange rate policies - (Section header present in source; no additional content in this excerpt.) *Source: IMF staff estimates; extracted from the IMF document "1ukrea2025002-print-pdf - 8. Baseline:"* ### 18. The NBU should maintain a tight monetary stance until there is sustained evidence ### 1ukrea2025002-print-pdf - 18. The NBU should maintain a tight monetary stance until there is sustained evidence ### Monetary policy stance and transmission - Recommendation: The NBU should continue to maintain a tight monetary stance to anchor inflation and expectations. - Justification: The NBU’s policy actions thus far (¶4) have been appropriate given recent inflation outturns and projections; the decline in inflation needs to be secured. - Operational guidance: - Further policy actions should remain data-driven, with a readiness to raise the KPR should inflationary risks materialize, including from unexpected pressures from the Supplementary Budget, or there be a significant deterioration in expectations. - The tight stance, primarily through the KPR, will help preserve the attractiveness of hryvnia instruments, particularly term deposits, thereby limiting FX and thereby inflationary pressures. - Transmission monitoring: - The monetary transmission of the KPR has improved in recent months, primarily through deposit rates and government bond yields; the NBU should continue monitoring to determine whether further adjustments are needed to effectively transmit the tight monetary stance (MEFP ¶45). - Instruments to monitor/adjust include banks’ limits on 3 -month CDs and reserve requirements (which banks can meet using government bonds). ### FX intervention (FXI) strategy and exchange rate flexibility - Recommendation: The NBU’s FXI strategy should support exchange rate flexibility and enhance the exchange rate’s role as a shock absorber. - Rationale: - Adjustment of the exchange rate to market conditions would help safeguard reserves amid prevailing uncertainty and prevent buildup of external imbalances, fundamental to restoring medium-term external viability. - Over-reliance on FXI to achieve near-term price stability can undermine restoration of the inflation target as the nominal anchor in the envisioned eventual transition to IT. - Calibration and program links: - FXI should be appropriately calibrated to support consistency with program objectives, including ensuring adequate reserves. - Authorities have requested to tighten the NIR target for end-September 2025 (¶28; MEFP ¶47) to safeguard reserves and maintain buffers amid elevated near-term risks. - In view of envisaged reallocation of some external financing from December 2025 to the first half of 2026, and to accommodate the impact of the Supplementary Budget, NIR floors were somewhat lowered for end-December 2025 and end-March 2026. ### FX liberalization sequencing and controls - Recommendation: The NBU should carefully calibrate new FX liberalization measures in line with its Strategy, balancing external stability with supporting the recovery. - Recent actions: The NBU eased FX controls to support growth (including increased financing limits for foreign branches and enhanced cross-border transfer capabilities) and tightened measures to limit unproductive outflows (including enhanced currency supervision and regulations on settlement mechanisms for imports). - Guidance: - Continue a judicious, data-driven approach in consultation with the IMF when considering new measures and assessing macro-criticality and trade-offs between supporting growth and safeguarding external stability. - Close monitoring to ensure compliance and limit circumvention should continue. - Caution warranted as the NBU aims to gradually phase out FX controls in the post-Martial Law period, consistent with its conditions-based Strategy. ### Implementation of safeguards and governance reforms at the NBU - Status: The NBU continues to implement recommendations of the 2023 safeguards assessment. - Actions taken: - Steps toward enhancing secured creditor status, improving Audit Committee oversight, and establishing a mechanism to strengthen the NBU Council’s overall collective fitness; legal amendments are being prepared. - Progress continues towards filling vacancies on the Council (MEFP ¶50; where more time is required). - Expected outcome: Fulfilling these goals will strengthen the NBU’s credibility, operational capacity, and governance. ### Financial sector resilience, supervision, and resolution - Resilience assessment: - The NBU’s 2025 Resilience Assessment of the banking sector is almost complete (MEFP ¶53). - The assessment includes loan file reviews with external auditors and solvency stress testing under baseline and adverse scenarios; expected completion by end-December 2025. - Results will inform schedules for closing regulatory capital gaps, harmonization with EU acquis, and updating contingency plans. - Early intervention and resolution: - Legislative and operational changes to close gaps in early intervention, temporary administration, and resolution of insolvent banks (MEFP ¶55); supportive legislative changes expected to be adopted by end-December 2025. - The NBU-Deposit Guarantee Fund (DGF) coordination committee revived; a 2025 engagement plan for joint NBU supervision and DGF oversight of problem banks is agreed and being implemented. - Critical third-party risk: - Steps to mitigate growing critical third-party risk in banks, non-bank financial institutions, and payments service providers (end-September SB, proposed to be reset to end-June 2026) (MEFP ¶59). - A concept note (May 2025) identified additional steps and timelines: - (i) enhance regulatory requirements to address third-party risk for banks and non-banks by end-March 2026; - (ii) implement the requirements by end-June 2026; - (iv) if needed, prepare and submit a draft law to parliament. - Capital and leverage alignment with EU rules: - The NBU has aligned banks’ regulatory capital structure and leverage ratio calculations with EU rules and will implement capital requirements in 2025 (MEFP ¶58). - Legislative amendments submitted to parliament to increase banks’ minimum share capital to the equivalent of EUR 5 million, which includes a six-month transition period for existing banks. - NSSMC capacity and IOSCO alignment: - NSSMC addressing operational shortfalls after resignation of approximately a third of its most experienced staff; an independent fit and proper review of the NSSMC Chair and Commissioners is underway (end-June SB, proposed to be reset to end-August 2025) (MFEP ¶60). - NSSMC issued a regulation in mid-June 2025 requiring OTC FX bond operations carried out by non-banks to be settled through the Settlement Center. ### Mortgage program and market infrastructure for reconstruction financing - Mortgage program: - Authorities will implement changes to the mortgage finance “eOselia” program by end-June 2025 (MEFP ¶57) after consultation with IFIs and other stakeholders. - The UFHC implements the program; authorities committed to not allocate any further budget resources to the UFHC in 2025 until the strategy is complete. - Market infrastructure reforms to attract private investment: - Current gaps in market standards and infrastructure limit prospects for attracting foreign private capital (MEFP ¶62–63). - An interagency working group under the Financial Stability Council formed; a concept note prepared May 2025. - Planned actions: - NBU and NSSMC to prepare a prioritized roadmap for financial market infrastructure reforms in consultation with IFIs and other stakeholders (proposed end-October 2025 SB). Roadmap activities to include: (i) coordinate public/private/public-private deal pipelines; (ii) engage with industry on market instrument reforms; (iii) prioritize new market instruments such as securitizations, covered bonds, loan syndications, loan sub-participations; (iv) reform existing investment frameworks (including JIIs) and lending instruments (factoring and leasing). - Legislative proposals to align securitizations and covered bonds frameworks with international standards are being prepared (proposed end-March 2026 SB). - Local valuation standards to be aligned with European (TEGOVA) and international valuation standards (IVS) (proposed end-December 2025 SB). Key steps include: - (i) submit amendments to the valuations law to Parliament by end-August 2025; - (ii) adopt the law by end-December 2025; - (iii) propose an implementation roadmap including transitional arrangements, supportive regulation/guidance, training requirements for valuation of financial assets, and creation of a register of valuations for financial assets. - Ownership adjustments at the National Depository of Ukraine (NDU): roadmap being prepared by end-July 2025 to facilitate transfer of the state’s share in the NDU’s authorized capital to the management of the NBU (MEFP ¶61). - War risk insurance system: draft law (#12372) submitted to Parliament in December 2024; authorities expect Parliament to adopt the law by end-December 2025 (MEFP ¶61). - Closing other infrastructure gaps: implement new investment funds draft law to align with EU acquis; strengthen land and cadastral registers, property price registers and indices, credit data registers, insolvency and enforcement regimes, non-performing loans market, etc. ### Financial sector governance and SOE governance - DGF governance review: A review of governance arrangements at the DGF is due by end-September; reforms include strengthening DGF accountability, updated risk management, internal controls, decision-making structures, and an independent process for recruitment of the DGF managing director. - State-Owned Banks (SOB) NomCom: MoF will update NomCom rules on selection of independent supervisory board members by end-August 2025 (MEFP ¶70). - SOE corporate governance: - Independent evaluations of supervisory boards of GTSO, Naftogaz and Ukrenergo finalized ahead of end-May timeline; boards implementing recommendations. - New Naftogaz CEO appointed; GTSO and Ukrenergo supervisory boards should promptly appoint new CEOs under OECD standards. - Authorities committed to select the fifth supervisory board member of Energoatom under OECD standards and expand Board to seven members. - State Ownership Policy (SOP) implementation continues; a review of the SOP is due by end-December 2025. - Authorities will revise selection and appointment processes for SOE supervisory board members and modify CMU by-laws Resolutions 142 and 143 in consultation with international partners (end-August 2025 SB). ### Governance and anti-corruption priorities - Criminal Procedure Code: Authorities committed to amend the Criminal Procedure Code to facilitate corruption investigations and prosecutions within the rescheduled target date (end-July 2025 SB); integrated in the May 2025 Roadmap for the Rule of Law towards EU membership. - NABU external audit: - First external audit report of NABU published in May (end-July 2025 SB met). - Findings: NABU moderately effective overall during evaluation period, substantially effective in detecting and investigating high-level corruption. - Recommendations: remove technical obstacles to NABU’s autonomous wiretapping authority; ensure timely and impartial access to forensic expert services. - NABU to publish an action plan to implement external audit recommendations as part of National Strategy 2025–2030. - Asset declarations: NACP with IMF technical assistance will issue by end-September further guidance on methodologies for comprehensive verification of asset declarations and lifestyle monitoring, focusing on high-risk sectors (tax and customs, procurement, energy). - Ultimate Beneficial Ownership (UBO): By September 2025, changes to Martial Law procurement decree No.1178 will be adopted by the CMU requiring publication of UBO information for companies that have received direct contracts or contracts concluded under a negotiated procedure for public procurement (MEFP ¶70). Note: UBO information will also be published for successful non-resident bidders; respective changes reflected in draft Law “On Public Procurement” (No.11520) before the Second Reading. ### Energy sector preparedness and reform - Heating season preparedness: - Authorities repairing energy generation capacity in 2025 and adding generation capacity; replenishing gas reserves via imports ahead of the next heating season. - Naftogaz implementing a comprehensive plan to import gas in 2025 to replace domestic production lost due to attacks on gas infrastructure. - Financing for gas purchases expected to rely mostly on IFI and bilateral donor support, with remainder financed through Naftogaz cash buffers and domestic bank financing; no additional budgetary outlays for gas imports are expected. - NEURC legal and governance framework: - A NEURC draft law developed including provisions for an external audit of NEURC’s independence and governance framework. - Finalization of the external audit by the Energy Community Secretariat (ECS) will require more time (end-October SB, proposed to be reset to end-December 2025). - Authorities commit to fill the three vacant NEURC Commissioner positions timely and consistent with legal provisions. - Energy market roadmap: - Authorities commit to commence work on an energy roadmap to gradually liberalize gas and electricity markets, including strategies on tariffs, PSOs, and protecting the most vulnerable households (see Box 1). *Source: Excerpt from the content unit "1ukrea2025002-print-pdf - 18. The NBU should maintain a tight monetary stance until there is sustained evidence"* ### Box 1. Ukraine: Energy Roadmap for Post-War Ukraine ### Box 1. Ukraine: Energy Roadmap for Post-War Ukraine ### Energy sector wartime damages and resilience - Despite frequent large-scale energy attacks during the war, Ukraine’s energy sector has remained resilient thanks to repairs, new generation capacity and imports backed by strong international donor support. - In the first half of 2024, approximately half of generating capacity was severely damaged or destroyed (around 9GW), requiring constant and additional repairs. - In early 2025, up to 50 percent of Naftogaz’s gas infrastructure was also attacked and temporarily damaged, causing a sharp drop in gas production and driving gas storage down to historically low levels. - Households and firms are adapting by installing generators or taking advantage of the potential to import from Europe. - According to the World Bank Fourth Rapid Damage and Needs Assessment (RDNA4), total damages in the energy and extractives sectors since the invasion amount to $20.5bn with recovery and reconstruction needs estimated at $68bn (13 percent of the total needs). ### Tariffs, subsidies, and financial pressures - Household electricity prices were increased in 2023 and 2024 from a low base; heat and water tariffs have been subject to price moratoria since the beginning of the war. - Household electricity prices are estimated to cover around half of the price for small business customers in Kyiv (OECD, 2025). - Household gas prices are roughly 50 percent of cost recovery levels based on market exchange gas prices. - A plan is needed to create a sustainable sector in the post-war period, including: - Reducing quasi-fiscal liabilities. - Ensuring utility prices are consistent with cost recovery. - Introducing a new tariff methodology that accounts for social considerations. - Tariff increases would help restore profitability in the consumer energy sector, alleviate debt burdens in pockets of the sector, stimulate entry and competition in wholesale and retail energy markets, and incentivize energy efficiency measures. - The most vulnerable households need protection from higher tariffs, including through revision of the Housing Utility Subsidy (HUS) to increase its effectiveness and targeting; a major challenge will be the appropriate definition of vulnerable households. ### Public Service Obligations (PSOs) and legacy debts - The discrepancy between household tariffs and production costs is supported by a system of subsidies falling under Public Service Obligations (PSOs). - Examples of PSOs include Energoatom and Ukrhydroenergo compensating the Guaranteed Buyer for the difference between the wholesale and household PSO electricity prices, and Naftogaz providing gas to households at a regulated price. - Gas tariff differentials particularly impact District Heating Companies (DHCs), which currently owe UAH100 billion to Naftogaz for accrued legacy debt and do not receive enough tariff compensation from households given the regulated price. - For 2023, gas price subsidies amounted to EUR 2.9 billion for households and EUR 1.7 billion for DHCs (OECD, 2025). - Under the EU Ukraine Plan, the authorities are implementing a PSO reform roadmap. - PSOs and tariff differentials amid regulated prices have led to a complex energy system with sizable debt among some key market players, which has been growing during the war as no fiscal space in the state budget exists to compensate SOEs for their PSOs. ### Roadmap, timing, and institutional arrangements - The authorities intend to adopt a roadmap for the gradual liberalization of gas and electricity markets within six months of the end of Martial Law, with a time-bound implementation plan for the post-Martial Law period. - Such a roadmap is also part of the EU Ukraine Plan (Q2 2026). - The roadmap would cover: - Proposed PSO reforms. - Plans for gradual tariff increases/tariff methodologies. - Mechanisms to deal with the legacy debt and arrears in the energy system by different energy players. - A comprehensive protection scheme for the most vulnerable households. - While implementation of the measures would be for the post-war period, technical analysis of the financial conditions of the sector can be advanced now, aided by international partners. - A working group of key government stakeholders, including macro-critical SOEs, would help advance work on the roadmap and coordinate technical analysis. - Care should be taken to avoid a piecemeal approach; building political consensus and strong consistent communication will be of utmost importance to ensure timely and effective implementation. ### Uncertainty management and strategic priorities - Given high uncertainty prevailing in the war context, it will be key to conduct scenario analysis to ensure the success of the roadmap in the conditions that will prevail after the end of the war. - The decentralized and more EU integrated energy sector, including in renewables, is expected to play a crucial role in the post-war recovery of Ukraine towards EU accession. *Source: 1ukrea2025002-print-pdf - Box 1. Ukraine: Energy Roadmap for Post-War Ukraine* ### 34. The joint and several capacity-to -repay (CtR) assurance provided by a significant ### The joint and several capacity-to-repay (CtR) assurance provided by a significant group of creditors/donors at program approval remains valid. ### CtR assurance and rationale - The assurance remains valid given the "continuing exceptionally high uncertainty around the scale, intensity, and duration of the war." - The assurance is required because "the economic outlook, which is subject to tail risks beyond the downside, and the program itself cannot fully establish a safeguard on capacity to repay, as in normal UCT-program contexts." - In line with the Fund’s EHU policy, a "significant group of creditors/donors" (countries in the G7 plus Belgium, Lithuania, the Netherlands, Poland, Slovakia, and Spain) provide the assurance that they: - (i) reaffirm their recognition of the Fund’s preferred creditor status in respect of the amounts currently outstanding to Ukraine, plus any purchases under the extended arrangement; and - (ii) further undertake to provide adequate financial support to secure Ukraine’s ability to service all of its obligations to the Fund, in accordance with the Fund’s preferred creditor status and complementing the Fund’s multilayered risk management framework. ### Indicators of capacity to repay the Fund - Under the baseline scenario: - The stock of total Fund credit is expected to peak at 7.2 percent of GDP in 2025. - The stock of total Fund credit is expected to reach 29.2 percent of gross reserves in 2026. - Debt service to the Fund would peak at 1.5 percent of GDP in 2025. - Debt service to the Fund would peak at 5.9 percent of gross reserves in 2025. - In a materialization of downside risks: - Outstanding credit to the Fund would peak at 7.7 percent of GDP in 2026. - Outstanding credit to the Fund would peak at 49.5 percent of gross reserves in 2027. - Debt service to the Fund would peak at 1.5 percent of GDP in 2025. - Debt service to the Fund would peak at 9.1 percent of gross reserves in 2026. ### Staff appraisal — key findings - Program and macroeconomic context: - The EFF is more than halfway through its 4-year term; the war continues and limits space to absorb new shocks and restore external viability. - The economy has remained broadly resilient, but war-related strains weigh on recovery; structural reform momentum has slowed. - Peace talks have yet to yield outcomes; restoring medium-term external viability by end of program could become challenging with further shocks. - Program performance: - Authorities met all continuous PCs and all end-March QPCs. - Majority of SBs for this review were delivered on time; four SBs were reset to allow more implementation time. - Sustaining reform momentum is essential to improve governance, unlock critical external financing, and support EU accession. - Risks: - Near-term risks remain "exceptionally high," centered on duration and intensity of the war and durability of international financial and military support. - Continuing attacks on civilian and energy infrastructure and reform fatigue are additional risks. - Policy agility and contingency planning are essential. ### Policy recommendations and priorities - Fiscal policy and debt sustainability: - Revenue-based fiscal adjustment and close adherence to the program’s fiscal paths are necessary to restore medium-term fiscal and debt sustainability. - The 2025 Supplementary Budget has been integrated into the program; adherence will help ensure the deficit can be financed. - The Budget Declaration for 2026–28 focuses post-war priorities and necessary tradeoffs. - Advance domestic revenue mobilization to provide resources for expenditure priorities and to narrow fiscal deficits. - Scope for further external financing outside grant-equivalent terms is "very limited." - Continue efforts with creditors to treat all claims in the restructuring perimeter in line with the program—including GDP warrants—to restore debt sustainability. - Fiscal structural reforms: - Implement public investment management and medium-term budgeting reforms. - Advance customs reforms, including timely appointment of the new head, to modernize the SCS, support revenue collection, and tackle corruption and fraud. - Timely implementation of ambitious IT reforms is critical for the credibility of the NRS. - Monetary and exchange rate policy: - A tight monetary stance is appropriate to tackle inflation pressures and maintain adequate reserves. - The NBU should be prepared to further tighten should inflation expectations deteriorate. - The exchange rate should play a greater shock-absorbing role to prevent external imbalances and safeguard reserves, in line with the NBU Strategy and program objectives. - The cautious, conditions-based approach to FX liberalization remains appropriate, with continued monitoring of measure effectiveness. - Proposed tightening of the end-September 2025 NIR target will help safeguard future financing buffers. - Financial stability and market infrastructure: - Remain vigilant to financial stability risks and prepare market infrastructure for reconstruction and recovery. - Strengthen the bank rehabilitation framework, prepare a framework to address critical third-party risks, update the NBU Resilience Assessment, and close gaps in capital market infrastructure. - Swiftly address institutional and effectiveness challenges of the NSSMC. - Governance, anti-corruption, and rule of law: - Decisive implementation of governance reforms is essential to mitigate corruption risks, support EU accession, and facilitate post-war private capital flows. - Enact the delayed criminal procedural code to assist anti-corruption institutions. - Further strengthen the AML/CFT architecture, including publishing beneficial ownership information, and improve the asset declaration system. - Ensure transparent and credible competitions in the supreme audit institution, administrative courts, and anti-corruption courts. - Energy sector resilience and governance: - Make the energy sector more resilient and decentralized and strengthen corporate governance. - Prepare the energy system for the next winter. - Modernize SOE supervisory board selection and appointment procedures. - Swiftly adopt the NEURC draft law on strengthening the independence of the energy regulator as a pre-condition for the planned external assessment. - Begin a roadmap for the liberalization of gas and electricity markets with a time-bound implementation plan for the post Martial Law period. ### Program status and outlook - The program continues to meet its objectives, and "the requisite policies and safeguards are in place for the Fund to complete the Eighth Review." - The program provides an anchor for restoring medium-term external viability by: - establishing a framework for policies consistent with sustainability, - guiding ongoing debt restructuring, and - catalyzing large-scale donor financing. *Source: Content unit 1ukrea2025002-print-pdf - 34.* ### 46. Staff supports the authorities’ request for the resetting of four structural benchmarks, ### 1ukrea2025002-print-pdf - 46. Staff supports the authorities’ request for the resetting of four structural benchmarks, ### Staff recommendations and program assessment - Staff supports the authorities’ request for: - the resetting of four structural benchmarks, - modification of quantitative performance criteria, - a request for rephasing, and - the completion of the Eighth Review Under the Extended Arrangement. - Staff also recommends completing the financing assurances review. - Rationale: "The authorities’ performance and commitment to the program, and continuing commitments from donors show that the program remains on track to meet its objectives." ### Structural benchmarks and prior actions (select highlights and statuses) - Table 4 lists 59 numbered structural benchmarks and prior actions across Fiscal; Monetary and Exchange Rate; Energy/Corporate Governance; Governance/Anti-Corruption; Financial Sector; SOE Corporate Governance, etc. - Select enacted or met benchmarks (with exact timing and status): - "Enact the second Supplementary Budget 2023" — Sector: Fiscal — Timing: End-April 2023 — Status: Met - "Submit to Parliament a draft law to restore and strengthen Article 52 of the Budget Code" — Fiscal — End-May 2023 — Met - "Prepare an action plan... input into National Revenue Strategy roadmap" — 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 National Revenue Strategy" — Fiscal — End-December 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 of the State Budget" — Fiscal — End-May 2023 — Met - "Prepare short-term revenue measures with yields of at least 0.5 percent of GDP ready to be included in budget 2024" — Fiscal — End-February 2024 — Met - "Adopt a new law on the ESBU... End-June 2024" — Fiscal — Status: Met - "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-July 2025 — Met - Select benchmarks Not Met (implemented with delay) or Proposed/resets: - "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..." — Governance/Anti-Corruption — End-July 2023 — Not Met (implemented with delay) - "Enact amendments to the procedural code to rationalize matters... by one anti-corruption judge or by a panel of three anti-corruption judges." — Governance/Anti-Corruption — End-April 2024 — Not Met (implemented with delay) - "Enact a law to establish a new court that will hear administrative cases against national state agencies..." — Governance/Anti-Corruption — End-December 2024 — Not Met (implemented with delay) - "Prepare a comprehensive operational strategy for the NSSMC, including initiating an independent fit and proper review." — Financial Sector — End-January 2025 — Not Met - Proposed/reset timings (examples): - "Appoint a permanent head of SCS." — Fiscal — End-June 2025 — Proposed reset to End-December 2025 - "Complete the independent fit and proper review of the NSSMC." — Financial Sector — End-June 2025 — Proposed reset to End-August 2025 - "Prepare and submit to parliament a draft law on financial sector critical third-party risk." — Financial Sector — End-September 2025 — Proposed reset to End-June 2026 - "Complete and publish an external assessment of NEURC by the Energy Community Secretariat (upon request)." — Energy — End-October 2025 — Proposed reset to End-December 2025 ### Key macroeconomic projections (selected figures from baseline scenario) - Nominal GDP (billions of Ukrainian hryvnias): - 2021: 5,451 - 2022: 5,239 - 2023: 6,628 - 2024 (Proj. EFF 7th Review): 7,659 - 2025 (Proj.): 8,737 - 2026 (Proj.): 8,866 - 2027 (Proj.): 10,044 - 2033 (Proj.): 19,311 - Real GDP (percent change): - 2021: 3.4 - 2022: -28.8 - 2023: 5.5 - 2024 (Proj. EFF 7th Review): 2.9 - 2025 (Proj.): -3.2 - 2026 (Proj.): -3.4 - 2027 (Proj.): 5.4 - 2033 (Proj.): 4.0 (annual projection listed repeatedly as 4.0) - Consumer prices (period average): - 2021: 9.4 - 2022: 20.2 - 2023: 12.9 - 2024 (Proj. EFF 7th Review): 6.5 - 2025 (Proj.): 12.6 - 2026 (Proj.): 12.6 - 2027 (Proj.): 7.7 - 2033 (Proj.): 5.0 - Unemployment rate (ILO definition; period average, percent): - 2021: 9.8 - 2022: 24.5 - 2023: 19.1 - 2024 (Proj.): 13.1 - 2025 (Proj.): 11.6 - 2026 (Proj.): 11.6 - 2027 (Proj.): 10.2 - 2033 (Proj.): 8.5 ### Fiscal outlook (selected aggregates) - General government overall balance (percent of GDP): - 2021: -4.0 - 2022: -15.6 - 2023: -19.3 - 2024 (Proj. EFF 7th Review): -17.2 - 2025 (Proj.): -18.8 - 2026 (Proj.): -21.3 - 2027 (Proj.): -9.7 - 2033 (Proj.): -1.1 - Fiscal balance, excluding grants (percent of GDP): - 2021: -4.0 - 2022: -24.8 - 2023: -25.8 - 2024 (Proj.): -23.1 - 2025 (Proj.): -19.6 - 2026 (Proj.): -22.1 - 2027 (Proj.): -9.9 - 2033 (Proj.): -1.6 - Public and publicly-guaranteed debt (percent of GDP): - 2021: 48.9 - 2022: 77.7 - 2023: 81.2 - 2024 (Proj. EFF 7th Review): 89.7 - 2025 (Proj.): 110.0 - 2026 (Proj.): 108.6 - 2027 (Proj.): 110.4 - 2033 (Proj.): 80.4 - General government revenue and expenditure (billions of Ukrainian Hryvnia, select years): - Revenue: - 2021: 1,990 - 2022: 2,609 - 2023: 3,583 - 2024 (Proj. EFF 7th Review): 4,140 - 2025 (Proj.): 3,420 - Expenditure: - 2021: 2,207 - 2022: 3,426 - 2023: 4,865 - 2024 (Proj.): 5,458 - 2025 (Proj.): 5,065 ### External sector and financing (selected indicators) - Current account balance (percent of GDP): - 2021: -1.9 - 2022: 4.9 - 2023: -5.3 - 2024 (Proj. EFF 7th Review): -7.2 - 2025 (Proj.): -15.9 - 2026 (Proj.): -16.5 - 2027 (Proj.): -10.6 - 2033 (Proj.): -4.0 - Gross reserves (end of period, billions of U.S. dollars): - 2021: 30.9 - 2022: 28.5 - 2023: 40.5 - 2024 (Proj. EFF 7th Review): 43.8 - 2025 (Proj.): 56.8 - 2026 (Proj.): 53.4 - 2027 (Proj.): 50.8 - 2033 (Proj.): 76.9 - Months of next year's imports of goods and services: - 2021: 4.5 - 2022: 3.8 - 2023: 5.3 - 2024 (Proj.): 5.1 - 2025 (Proj.): 7.0 - 2026 (Proj.): 6.3 - 2027 (Proj.): 6.1 - 2033 (Proj.): 6.6 - Gross external financing requirements and sources (Table 8, selected): - A. Total financing requirements (billions of U.S. dollars): - 2021: 20.3 - 2022: 31.9 - 2023: 39.7 - 2024 (Proj. EFF 7th Review): 51.7 - 2025 (Proj.): 53.8 - B. Total financing sources (billions of U.S. dollars): - 2021: 20.0 - 2022: 0.7 - 2023: 9.6 - 2024 (Proj. EFF 7th Review): 16.0 - 2025 (Proj.): 11.8 - D. Official financing (billions of U.S. dollars): - 2021: 1.1 - 2022: 29.8 - 2023: 40.1 - 2024 (Proj. EFF 7th Review): 39.6 - 2025 (Proj.): 55.0 - F. Increase in reserves (billions of U.S. dollars): - 2021: 2.5 - 2022: -2.3 - 2023: 11.4 - 2024 (Proj.): 2.9 - 2025 (Proj.): 13.0 ### Monetary and banking sector (selected) - Base money (end of period, percent change, memorandum): - 2021: 11.2 - 2022: 19.6 - 2023: 23.3 - 2024 (Proj. EFF 7th Review): 7.7 - 2025 (Proj.): 21.6 - Broad money (end of period, percent change, memorandum): - 2021: 12.0 - 2022: 20.8 - 2023: 23.0 - 2024 (Proj. EFF 7th Review): 13.4 - 2025 (Proj.): 14.3 - Credit to nongovernment (percent change, memorandum): - 2021: 8.4 - 2022: -3.1 - 2023: -0.5 - 2024 (Proj. EFF 7th Review): 13.5 - 2025 (Proj.): 12.8 ### Quantitative performance criteria and indicative targets (selected entries) - Table 12 (end of period; millions of Ukrainian hryvnia unless indicated): - I. Quantitative Performance Criteria (examples of floors/ceilings and status): - "Floor on the non-defense cash primary balance of the general government, excluding budget support grants (- implies a deficit)" — Jun 2025 Adjusted QPC: 254,800; Actual: 381,442 — Status: Met - "Floor on tax revenues (excluding Social Security Contributions)" — Jun 2025 Adjusted QPC: 485,000; Actual: 614,434 — Status: Met - "Ceiling on publicly guaranteed debt" — Jun 2025 Adjustor 62,860; Adjusted QPC 70,699; Actual: 7,839 — Status: Met - "Floor on net international reserves (in millions of U.S. dollars)" — Jun 2025 QPC: 27,200; Adjustor -4,176; Adjusted QPC 23,024; Actual: 26,924 — Status: Met - II. Indicative Targets (examples): - "Ceiling on general government arrears" — target 1,800 — Actual: 1,421 — Status: Met - "Floor on social spending" — target 132,000 — Actual: 164,874 — Status: Met - "Ceiling on general government borrowing from the NBU" — target -984 — Actual: -1,029 — Status: Met - IV. Memorandum items include external project financing and external budget financing in millions of U.S. dollars (select entries): - "External project financing (in millions of U.S. dollars)" — values include: 378 ...... 12 ... 1,133 737 2,266 1,875 3,776 3,776 250 250 250 - "External budget financing (in millions of U.S. dollars)" — values include: 12,198 ...... 8,381 ... 25,011 19,903 34,336 28,773 54,488 49,835 2,923 5,170 9,778 *Italic: Source: 1ukrea2025002-print-pdf - 46. Staff supports the authorities’ request for the resetting of four structural benchmarks (IMF staff content provided).* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Overview - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. - The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. ### External Risks - Regional conflicts (e.g., in the Middle East, Ukraine, Sahel, and East Africa) or terrorism: - Likelihood: Medium - Expected impact: High. Key consequences listed: increased loss of life; further destruction of the capital stock (including the energy system); outward migration and internal displacement; stalled recovery and sharp fall in growth amid lack of confidence and high uncertainty; weakened medium-term prospects; curtailed recovery of exports due to restrictions on port access and logistical challenges; increased import needs for defense, energy, and infrastructure repair; widened fiscal and external financing needs; potential monetary financing if financing constraints arise; price and exchange rate pressure; high inflation eroding purchasing power and increasing poverty; weak activity weighing on bank and SOE balance sheets. - Policy response: Maintain appropriate macroeconomic policies to safeguard macroeconomic and financial stability; implement contingency plans for materialization of downside risks; mobilize domestic financing 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. - Commodity price volatility (due to conflicts, trade restrictions, OPEC+ decisions, AE energy policies, or green transition): - Likelihood: Medium - Expected impact: Medium. Key consequences: increased energy import needs for the upcoming winter given domestic gas production damage; high energy prices straining consumption and business activity and widening fiscal and external financing needs; low/volatile agricultural prices and logistical costs altering sowing decisions. - Policy response: Continue rationing access to energy to priority areas; further expand gas production; secure alternative sources and storage for gas through the heating season; target transfers to most vulnerable groups within existing budget envelope; build on and deepen alternative export routes. - Tighter financial conditions and systemic instability: - Likelihood: Medium - Expected impact: High. Key consequences: shortfall or delay in external and/or domestic financing leading to larger financing gaps, financial repression, monetary financing, sharp compression in spending, intensified macro-financial risks, and dampened 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 discontent (real income loss, spillovers from conflicts, dissatisfaction with migration, worsening inequality): - Likelihood: Medium - Expected impact: High. Key consequences: amplified social unrest undermining national unity; counterproductive populist policies widening fiscal and external imbalances, delaying adjustment, and stalling 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 (poor governance, corruption, retrenchment of oligarchic interests, lack of oversight on external funding): - Likelihood: Medium - Expected impact: High. Key consequences: decreased incentives for reform; exacerbated financing gaps; reduced future external financing inflows; donor fatigue. - Policy response: Adhere to governance reforms while maintaining recent progress in strengthening anti-corruption and judicial institutions; implement critical reforms 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. Key consequences: severe impact on balance of payments from loss of the Black Sea corridor; exacerbated financing gaps and FX market pressures; curtailed exports and adverse effects on future farming decisions if central European transit routes remain closed. - Policy response: Urge partners for quick resolution to minimize disruption to transit routes; diversify supply chains; accelerate reconstruction of Danube Deep Sea shipping lanes; repair railroads with external financing; further expand the Black Sea corridor. ### Structural Risks - Deepening geoeconomic fragmentation (persistent conflicts, inward-oriented policies, protectionism, weaker international cooperation, labor mobility curbs, fracturing technological and payments systems): - Likelihood: High - Expected impact: High. Key consequences: higher input costs; hindered green transition; lower trade and potential growth; exposure due to Ukraine’s trade-dependence and position at a fault line of geopolitical tensions. - Policy response: Maintain appropriate macroeconomic policies to safeguard stability and ensure adequate resources for core functions of the state; diversify trade products, supply chains, and partners; continue reforms to support competitiveness and increase productivity. ### Annex II. Sovereign Risk and Debt Sustainability Analysis (SRDSA) — Key Findings and Assumptions - Baseline and downside framework: - The updated SRDSA is based on a baseline scenario complemented by a downside scenario. Only agreed debt restructurings are incorporated; the terms of the August 2024 Eurobond restructuring are included while other claims in the restructuring perimeter maintain pre-restructuring terms. - The SRDSA continues to find overall high risks and that debt sustainability relies on finalizing the authorities’ debt restructuring strategy, fiscal adjustment, and financing on sufficiently concessional/grant-equivalent terms. - Macroeconomic outlook revisions: - Newly released data: real GDP growth of 2.9 percent in 2024. - Staff expects real GDP to grow by 2 percent in 2025 and 4.5 percent in 2026 (unchanged from the Seventh Review). Subsequent years consistent with a measured reconstruction, with real GDP exceeding its pre-war level starting in 2031. - Downside scenario: war continues until mid-2026. - Financing assumptions: - Total official external financing now amounts to US$139 billion (excluding the IMF) over the program period. - ERA disbursements comprise US$49.2 billion of the total. - Of the total, a portion of the 2025 disbursements (US$12.2 billion) will be allocated as budget prefinancing and utilized in 2026. - The authorities will save an additional amount totaling US$12.4 billion over 2025–27Q1 as contingent financing for the downside scenario. - After the program, budget support disbursements from partners are expected to be lower, around US$5–12 billion per year. - Baseline envisages return to market access only in 2029. - Debt perimeter and contingent liabilities: - Three debts with Russia are excluded from this DSA’s debt stock given ongoing disputes, but they remain a contingent liability risk. - The second half of 2024 US budget support not formally cancelled continues to be treated as a contingent liability. - DSA debt stock includes US$1 billion of ERA financing through the FORTIS FIF in December 2024; ERA financing treated as loans on terms similar to the EU’s MFA for conservative forecasting assumptions (10-year grace period, 25-year final maturity, and no interest). - Pending restructuring, pre-restructuring SRDSAs incorporate projected payments as a contingent liability on Ukraine's GDP warrants consistent with projected growth paths over 2026–33 and the underlying payment formula. - Debt and GFN trajectories: - End-December public debt in both scenarios reflects the revised 2024 GDP outturn, which amounts to around 89.7 percent of GDP. - In both baseline and downside scenarios, debt-to-GDP ratios rise at first before resuming a downward trend over the medium run. - Gross financing needs have changed somewhat relative to the Seventh Review. - Assessment of sustainability and risks: - Mechanical tools continue to indicate that debt remains unsustainable in the pre-restructuring baseline and downside scenarios; risks are high. - Medium-term tools signal high risks; long-term risks are assessed as high given uncertainty, including refinancing risk of concessional debt on less favorable terms. - Staff continues to assess debt as sustainable in a forward-looking sense conditional on: (i) fiscal adjustment; (ii) substantial concessional financing; and (iii) debt restructuring, including of the GDP warrants. - Debt restructuring targets (from the Sixth Review) judged appropriate: - ERA financing treated as neutral for DSA targets given ERA’s extraordinary risk-mitigation structure. - 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: public debt (excluding ERA liabilities) to 82 percent of GDP by 2028 and achieve debt service flow relief on external obligations of 1–1.8 percent of GDP per year. - The Eurobond restructuring provided substantial progress toward realizing these savings. - Overall conclusion: - Staff assesses debt as sustainable on a forward-looking basis conditional on completing the remainder of the restructuring strategy with sufficiently deep debt treatments; implementing fiscal adjustment (notably revenue-based); and securing financing that is sufficiently concessional or grant-equivalent during and after the program. *Source: Annex I. Risk Assessment Matrix and Annex II. Sovereign Risk and Debt Sustainability Analysis, as provided in the source content.* ### Annex II. Figure 2. Ukraine: Debt Coverage and Disclosures ### Annex II. Figure 2. Ukraine: Debt Coverage and Disclosures ### Debt Coverage and Consolidation - Coverage of the DSA includes: - central government direct debt; - domestic and external government-guaranteed debt (loans and bonds) extended to state-owned enterprises (SOEs); - debt of local governments; - Ukraine's liabilities to the IMF that are not included in central government direct debt. - Exclusions: - non-guaranteed domestic and external liabilities of SOEs; - disputed debts. - Data on debt consolidation across sectors: Data unavailable. - Subsector inclusion in baseline coverage: - Budgetary central government: Ye s - Extra budgetary funds (EBFs): No - Social security funds (SSFs): Ye s - State governments: Ye s - Local governments: Ye s - Public nonfinancial corporations: Ye s - Central bank: Ye s - Other public financial corporations: Ye s ### Instrument, Accounting, and Valuation Notes - Notes included in source: - 1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector. - 2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable. - 3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities. - 4/ Includes accrual recording, commitment basis, due for payment, etc. - 5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. It reflects the value of the instrument at creation and subsequent economic flows (such as transactions, exchange rate, and other valuation changes other than market price changes, and other volume changes). - 6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity. - 7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values. ### Reporting on Intra-Government Debt Holdings - Reported holders (values shown as 0 in the figure): - Budget. central govt: 0 - Extra-budget. funds: 0 - Social security funds: 0 - State govt.: 0 - Local govt.: 0 - Nonfin pub. corp.: 0 - Central bank: 0 - Oth. pub. fin. corp: 0 - Total: 000000000 ### Key qualitative observation - At end-2024, debt held by external official creditors rose further, reflecting substantial amounts of bilateral and multilateral financing disbursed in 2024. - Domestic debt is mostly held by residents and denominated in hryvnia. - The share of FX debt in total debt is expected to continue to rise based on the expected official financing during the program, entailing currency risk. - Projections reflect the August 2024 sovereign Eurobond restructuring. - Allocation of ERA disbursements to pre-finance future budgets and accumulate buffers is accounted for in "other transactions". --- ### Public Debt Structure Indicators (Baseline Scenario) - Visual indicators in source (percent of GDP) include: - Debt by Currency (Foreign currency / Local currency / Local-linked) - Public Debt by Holder (External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks, Domestic central bank) - Public Debt by Governing Law, 2024 (Domestic law, Foreign law ex. multilateral, Multilateral) - Debt by Instruments - Public Debt by Maturity (≤ 1 year, 1-5 years, > 5 years) - Projection comment: The share of FX debt expected to rise; high share entails currency risk. --- ### Baseline Scenario (Post-Eurobond Restructuring) — Key Projections and Flows (Percent of GDP unless indicated) - Public debt path (Est. 2024, then 2025–2034): - Public debt: 89.7 108.6 110.4 106.4 102.9 98.3 94.1 89.0 84.8 80.4 76.4 - Change in public debt: 8.5 18.9 1.7 -4.0 -3.5 -4.6 -4.2 -5.1 -4.2 -4.4 -4.0 - Contribution of identified flows: 14.3 21.3 2.3 -2.7 -3.5 -4.1 -4.1 -4.1 -4.0 -4.0 -3.9 - Primary deficit: 13.2 16.4 5.4 0.3 -0.6 -1.5 -1.5 -1.5 -1.5 -1.5 -1.5 - Noninterest revenues: 54.1 41.6 41.2 41.3 40.8 40.7 40.6 40.5 40.4 40.4 40.5 - Noninterest expenditures: 67.3 57.9 46.6 41.6 40.2 39.2 39.1 39.0 38.9 38.9 39.0 - Automatic debt dynamics: -0.6 -1.1 -3.7 -3.5 -3.1 -2.8 -2.7 -2.7 -2.6 -2.6 -2.5 - Real interest rate and relative inflation: 1.6 0.6 1.0 1.6 1.3 1.3 1.2 1.0 0.8 0.7 0.6 - Real interest rate: -3.3 -5.5 -4.7 -1.7 -0.9 -0.9 -1.0 -1.1 -1.2 -1.3 -1.3 - Relative inflation: 4.9 6.1 5.7 3.3 2.2 2.3 2.1 2.1 2.0 1.9 1.9 - Other identified flows: 1.7 6.1 0.6 0.5 0.2 0.3 0.1 0.1 0.1 0.1 0.1 - Contingent liabilities and other transaction: 0.0 0.3 1.1 0.0 0.2 0.3 0.2 0.2 0.1 0.1 0.1 - Contribution of residual: -5.7 -2.4 -0.5 -1.3 0.0 -0.5 -0.1 -1.0 -0.1 -0.4 -0.1 - Gross financing needs: 25.1 29.6 18.4 14.3 12.0 10.7 8.8 7.2 7.6 6.4 6.5 - of which: debt service: 11.9 12.9 11.9 14.0 12.4 11.9 10.1 8.6 9.0 7.8 7.9 - Local currency component of debt service: 5.9 8.3 7.6 10.4 8.7 7.5 6.6 5.2 5.7 5.1 3.7 - Foreign currency component of debt service: 6.0 4.5 4.3 3.7 3.7 4.4 3.6 3.3 3.3 2.8 4.2 - Memo: - Real GDP growth (percent): 2.9 2.0 4.5 4.8 4.3 4.2 4.1 4.0 4.0 4.0 4.0 - Inflation (GDP deflator; percent): 12.3 13.5 10.0 6.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 - Nominal GDP growth (percent): 15.6 15.8 15.0 11.1 9.5 9.4 9.3 9.2 9.2 9.2 9.2 - Effective interest rate (percent): 7.6 6.4 5.0 4.3 4.1 4.0 3.9 3.7 3.6 3.4 3.3 ### Baseline Commentary - Ukraine's public debt continued to rise in 2024. - After the war winds down, an expected recovery and improved macro conditions are projected to lead to a downward trajectory over the forecast horizon. - Downtrend drivers: real interest rate-growth differential and a better primary balance through fiscal adjustment. - Debt service projections reflect the standstill with a group of official bilateral creditors and the August 2024 Eurobond restructuring. - ERA disbursements pre-finance future budgets and accumulate buffers accounted for in "other transactions". --- ### Realism of Baseline Assumptions (Figure 5) — Key Messages - Forecast track record points to persistent optimism for debt-to-GDP; stock-flow adjustment indicators flag upward surprises in medium-term horizon. - Scale and uncertainty of the war shock suggest caution in assessing baseline realism based on backward-looking tools. - Primary deficit and real interest rate/relative inflation exert upward pressure on debt ratios. - Substantial long-term official financing shapes maturity and interest rate assumptions. - Realism of three-year fiscal adjustment depends critically on duration of the war and speed of deficit reversal. - Assumptions on multipliers are uncertain amid a deep structural break; output gap assumed to close gradually. --- ### Medium-Term Risks (Post-Eurobond Restructuring Baseline) - Debt fanchart / Medium-term module outputs: - Fanchart width: 154.5 2.2 (percent of GDP) - Probability of debt non-stabilization: 16.5 0.1 (percent) - Terminal debt-to-GDP x: 63.8 1.4 - Debt fanchart index (DFI): 3.8 — Risk signal: High - Gross financing needs (GFN) module: - Average baseline GFN: 15.6 5.3 (percent of GDP) - Banks' claims on the gen. govt (pct bank assets): 26.6 8.6 - Change in banks' claims in stress (pct banks' assets): 47.8 16.0 - GFN financeability index (GFI): 30.0 — Risk signal: High - Medium-term index: - Debt fanchart index: 3.8 - GFI: 30.0 - Final assessment: High - Prob. of missed crisis, 2025-2030, if stress not predicted: 81.8 pct. - Prob. of false alarms, 2025-2030, if stress predicted: 1.1 pct. - Interpretation: Both medium-term modules signal high sovereign stress risks; DFI remains deeply in high-risk territory; GFI indicates high liquidity-related risks given elevated average GFN-to-GDP ratios and large changes in bank claims in stress. --- ### Public Debt Structure (Post-Eurobond Restructuring Downside) — Key Points - Downside scenario yields a higher debt trajectory than the baseline; includes somewhat higher external financing but still further issuance on domestic market, resulting in higher share of local currency debt. - Visual indicators in source (percent of GDP) mirror baseline categories: currency, holder, governing law, instruments, maturity. ### Downside Scenario — Key Projections and Flows (Percent of GDP unless indicated) - Public debt path (Actual 2024, then 2025–2034): - Public debt: 89.7 122.5 131.7 134.8 129.9 127.7 122.8 119.4 114.2 110.5 105.5 - Change in public debt: 8.5 32.8 9.2 3.2 -4.9 -2.2 -4.9 -3.4 -5.2 -3.7 -5.0 - Contribution of identified flows: 14.2 29.2 10.9 2.7 -3.5 -3.1 -3.8 -3.9 -4.2 -4.1 -4.0 - Primary deficit: 13.2 21.5 16.7 4.2 -0.7 -1.0 -1.5 -1.5 -1.5 -1.5 -1.5 - Noninterest revenues: 54.1 41.1 39.7 40.8 40.7 40.5 40.4 40.3 40.3 40.2 40.4 - Noninterest expenditures: 67.3 62.6 56.4 45.0 39.9 39.5 38.9 38.8 38.7 38.7 38.9 - Automatic debt dynamics: -0.6 1.4 0.4 -2.7 -2.7 -2.1 -2.3 -2.5 -2.7 -2.6 -2.6 - Real interest rate and relative inflation: 1.6 0.5 0.4 2.1 2.3 2.6 2.4 2.0 1.7 1.5 1.5 - Real interest rate: -3.3 -7.5 -8.4 -3.3 -1.1 0.0 -0.1 -0.4 -0.7 -0.8 -0.8 - Relative inflation: 4.9 8.0 8.8 5.4 3.4 2.6 2.5 2.4 2.4 2.3 2.3 - Other identified flows: 1.6 6.2 -6.2 1.1 0.0 0.0 0.0 0.0 0.0 0.1 0.1 - Contingent liabilities and other transactions: 0.0 0.3 0.0 1.2 0.0 0.1 0.1 0.1 0.1 0.1 0.1 - Contribution of residual: -5.7 3.6 -1.8 0.5 -1.4 0.9 -1.1 0.5 -1.0 0.4 -1.0 - Gross financing needs: 25.1 35.5 34.0 24.0 16.2 16.7 14.9 14.3 14.2 12.1 12.9 - of which: debt service: 11.9 13.6 17.3 18.6 17.0 17.6 16.4 15.7 15.7 13.5 14.3 - Local currency component of debt service: 5.9 8.9 12.5 14.4 12.7 12.4 12.2 11.7 11.7 10.2 9.3 - Foreign currency component of debt service: 6.0 4.7 4.8 4.2 4.3 5.2 4.2 4.0 3.9 3.3 5.0 - Memo: - Real GDP growth (percent): 2.9 -1.0 0.0 3.8 3.8 3.8 3.8 3.8 3.8 3.8 3.8 - Inflation (GDP deflator; percent): 12.3 17.0 13.0 8.0 6.0 5.0 5.0 5.0 5.0 5.0 5.0 - Nominal GDP growth (percent): 15.6 15.8 13.0 12.1 10.0 9.0 9.0 9.0 9.0 9.0 9.0 - Effective interest rate (percent): 7.6 7.3 5.2 5.2 5.1 5.0 4.9 4.6 4.4 4.3 4.2 ### Downside Commentary - Debt trajectory in downside is sharply upward for several years before decreasing to still-high levels. - Financing needs substantially higher in adverse scenario, particularly over next 5 years. - Terminal debt level little changed versus Seventh Review due to offsetting revisions: upward revision from primary deficits offset by revised contribution from real GDP growth. --- ### Realism of Downside Assumptions and Medium-Term Risks (Figures 9–10) - As in the baseline, both medium-term modules signal high risks of sovereign stress in downside. - Debt Fanchart Index (DFI) components are worse than in baseline. - GFN Financeability Index remains very high and well above baseline due to higher average GFNs and larger changes in bank claims in stress. - Downside medium-term module outputs (selected): - Fanchart width: 189.3 2.7 (percent of GDP) - Probability of debt non-stabilization: 25.1 0.2 (percent) - Terminal debt-to-GDP x: 83.2 1.8 - Debt fanchart index (DFI): 4.8 — Risk signal: High - Average baseline GFN: 23.6 8.0 (percent of GDP) - Banks' claims on the gen. govt (pct bank assets): 26.6 8.6 - Change in banks' claims in stress (pct banks' assets): 70.1 23.4 - GFI: 40.1 — Risk signal: High - Final assessment: High - Prob. of missed crisis, 2025-2030, if stress not predicted: 100.0 pct. - Prob. of false alarms, 2025-2030, if stress predicted: 0.0 pct. *Source: IMF staff estimates and projections as presented in the Annex II figures.* ### Annex III. Downside Scenario ### Annex III. Downside Scenario ### Scenario assumptions and macroeconomic impacts - Under the Fund’s policy on lending under exceptionally high uncertainty, the downside scenario assumes a more intense war running through mid-2026, with the shock starting in 2025Q3 and the war winding down by mid-2026 (versus in the last quarter of 2025 in the baseline). - Key transmission channels and effects: - Strong negative impact on firm and household sentiment, slower migrant return, further large-scale energy infrastructure damage and power outages relative to the baseline. - Real GDP growth: -1 percent in 2025 (versus 2–3 percent in the baseline). - 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 for longer, causing higher nominal depreciation before converging to the baseline trend. - Some foreign exchange intervention (FXI) is assumed for 2025–26 to offset excessive exchange rate movements, contributing to a lower path of reserves compared to the baseline. - Alternate downside scenarios with different war endpoints and recovery paths are acknowledged as possible. ### Cumulative financing gap and debt implications - Updated cumulative financing gap in the downside scenario (2023Q2–27Q1): US$165.3 billion. - This is US$12.4 billion higher than the baseline forecast for 2023Q2–27Q1 (US$152.9 billion). - Financing needs and modalities: - Additional financing would need to be highly concessional loans (close to grant terms), including full use of financing from the ERA loan financing (assumed to remain neutral for the DSA). - Presence of exceptional financing in the five-year post-program period (up to the US$7.1 billion per year as described in the program request). - Required package: some mix of additional grants in the program period, highly concessional financing consistent with assurances received, and a further definitive debt treatment entailing available restructurable debt to ensure debt sustainability. - Such financing would bring total public debt and gross financing needs to targets consistent with sustainable debt, underpinning debt sustainability on a forward-looking basis. ### Policy responses and contingency measures - Authorities’ prior actions and readiness: - Since the start of the war, authorities introduced revenue (tax) measures, streamlined capital and lower-priority expenditures, identified additional financing, and implemented measures to maintain financial stability and protect international reserves, including through FX controls. - Authorities have demonstrated capacity to take additional reforms and measures since program approval. - Contingency plan (largely in line with those outlined at the Seventh Review): - Fiscal: mix of increases in tax revenues (bulk of adjustment given tight 2025 Budget), including VAT increases and accelerating excise tax alignment with the EU; constrain capital and social expenditures to highest priority categories and make some spending contingent on available financing. - External: seek further external financing on highly concessional terms; use grants and concessional flows where available. - Monetary and financial: monetary tightening; mobilization of domestic financing (UAH and FX as required); likely further adjusting FX policies and CFMs (justified and temporary); possible reintroduction of some FX controls if temporary pressures on the managed flexibility exchange rate regime materialize. - If shocks exceed the downside scenario: - Additional measures could include further revenue measures (e.g., increasing the military tax supplement to the PIT; additional taxes on luxury goods such as jewelry, automobiles, and precious metals; excise duties/fees). - Mobilizing domestic bond financing on a larger scale, and potentially monetary financing measures such as administrative requirements for banks to hold a stipulated amount or minimum holding period of government securities, differentiating across banks by liquidity conditions. - Secondary purchases of government bonds by the NBU could backstop the primary market; consider instruments such as inflation- or exchange-rate-linked bonds. - In case of high exchange-rate pressures but adequate reserves, a combination of expanded FX controls and proactive FX policies while adjusting monetary policy could be considered. - Spending in certain categories ultimately contingent on flows of highly concessional/grant-based external financing. ### Fiscal and macro key statistics (selected exact figures from downside scenario tables) - Real economy and prices: - Real GDP: -1.0 percent in 2025. - Nominal GDP (billions of Ukrainian hryvnias): 2024 = 5,451; 2025 = 5,239; 2026 = 6,628; 2027 = 7,659; 2028 = 8,871; 2029 = 10,024. - Consumer prices (period average): 2025 = 20.2; 2026 = 12.9; 2027 = 6.5 (percent). - Unemployment rate (period average, percent): 2025 = 24.5; 2026 = 19.1; 2027 = 13.1. - External sector and reserves: - Current account balance (percent of GDP): 2025 = 4.9; 2026 = -5.3; 2027 = -7.2; 2028 = -17.5. - Gross reserves (end of period, billions of U.S. dollars): 2024 = 30.9; 2025 = 28.5; 2026 = 40.5; 2027 = 43.8; 2028 = 42.9. - Months of next year's imports of goods and services: 2025 = 3.8; 2026 = 5.3; 2027 = 5.0. - Public finances: - General government fiscal balance (percent of GDP): 2024 = -17.2; 2025 = -27.2; 2026 = -22.4; 2027 = -10.3. - General government fiscal balance, excluding grants (percent of GDP): 2025 = -24.8; 2026 = -25.8; 2027 = -23.4. - Revenue (billions of Ukrainian hryvnias): 2024 = 1,990; 2025 = 2,609; 2026 = 3,583; 2027 = 4,140. - Tax revenue (billions of Ukrainian hryvnias): 2024 = 1,825; 2025 = 1,782; 2026 = 2,139; 2027 = 2,658. - Expenditure (billions of Ukrainian hryvnias): 2024 = 2,207; 2025 = 3,426; 2026 = 4,865; 2027 = 5,458. - General government overall balance (billions of Ukrainian hryvnias): 2024 = -216; 2025 = -817; 2026 = -1,282; 2027 = -1,318. - Public and publicly-guaranteed debt (percent of GDP): 2024 = 48.9; 2025 = 77.7; 2026 = 81.2; 2027 = 89.7; 2028 = 122.5; 2029 = 131.7. - Primary balance (percent of GDP, memorandum): 2024 = -6.2; 2025 = -65.5; 2026 = -1,028 (billions? shown as -1,028 in table as primary balance line in billions of hryvnia); table shows primary balance items as listed in source. - General government financing flows (selected): - External financing (billions of Ukrainian hryvnias): 2024 = 136; 2025 = 562; 2026 = 1,076; 2027 = 1,111. - Domestic (net) financing (billions of Ukrainian hryvnias): 2024 = 81; 2025 = 263; 2026 = 310; 2027 = 262. - NBU contribution to bond financing (billions of Ukrainian hryvnias, shown as “o/w NBU”): 2024 = -14; 2025 = 383; 2026 = -15; 2027 = -3 (table entries as presented). - Financing gap: - Updated cumulative financing gap (2023Q2–27Q1): US$165.3 billion (US$12.4 billion higher than the baseline US$152.9 billion). ### Program robustness and outlook - The program remains robust under the updated downside scenario due to: - Authorities’ strong track record and policy commitments. - Renewed financing assurances from international partners and expected debt relief. - Debt sustainability analysis under the downside scenario reconfirms that additional financial assurances from international partners would restore debt sustainability on a forward-looking basis. *Source: Annex III. Downside Scenario (1ukrea2025002-print-pdf).* ### Annex III. Table 3a. Ukraine: Balance of Payments (Downside Scenario), 2021–33 ### Annex III. Table 3a. Ukraine: Balance of Payments (Downside Scenario), 2021–33 ### Current account balance - Series (as presented): -3.9, 8.0, -9.6-13.7, -35.8-28.4-7.8-6.9-6.3-8.7-9.5-9.7-10.6 ### Goods (net) - Series (as presented): -6.6-14.7, -29.1, -30.4-42.9-31.3-28.9-31.4-31.2-32.6-32.2-31.7-31.9 - Exports (series as presented): 63.1, 40.9, 34.7, 38.9, 35.542.147.850.655.059.264.770.576.8 - Imports (series as presented): -69.8, -55.6, -63.8, -69.3, -78.4-73.4-76.7-82.0-86.2-91.8-96.9-102.2-108.7 ### Services (net) - Series (as presented): 4.0, -11.1-8.7, -5.5, -12.3-8.57.113.214.815.716.116.416.7 - Receipts (series as presented): 18.416.6, 16.6, 17.214.916.623.227.229.931.733.034.435.8 - Payments (series as presented): -14.4-27.7, -25.3-22.7-27.1-25.1-16.1-14.0-15.1-16.0-17.0-18.0-19.1 ### Primary income (net) - Series (as presented): -5.8, 8.5, 5.00.3, 1.30.81.60.6-0.2-1.6-2.348-2.9-3.4 ### Secondary income (net) - Series (as presented): 4.6, 25.2, 23.321.8, 18.010.712.410.710.29.89.08.68.0 ### Capital account balance - Series (as presented): 0.0, 0.20.15.10.00.00.00.00.00.00.00.00.0 ### Financial account balance - Series (as presented): -5.58.5, -20.9-12.2-35.6-17.6-6.9-10.9-11.3-14.9-15.6-15.2-16.8 - Direct investment (net) (series as presented): -7.5-0.2, -4.4-3.5-2.0-2.6-7.9-11.0-9.2-9.2-10.1-10.2-10.4 - Portfolio investment (net) (series as presented): -1.0, 2.02.76.61.4-0.10.50.31.2-0.9-1.6-1.3-1.5 - Financial derivatives (net): 0.2, 0.00.0, 0.1, 0.00.00.00.00.00.00.00.00.0 - Other investment (net) (series as presented): 2.96.7, -19.1, -15.4-35.0-14.90.6-0.2-3.2-4.8-3.9-3.7-4.9 - Other investment: assets (series as presented): 7.7, 21.0, 11.416.7, 19.48.76.12.42.32.02.22.02.1 - Other investment: liabilities (series as presented): 4.9, 14.3, 30.6, 32.1, 54.323.75.52.55.56.86.15.77.0 ### Net use of IMF resources for budget support - Series (as presented): 0.22.3, 3.63.9, 0.80.6-0.1-0.8-1.7-1.1-1.3-1.4-1.1 ### Sectoral financial flows (selected) - Central Bank (series as presented): 2.7-0.1, 0.0, 0.00.00.00.00.00.00.00.00.00.0 - General government (series as presented): 1.5, 14.7, 26.024.749.920.44.52.76.67.26.76.57.4 - Banks 3/ (series as presented): 0.4-0.4-0.10.00.00.00.00.00.00.00.00.00.0 - Other sectors (series as presented): 0.0, -2.2, 1.13.6, 3.62.71.10.60.60.70.70.70.7 ### Errors and omissions - Series (as presented): 1.8-0.3, 1.6, 0.3, 0.00.00.00.00.00.00.00.00.0 ### Overall balance and financing - Overall balance (series as presented): 3.5, -0.613.03.8-0.2-10.8-0.93.94.96.26.15.56.3 - Financing (series as presented): -3.50.6-13.0-3.8, 0.210.80.9-3.9-4.9-6.2-6.1-5.5-6.3 - Gross official reserves (increase: -) (series as presented): -2.5, 2.3-11.4-2.90.911.11.0-3.9-4.9-5.1-4.9-4.1-5.2 - Net use of IMF resources for BOP support (series as presented): -0.9-1.6, -1.6-0.9-0.8-0.3-0.10.00.0-1.1-1.3-1.4-1.1 ### Memorandum items (selected) - Current account balance (percent of GDP) (series as presented): -1.94.9, -5.3-7.2-17.5-14.2-3.7-3.2-2.7-3.6-3.6-3.5-3.6 - Goods and services trade balance (percent of GDP) (series as presented): -1.3-15.9-20.9, -18.8-27.0-20.0-10.5-8.3-7.0-6.9-6.2-5.5-5.2 - Gross international reserves (series as presented): 30.928.540.5, 43.842.931.830.834.839.744.849.753.859.0 - Months of next year's imports of goods and services (series as presented): 4.53.8, 5.35.0, 5.24.13.94.14.44.75.05.15.2 - Percent of the IMF composite metric (float) (series as presented): 105.5, 110.3130.2, 125.4102.670.165.571.979.086.491.996.4102.1 *Sources: National Bank of Ukraine; and IMF staff estimates and projections.* ### 6. We continue to strive to implement key policy measures and structural reforms under the ### 6. We continue to strive to implement key policy measures and structural reforms under the program ### Structural benchmarks achieved and proposed resets - Structural benchmarks met: - Submission of legislative amendments to parliament to introduce tax reporting requirements for digital platform operators by end-April. - Publication of the completed external audit of the National Anti-Corruption Bureau of Ukraine’s effectiveness with participation of three independent experts with international experience. - Prior action for this review: - Submission to the CMU a reform plan for the state customs service (SCS). - Four structural benchmarks proposed to be reset: - Appointment of a permanent head of SCS from end-June to end-December 2025. - Publication of external assessment of NEURC by the Energy Community Secretariat from end-October to end-December 2025. - NBU taking steps to mitigate growing critical third-party risk in banks, non-bank financial institutions, and payments service providers from end-September 2025 to end-June 2026. - Completion of NSSMC’s fit and proper review from end-June 2025 to end-August 2025. ### Additional structural benchmarks proposed - Four additional benchmarks to demonstrate continued reform commitment: - SIC to approve the updated Single Project Pipeline by end-August 2025. - NBU and NSSMC to prepare a prioritized roadmap for financial market infrastructure reforms in consultation with IFIs and other stakeholders by end-October 2025. - Implementation of European and international valuation standards by end-December 2025. - NSSMC to prepare legislative proposals for submission to parliament to align the securitization and covered bonds frameworks with international standards by end-March 2026. ### Debt restructuring, financing assurances, and program financing request - Context and past actions: - Intention announced in March 2023 to undertake a treatment of external public debt in line with program parameters. - Successful exchange of outstanding government and Ukravtodor bonds in August 2024. - Contingent commitments: - Commitment to undertake a further external commercial debt treatment as needed to restore debt sustainability in line with program parameters, should the macroeconomic and debt outlook worsen. - Expectation that such a treatment would take place once conditions of exceptionally high uncertainty abate, or at the latest by the penultimate review of the program. - Requests to the IMF: - Completion of the financing assurances review. - Completion of the Eighth Review and a disbursement in the amount of SDR 373.53 million (18.6 percent of quota), to be channeled for budget support. - A rephasing to backload purchases under the program within 2025 to better align with the profile of balance-of-payments needs. - Operational arrangement: - A memorandum of understanding between the National Bank of Ukraine (NBU) and the Ministry of Finance (MOF) established to govern the mechanism of servicing of the government’s obligations to the Fund by the NBU on behalf of the MOF. ### Macroeconomic outlook and key projections for 2024–25 - Growth: - After growth of 2.9 percent in 2024, GDP is expected to grow between 2 and 3 percent in 2025. - Inflation: - Inflation reached 15.1 percent y/y in April. - Inflation is expected to moderate to around 9 percent by end-2025. - Current account and reserves: - Current account deficit excluding grants reached US$25 billion in 2024 (up from US$21.3 billion in 2023). - Projected current account deficit excluding grants of US$38.6 billion in 2025. - Gross international reserves projected to end the year at US$53.4 billion (125.5 percent of the ARA metric). - Exchange rate movements: - Hryvnia depreciated by 2.1 percent against the US dollar through Q4-2024. - Hryvnia appreciated year to date through May by 1.2 percent. - Hryvnia depreciated by 6.5 percent against the euro over the same period. - Credit and banking system: - Credit growth continues to recover; lending to households and micro, small and medium-sized enterprises increasing rapidly from anemic levels in 2024. - Role of state support in lending to businesses (5-7 -9 program) has declined. - Mortgage lending continues to be dominated by a subsidy program (eOselya). - Gross non-performing loans continue to fall while loan default rates are declining towards pre-war levels. - Banking system remains profitable and highly liquid amid still strong deposit growth. ### Risks, scenarios, and policy response readiness - Upside potential: - Faster rebound possible if a just and durable peace agreement delivers improvement in security, return migration, improved energy security, resolving bottlenecks, and durable access to seaports and supply routes. - Stronger growth could follow forceful structural reforms, significant reconstruction investment, and faster return of migrants. - Downside risks: - Security risks persisting or worsening could pressure fiscal and external positions, increase financing needs, depress sentiment, delay private investment, interrupt export transit routes, damage energy infrastructure, and revive supply chain disruptions. - Shortfalls or delays in external financing could recur and exacerbate financing constraints. - Commitment to policy tools under a downside scenario: - Ready to take additional feasible fiscal measures, including identifying additional tax policy measures and spending measures building on efficiency gains, guided by the National Revenue Strategy (NRS). - Identify additional domestic financing as needed. - Ready to deploy foreign reserves, adjust monetary policy stance, and recalibrate FX controls to maintain macrofinancial stability. - Will consult with IMF staff on adoption of measures and prior to any revisions to MEFP policies, in line with IMF consultation policies. - Will refrain from policies inconsistent with the program’s objectives and MEFP commitments. ### Policy framework and reform priorities (2025–27) - Program goals: - Restore fiscal and debt sustainability, maintain external and financial stability, and restore medium-term external viability to support post-war reconstruction and EU accession. - Two-phased approach: - Phase 1: Preserve stability and advance priority structural reforms while planning for broader reforms once the war tapers off. - Phase 2: Shift focus to expansive structural reforms to entrench macroeconomic stability and bolster reconstruction; revert to pre-war policy frameworks as conditions allow. - Policy stances and instruments: - Maintain robust budget implementation in 2025, consistent with a strong medium-term budget framework, including Budget Declaration for 2026–28. - Managed flexibility of the exchange rate to strengthen resilience and reduce FX imbalance accumulation. - Monetary policy: decisive responses to inflationary pressures and readiness to adjust as needed. - Structural measures: public finances, financial sector, monetary and exchange rate policies, SOE governance, anti-corruption, and energy sector reforms. - Safeguarding social spending to the extent possible. - Use of EFF-supported program as anchor to restore external viability by 2027. - Growth-enhancing priorities: - Catalyze high and sustained investment, support inward migration, rebuild human capital, and improve business environment to drive total factor productivity (TFP) growth. - Establish effective frameworks for post-war reconstruction to absorb official resources and catalyze private capital, including foreign direct investment. - Advance reforms required for EU accession and progressive integration into the European internal market. ### Data provision, consultations, and transparency commitments - Data provision: - Continue to provide IMF staff with data and information needed to monitor program implementation, including adhering to the data provision requirements in the attached Technical Memorandum of Understanding (TMU). - Transparency: - Consent to IMF publication of this letter, the MEFP, the TMU, and the accompanying Executive Board documents. *Attachment: Memorandum of Economic and Financial Policies (selected excerpts).* ### 11. We successfully met all the program’s fiscal targets for end-March despite continued ### 1ukrea2025002-print-pdf - 11. We successfully met all the program’s fiscal targets for end-March despite continued ### Fiscal performance for end-March - Tax collections totaled UAH 614 billion, exceeding the floor of UAH 485 billion (Quantitative Performance Criterion). - General government non-defense cash primary balance excluding grants was UAH 381.4 billion (at program exchange rates), achieving the floor of UAH 254.8 billion with a margin (Quantitative Performance Criterion). - General government cash balance excluding grants was UAH -239.2 billion, exceeding the floor of UAH -410.5 billion (Indicative Target). - Issuance of government guarantees was UAH 7.8 billion (at program exchange rates), respecting the ceiling of UAH 62.9 billion (Quantitative Performance Criterion). - Overdue accounts payable (domestic arrears) were UAH 1.4 billion at end-March, beneath the ceiling of UAH 1.8 billion (Indicative Target). - Social spending amounted to UAH 164.9 billion, respecting the floor of UAH 132 billion. ### 2025 Supplementary Budget and fiscal outlook - A draft Supplementary Budget for 2025 was submitted to the Cabinet of Ministers and is expected to be registered with Parliament soon. - With the Supplementary Budget, the overall deficit excluding budget support grants is expected to amount to UAH 1,960 billion (22.1 percent of GDP). - Defense needs are higher than previously expected; offsetting savings and recently enacted tax measures and revenue overperformance have helped contain the deficit increase. ### Management of ERA disbursements (G7) - Expected 2025 ERA disbursements total US$35.9 billion; these will be: - Allocated in part as prefinancing for budget deficits during the program. - Partially preserved as an adequate buffer for downside risks. - Operational principles for administering ERA flows: - Rely on rules on revenue overperformance and budget code provisions on prefinancing limits and expenditure limits. - Revise spending categories only in consultation with IMF staff and after identifying new financing sources or compensating fiscal measures. - Remain ready to increase taxes if shocks materialize; view increases in the main VAT rate as the most efficient contingency option. - Administer flows as budget support ensuring they are: (i) transparently incorporated in the budget, (ii) accounted for in treasury reporting, (iii) disbursed into the treasury single account, and (iv) not directed to any special fund without prior agreement from the donor country. ### Budget Declaration 2026–28 and medium-term fiscal objectives - End-June Structural Benchmark satisfied through consultation with Fund staff ahead of parliamentary submission by June 30, 2025. - For 2026: - Expected overall deficit excluding grants of 10.4 percent of GDP under baseline macroframework assumptions. - Commitment to ensure tax revenues in terms of GDP are at least as high as in 2025, anticipated at 37.3 percent of GDP. - Budget declaration envisages tax measures of about 0.5 percent of GDP, largely reflecting items scheduled under the NRS (¶21–22); legislation already registered in Parliament and intended to be effective by start of 2026. - Ongoing tax administration and compliance measures (e.g., compliance risk management, improved tax debt collection) to support revenue objectives (¶25). - Avoidance of suboptimal policies such as renewal of windfall bank taxation; focus on higher-quality permanent measures if needed. - Over 2027–28: - Expect deficits to narrow as expenditures normalize, though certain spending needs (including defense and social spending) will be permanently higher. - Requirement to mobilize adequate domestic revenues to cover higher post-war expenditures. - Identification of high-quality and permanent measures in the NRS (¶23), including reforms to carbon, personal income, and simplified taxation, and work linked to EU accession process. - June EU review of compatibility of Ukraine’s tax legislation with EU directives will inform next steps. ### Medium-term fiscal sustainability targets - Aim to restore fiscal and debt sustainability by targeting a primary surplus of around ½–1½ percent of GDP in the medium term, beginning soon after the end of the war. - Fiscal adjustment to generate sufficient tax revenues for post-war recovery and reconstruction while reducing reliance on external financing. - Plan to reevaluate spending norms (such as mandatory floors currently suspended under Martial Law) that reduce budget flexibility. ### Reconstruction needs and project prioritization - RDNA-4 (published February 25, 2025) covering February 2022–December 2024 estimated: - Direct documented damages reaching US$176 billion. - Total reconstruction and modernization needs at US$524 billion. - Largest needs concentrated in housing, energy, transport, and commerce and industry. - Investment projects will be prioritized and selected through the established Public Investment Management (PIM) framework, fit into the MTBF, and be consistent with fiscal and debt sustainability. - Financing mix to be carefully evaluated, seeking highly concessional terms and reforms to financial market infrastructure to mobilize private financing (see ¶60–61). ### Financing strategy and external support - Large financing gap stands at US$152.9 billion over the baseline program period. - Budget support received since start of full-scale war: about US$133 billion. - Since the start of the program, received US$91 billion, of which US$15.9 billion was disbursed during January-May 15, 2025. - For the remainder of the year, expect an additional US$36.4 billion. - Assurances for July 2025–June 2026 financing total US$42.4 billion (excluding IMF financing), including US$25.2 billion from the ERA mechanism. - Good prospects for financing beyond June 2026 with key partners’ assurances. ### Domestic government debt market, issuance, and debt management - Scaled back domestic bond issuances in first half of 2025 to reduce debt service costs given large external disbursements. - Expect to further mobilize financing from the domestic government debt market in the second half of 2025 consistent with the Supplementary Budget. - Benchmark Bonds issuance so far this year amounted to UAH 60 billion; these can be used by banks to meet reserve requirements. - Successful placement of domestic securities combined with timely external concessional financing will enable budget execution as planned, avoid arrears, and avoid monetary financing while safeguarding debt sustainability. - Enhancements to public debt and treasury cash management capacity: - Medium-term debt strategy (MTDS) update in progress; expected upon completing treatment of external commercial claims and ideally before year-end. - Commitments to strengthen debt management capacity (increase staffing and training), support development of domestic debt market, diversify investor base (including encourage non-resident participation), and facilitate international capital market access in the medium term. ### Fiscal structural reforms and revenue mobilization (NRS) - Fiscal structural reform priorities: - (i) Raising revenues via NRS while enhancing efficiency, fairness, and simplicity of tax system. - (ii) Improving public investment and public financial management frameworks. - (iii) Reforming and strengthening the pension system and social safety net. - (iv) Enhancing fiscal transparency and management of fiscal risks. - (v) Strengthening the MTBF to ensure fiscal sustainability and budget predictability. - NRS implementation: - Detailed implementation plans and timetables for tax administration, customs, and tax policy reforms; NRS implementation report published taking stock until end-2024. - Annual comprehensive status report to be published each year in March. - NRS Steering Committees at SCS and STS to supervise reform implementation. - Commitment to abstain from tax policy/administrative measures that may adversely affect tax base and to refrain from adding new categories of taxpayers to existing preferential regimes. - Near-term tax policy measures: - Increase excise rates as a first step toward EU minimum levels over the medium term. - Formal assessment methodology for tax privileges adopted in 2024 with phased application; by end-September 2025 determine benchmark tax system for each major tax (CIT, VAT, PIT, and excise). - Comprehensive inventory of tax expenditures for major taxes to be published alongside 2027 annual budget documentation; regular calculations of tax expenditure costs to be conducted. - Planned tax policy reforms (NRS-guided): - Develop a comprehensive package for carbon taxation reform; analyze taxation of extractive industries; define principles of taxation of virtual assets aligned with EU rules and OECD Global Forum initiatives. - Consider PIT progressivity reforms and comprehensive reform of Simplified Tax (ST) system to limit abuse and scope; implementation measures to begin at the latest by early 2027 to limit return to ST after transition, revise and index ST thresholds, and narrow ST eligibility. - Such PIT and ST reforms require administrative reforms, safeguarding confidentiality of tax data in STS systems, MoF and NBU review, and TA from IMF and partners, taking into account EU Directive requirements including possible issues around extrajudicial access to bank account information. - Digital platform reporting and ST reform first steps: - Legislative amendments to introduce reporting requirements for digital platform operators and international data exchange in line with EU Council DAC7 Directive/OECD Model reporting rules submitted to Parliament on April 30, 2025 (Structural Benchmark, end-April 2025, met). - Draft law envisages a 5 percent turnover tax on income received through digital platforms; law will not introduce new VAT exemptions. - Aim for swift adoption by end-2025. - Anti-evasion legislative work: - In 2025, submit legislative amendments to the CMU for rules to combat tax evasion aligned with EU Anti-Tax Avoidance Directive and best international practices, ensuring effective protection of tax base from erosion and profit shifting. *Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1ukrea2025002-print-pdf.pdf* ### 24. Robust IT processes are necessary for successful NRS implementation. The MOF, in ### 1ukrea2025002-print-pdf - 24. Robust IT processes are necessary for successful NRS implementation. The MOF, in ### IT strategy and implementation for PFM System - The MOF, in accordance with the NRS, has developed an updated IT strategy for the Public Finance Management (PFM) System, which was approved by the CMU in May 2025. - Core approach: consolidation of IT-systems of the PFM system entities at the MOF level, with administration by an independent administrator using cloud technologies and gradual transition to service-oriented systems, particularly within STS and SCS. - Coordination with international partners is committed. - Operational actions and timelines: - In May 2025 a working group was created with representation from MOF, STS, and SCS to develop an operational plan for the updated IT-strategy for the PFM System. - The working group’s operational plan to be adopted by the Committee on IT management for PFM entities by end-September 2025 (Structural Benchmark, end-September 2025). - The operational plan will specify a time-bound sequence of actions, with clearly defined responsibilities for relevant units within the MOF, STS, and SCS, focusing on IT infrastructure modernization and consolidation, including for the STS and SCS. - Data confidentiality measures: - Measures to ensure confidentiality and protection of data in STS systems (including information received from taxpayers and tax agents). - Concept note developed for using anonymized data on taxpayers by tax authorities (see NRS section 4.2.3); plan to operationalize by end-2026, subject to availability of sufficient financing. ### State Tax Service (STS) near-term reforms and IT developments - Public trust and compliance risk management focus. - Taxpayer surveys: - A taxpayer survey was published in 2024. - Commit to publish a new taxpayer survey on a biannual basis. - Excise tax administration: - Ministry of Digital Transformation developing a track and trace system in cooperation with STS and MOF; on track to operationalize by January 1, 2026. - Compliance risk management (CRM): - Methodological documents developed to operationalize the tax risk management system. - Adopted an Overall Compliance Improvement Plan for identification, assessment, analysis, and mitigation of major tax risks. - Launched a two-year pilot of the CRM system (ending in July 2026). - Based on pilot lessons, a report and necessary proposals for legislative amendments will be prepared and submitted to the CMU by September-2026. - E-audit and SAF-T UA: - Finalizing IT framework for the e-audit program; ensure fully operational by end-2025. - Implemented IT solutions for SAF-T UA for large taxpayers earlier in the year. - Organizational and international information exchange reforms: - Working on restructuring STS organizational structure toward functionally organized tax administration and modern CRM practices. - Improving efficiency of information exchange with foreign competent authorities. - Tax debt collection: - Identified an IT solution to more effectively collect outstanding tax debts recoverable and undisputed (or having exhausted appeals); aiming to have it operational by end-2025. ### State Customs Service (SCS) reforms and governance - Reforms guided by: (i) the NRS; (ii) Reform Plan of the State Customs Service of Ukraine for 2024–2030 (Order No. 686); (iii) National Strategic Plan for Digital Development, Digital Transformation and Digitalization of the SCS (Order No. 63); and (iv) changes to the Customs Code enacted in 2024 (Law No. 3977-IX). - Government Commissioner for Customs Reform appointed to develop a time-bound action plan with MOF: - Draft plan to be submitted to CMU by June 17, 2025 (Prior Action). CMU to finalize the plan by mid-July after consultations with IMF staff. - Plan will specify investment needs in IT infrastructure, including modern scanning equipment (in line with item 5.2.5 of the NRS). - Prepare relevant public investment projects in line with PIM methodologies and subject to established evaluation procedures; aim to secure financial support from international partners by end-August 2025. - Head of customs appointment and KPIs: - Commitment to implement changes to the Customs Code enacted in 2024, including governance reforms. - More time needed to complete appointment of the new head of customs (Structural Benchmark, end-June 2025, proposed reset to end-December 2025). - Expect to formally appoint the selection commission no later than end-August 2025. - Establish Key Performance Indicators (KPIs) for the head of customs by end-November 2025; KPIs to balance revenue collection with trade facilitation, good governance, and reform progress. - MOF to oversee selection, KPI-based performance evaluation, and policy guidance while allowing SCS operational independence. - Any vacancies for regional customs heads to be filled as soon as possible. - Centralization and standardization: - Commit to gradually and selectively centralizing and standardizing functions such as HR, accounting, and litigation across the customs service to enhance efficiency, productivity, and compliance. ### Continued SCS reforms and integrity efforts - Criminal and administrative frameworks: - Following legislation to criminalize large-scale customs fraud and smuggling in 2024, legislation adopted to modernize administrative liability for customs violations. - Compliance and AEO program: - Automatic risk management system introduced and significant expansion of the authorized economic operator (AEO) program from one participant at end-2023 to 93 by May 2025. - Commitment to steady increase in AEO participants while maintaining program integrity. - Introduced a random check methodology to establish a baseline measure of compliance risk and confirmed validity of existing risk criteria. - Integrity perception and operational reforms: - SCS completed a Customs Integrity Perception Survey in December 2024; commit to repeat on a biannual basis and use results to inform anti-corruption policy. - Working on: (i) reforms of HR and compensation policies; (ii) improving operational management from headquarters, including centers of excellence; (iii) moving verification/checking of customs documents from border crossings to inland offices. ### Economic Security Bureau of Ukraine (ESBU) - Focus and capacity: - ESBU to focus on major economic and financial crimes and strengthen analytical capacity using a risk-based approach, complemented by STS and SCS capacity for tax and customs violations. - Governance and selection: - ESBU law approved in June 2024 established mechanisms for the selection commission for the ESBU head with a decisive and crucial vote for independent experts with international experience. - Independent experts to play important roles in attestation of existing staff and HR commissions for new staff selection. - Selection commission for the new ESBU head approved in October 2024. - Commitment to finalize the selection process for appointing the new ESBU as soon as possible despite delays (Structural Benchmark, end-July 2025). - Attestation and sequencing: - New ESBU head to approve procedures of attestation and form the attestation commission within three months of appointment. - Attestation of heads of division and territorial offices and their deputies will be prioritized. - AML/CFT linkage: - Leverage AML/CFT framework to detect tax evasion and smuggling in significant amounts using financial intelligence tools, in coordination with relevant agencies. ### Strengthening the Medium-Term Budget Framework (MTBF) and PFM alignment - MTBF enhancements: - Continue enhancing expenditure planning and the MTBF per the 2024 action plan. - 2025 focus: practical application of diagnostic review results, improving expenditure baseline estimates, and costing of new policies; agreeing approaches between the Ministry for Social Policy and the MOF for medium-term indicators of social and pension insurance funds. - With FAD TA, by end-October 2025 identify next steps to further improve expenditure baseline estimates and costing of new policies to ensure usage by all key spending units. - Ensure PFM-related reforms, including PIM reforms, are well aligned with the MTBF (¶39). - Aim to guide fiscal policy, allocate scarce public resources efficiently, and align budgetary framework with EU requirements. ### Pensions and social spending reforms - Legal clarity and fiscal risk mitigation: - Pre-Covid pension reform addressed aging sustainability but not system complexity; ambiguity in law led to numerous court cases with adverse budget outcomes. - Submitted to Parliament: - Amendments to ensure Article 61, Part 5 of Law 3354-20 becomes effective immediately. - New legislation (draft law 12278) prohibiting any changes to the pension system through unrelated legislation (outside the pension law). - Will consolidate pension legislation provisions and organize expenditures for payments under retrospective court decisions and pensions recalculated by court decisions. - Preparatory actions and constraints on expansion: - With World Bank support, plan to work on a comprehensive conceptual framework to improve and simplify the pension system and introduce unified conditions for assignment of insurance pensions; reviewing possibility of introducing a second pillar when conditions are in place. - Any legal amendments increasing pension expenditures must be accompanied by a medium-term fiscal and debt sustainability analysis and clear identification of necessary resources in amendments to the Pension Fund of Ukraine budget. - Will refrain from: (i) introducing new special pensions or privileges; (ii) passing new legislation creating pension-related contingent liabilities without financial resources; (iii) modifications leading to lowering of legally defined retirement age. - Near-term measures to limit additional benefits paid to certain pensioner categories beyond contributive part; unified annual increase of all pensions through indexation mechanism only. - Submit draft legislation to discontinue linking annual increases in certain special pensions to salary increases and improve targeting/clarify eligibility criteria to prevent abuse of pension supplements. - Disability benefits and support mechanisms: - Submitted legislation (draft Law No. 12209) aiming to: (i) foster rehabilitation and inclusion of people with health impairments into the labor market; (ii) better protect those unable to work from poverty. - Mechanisms for vulnerable groups: - Working to enhance targeting and means testing of benefits; with World Bank support and a programmatic loan, drafting legislation to consolidate different types of social entitlements and explore integrating social assistance programs under a single unified package based on individual needs (e.g., IDP or non-IDP). - Increased the income threshold for eligibility under the Guaranteed Minimum Income program. ### Fiscal transparency and fiscal risk management - Methodology and reporting improvements: - With FAD TA, update methodological guidance for assessing fiscal risks in key spending areas and contingent liabilities, including public investments (including PPPs), guarantees, local governments and SOEs, by end-2026. - Integrate fiscal risk assessments into early stages of the budget cycle to better inform budgetary and fiscal decisions. - Improve fiscal risk reporting, including projections of fiscal variables (deficit, debt) under certain shock scenarios starting with the Budget Declaration for 2027–2029 and the FRS, and improve reporting of PPP fiscal risks in the FRS. - PPP law and public investment fiscal risk capacity: - Designing a new PPP law to ensure adequate risk sharing, integration with the public investment framework, and strengthening the MOF gatekeeper role; will consult international partners before finalizing. - Established a unit within the MOF’s Fiscal Risk Management Department to strengthen capacity for public investment fiscal risk management; unit to complement project risk assessment by the PIM sectoral unit, MOE, and Ministry of Infrastructure. - SOE oversight and quasi-fiscal activities: - Implement MOF’s SOE financial oversight and fiscal risk management function into SOE governance framework and align with secondary legislation. - Gradually enhance identification, analysis, and reporting of Public Sector Obligations and quasi-fiscal activities. - Risk-based fees and research collaboration: - MOF to continue development of risk-based fees for guarantees and prepare amendments to existing decree. - Collaborating with independent researchers at State Tax University and Kyiv National Economic University to develop the risk assessment model. - Expect framework for risk-based fees to be finalized by end-2025. - Earmarking and transparency risks: - Will avoid any amendments to the Budget Code that would result in additional earmarking of revenues, including creation of new special funds and/or transfer of existing revenues of the general fund to newly created special funds. ### Local government debt and prudence - Strengthening framework to limit long-term debt vulnerabilities of local governments: - Improve regulatory and legal framework, increase fiscal prudence of local governments, ensure safe debt levels and balanced local budgets. - Strengthen institutional capacity of local governments to attract credit resources for strategic development and to manage local and guaranteed debt. ### Business Development Fund (BDF) and 5-7-9 program governance and reforms - MOF oversight and coordination: - MOF remains responsible for overseeing the BDF and will adhere to the agreed coordination mechanism between MOF and MOE. - MOE to maintain role of identifying priority sectors for SME support and modelling changes and development of the 5-7-9 program; MOF to control and monitor spending under the program. - Appropriations for the 5-7-9 program in the State Budget to be consistent with program parameters and fiscal constraints. - Ensure 5-7-9 program remains solely within the BDF, preventing delegation or replication by other entities unless government decision made after prior consultations with IMF staff allows it. - Independent assessment and legislative/gov ernance changes: - Independent assessment of the BDF and its support programs commissioned to be completed by end-June 2025 to refine operational design and inform future BDF role. - Enacted legislation to align asset declaration obligations of BDF’s foreign independent supervisory board members with those of SOBs. - Increased BDF’s fees from 0.15 percent to 0.5 percent and shifted responsibility for paying such fees from the government to banks participating in the 5-7-9 program. - Established a BDF supervisory board with a majority of independent candidates. - NBU formally assessed eligibility of BDF guarantees as collateral for prudential reserves and liquidity coefficients (Annex 6 to NBU Resolution No. 351) in consultation with IFIs and informed MOF, MOE, and BDF of key prerequisites for inclusion. - NBU recommendations focused on reinforcing BDF’s legal framework and ensuring greater clarity and robustness in corporate governance and internal control mechanisms. - MOF will amend Draft Law #11238 in consultation with NBU, MOE, and IFIs to implement these changes. *Source: 1ukrea2025002-print-pdf (selected sections on IT, STS, SCS, ESBU, MTBF, pensions, fiscal transparency, local debt, and BDF reforms).* ### 37. To limit fiscal risks, any government lending facilities or development finance ### To limit fiscal risks, any government lending facilities or development finance ### Fiscal risk management for government lending and development finance - Any government lending facilities or development finance institutions will strictly adhere to international best practices. - Legislation will conform to international best practice by establishing: - (i) appropriate oversight (including by the competent authorities); - (ii) a business model that ensures long-term financial sustainability to mitigate fiscal risks and incorporates sound risk management frameworks; - (iii) corporate governance standards, to provide insulation from political interference. - Implementation of any new programs will not affect existing government lending and granting programs along with the coordination mechanism with clearly defined roles for the MOE and the MOF. - Consultation commitment: We will consult with IMF staff and other international partners before launching any such programs. - By end-June 2025: - Conduct an external assessment of the draft law on the National Development Institution (NDI) and related legislation against international best practice and in consultation with IFIs, laying out the fiscal implications and risks and providing recommendations to be implemented before the SME development finance institute is created. - The NDI draft law will be renamed as the draft law on the Business Development Fund and will focus on: - (i) enhancing the BDF’s SME mandate, governance and controls; - (ii) empowering the BDF to build capacity in line with international best practices and with the aim of reaching compliance with the EC’s pillar assessment requirements; - (iii) ensuring the BDF’s financial sustainability through pricing of the BDF’s services to reflect the risks; - (iv) further strengthening institutional capacity. ### Transparency in management and spending of budgetary funds and special accounts - Fund for the Liquidation of the Consequences of the Armed Aggression: - The Fund has supported the restoration of destroyed and damaged property totaling UAH 17 billion in 2024. - In 2025, the Fund will continue to serve its purpose as stated in the Article 43 of the State Budget Law and we will keep control over commitments and appropriations 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. - Since mid-2023, the MOF has published information about sources and usage of funds in special accounts donated by private individuals and legal entities. - Commitment to continuing transparency and accountability of these accounts. ### Strengthening Public Investment Management (PIM) - Implementing the Action Plan for the Implementation of the PIM Roadmap for 2024–2028 to enhance: - (i) strategic planning in accordance with the Concept of the National Strategic Planning System (to be adopted in June 2025); - (ii) integration of public investment into the MTBF; - (iii) procedures for preparing, appraising, selecting, and implementing projects; - (iv) institutional capacity; - (v) monitoring and evaluation of implementation. - Key features and milestones: - MOF designated as gatekeeper in all stages of public investment management. - First stage covering 2024–2025 is being executed, including: - Budget Code amendments adopted to: - (i) integrate PIM into the budget process by including only appraised and selected projects in the budget; - (ii) define roles in the PIM process; - (iii) introduce medium-term planning for public investment, including prioritization of ongoing projects; - (iv) mandate the use of a unified IT platform. - CMU approved the methodological framework for the PIM process covering project preparation, single project pipeline, appraisal, selection, financing determination, implementation, monitoring, and evaluation. - By end-June 2025: - The Strategic Investment Council (SIC) will approve the Medium-Term Plan of Priority Public Investments, ensuring total capital spending on existing and new projects aligns with the respective envelopes as published in the Budget Declaration 2026–2028. - By end-August 2025 (proposed structural benchmark, end-August 2025): - SIC will approve the annual update of the SPP; only projects from the SPP will be eligible for financing from the 2026 Budget as approved by the Inter-Agency Commission for Allocation of Public Investment. - By end-December 2025 (structural benchmark, end-December 2025): - Adopt sectoral strategies consistent with new PIM approaches to guide prioritization and selection of projects for 2026. - By end-2025: - Enact legal amendments to improve integration of PIM into medium-term budget planning and fiscal risk management covering: - (i) use and recording of multiannual budget commitments and contingent liabilities for public investment projects; - (ii) determination of contingent liabilities that may arise from PPPs; - (iii) management and disclosure of fiscal risks related to public investments; - (iv) public investment budgeting at the local level. - Prepare the legal amendments and necessary implementation plans by end-September 2025 and request FAD TA if necessary. - IT infrastructure and capacity: - Finalize required IT infrastructure by end-2025, including transformations to existing IT systems, in particular DREAM, to ensure full compliance with PIM methodologies and eliminate conflicts of interest in administration. - Increase institutional capacity of agencies participating in the PIM process at national and local level. ### External Debt Strategy - Strategy guided by the strategy announced in March 2023; August 2024 Eurobond exchange was a major step. - Objective: restore public debt sustainability and ensure the program is fully financed, including in a downside scenario, while preserving financial stability and enabling private sector participation in post-war reconstruction. - Progress on additional components: - Commercial claims other than Eurobonds: - Agreement-in-principle reached with a group of investors holding 45 percent of Ukrenergo’s government-guaranteed bonds in the restructuring perimeter; aiming for implementation over the summer. - GDP warrants: restricted session ended in end-April without agreement; continued engagement with warrant holders. - Ongoing outreach to a commercial creditor on external commercial loans included in the March 2023 restructuring perimeter. - A moratorium on government payments on all these instruments was introduced in August 2024 and remains in effect. - Commitment to prompt implementation of the strategy in line with program debt sustainability objectives; engagement of external financial advisors; commitment to transparency in communication with creditors. - Official bilateral debt: - Creditors in the Group of Creditors of Ukraine (GCU) committed to a two-step process involving an extension of the debt standstill, accompanied by a separate assurance to deliver a final debt treatment sufficient to restore debt sustainability before the final review of the IMF-supported program. - The first stage—an extension of the standstill until 2027—was formally concluded in December 2023. - Going forward, seek comparable treatments with other official creditors, including guaranteed loans, and definitive restructuring of these claims. - Contingencies and sequencing: - Full implementation of the strategy expected to deliver debt sustainability targets under the program’s baseline scenario. - If the scenario prevailing at the penultimate review (or once conditions of exceptionally high uncertainty abate) is worse than the present restructuring basis, 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 share regular information with creditors, including potential range of outcomes and timelines. - Additional constraint: - Continue to strictly limit the issuance of guarantees (Quantitative Performance Criterion). - Adequate space will be provided to facilitate guarantees on loans from IFIs and foreign governments for projects, including recovery and reconstruction. ### Monetary and Exchange Rate Policies - Policy objective: safeguard price and external stability and ensure an adequate level of international reserves; guided by the Strategy for Easing FX Restrictions, Transitioning to Greater Flexibility of the Exchange Rate, and Returning to Inflation Targeting and the Monetary Policy Guidelines for the medium term (MPG). - Monetary policy stance: - Maintain a sufficiently tight monetary policy stance to combat inflation, anchor expectations, and support macroeconomic stability, guided by MPG. - Following cumulative rate hikes of 250 bps since December 2024, the key policy rate was kept unchanged at 15.5 percent. - Plan to move to an easing cycle only once incoming data provide clear and consistent evidence that inflation has peaked and remains on the path toward the target of 5 percent. - Stance aims to anchor inflation expectations and preserve the attractiveness of hryvnia instruments. - Near-term: inflationary pressures driven by food and energy constraints and wage growth are projected to abate due to a stabilized energy situation and a larger harvest than in 2024, together with tight monetary policy. - Policy horizon: conduct monetary policy with a view toward returning inflation to its target within a policy horizon of up to three years. - NBU stands ready to adjust policy if balance of risks to inflation and the economic outlook changes significantly. - Operational design and tools: - Ensure operational design—including parameters of 3-month CD placements and share of reserve requirements that can be met with eligible domestic bonds—is aligned with monetary stance, guided by analysis of passthrough from the KPR to bank interest rates and overall financial conditions. - May consider introducing additional instruments over time to increase average maturity of sterilization operations, considering implications for the primary government bond market. - Flexible inflation targeting: - Achieve objectives through the flexible inflation targeting regime defined by MPG. - Adopted an interim flexible inflation targeting regime with managed exchange rate flexibility. - Strengthen effectiveness of the KPR as main policy instrument; FXI’s main role remains covering structural FX deficit of the private sector and avoiding excessive FX volatility. - Exchange rate policies: - Managed flexibility exchange rate regime enhances FX market’s capacity for self-balancing and role as shock absorber while safeguarding reserves. - Through March-April, FX supply increased largely owing to the agriculture sector; non-defense component of FX demand stabilized. - Depth of FX market increased with share of FX interventions declining; level of FXI remains high given sizeable fiscal spending. - Facilitate functioning of FX cash market to ensure low and stable spread; spread between cash FX selling rate and official exchange rates narrowed for most of the current year; in April it turned negative amid seasonal improvement and hovered around zero during first half of May. - Continue to allow exchange rate flexibility subject to predefined macroeconomic preconditions to serve as shock absorber while preventing accumulation of external imbalances and safeguarding reserve buffers. - Monitor FX market closely and calibrate FX intervention policy to achieve program objective of external stability and consistency with NIR targets. - International reserves and FX liberalization: - Committed to maintaining adequate FX reserves throughout the program to safeguard external stability. - Despite elevated net demand for FX in first two months of the year reflecting government spending, met the end-March 2025 Quantitative Performance Criterion on net international reserves thanks to prudent FX interventions. - Requested tightening of the end-September 2025 NIR target (quantitative performance criterion) and remain committed to ensuring adequate reserves amid elevated near-term risks and achieving the established NIR floors. - Carefully adjust FX controls to support economic recovery while maintaining FX market stability and accommodating national and international security considerations. - Liberalization continues to be guided by careful assessments of macroeconomic conditions and outlook. - Recent easing measures: increase financing limits for foreign branches and enhanced cross-border transfer capabilities; measures to limit unproductive outflows include enhanced currency supervision and tightened regulations on settlements for imports. - Continued monitoring and measures through: - (i) bank-level data analysis to identify and address potential circumvention of controls; - (ii) careful assessment by the Government and NBU, on a needs-basis, of existing and potential new cases for exceptions and extensions to import and export settlement deadlines; - (iii) alignment by the NSSMC of OTC operations for FX government bonds with those applied to bank operations by May 2025, and close monitoring of securities account operations to prevent capital outflows. - Aligning with FX liberalization roadmap under the Strategy to safeguard macroeconomic stability. ### NBU independence, governance, and avoidance of monetary financing - Commitment to avoiding monetary financing. - In event of unexpected critical needs or delayed external disbursements: - First explore additional measures such as excess government deposits or accessing the debt market. - Monetary financing will be a last resort, strictly limited, and governed by the framework 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, including directed liquidity provision to banks for purchase of government securities on the primary market. - Direct financing of off-budget programs by the NBU will be avoided altogether. *Source: UKRAINE — INTERNATIONAL MONETARY FUND* ### 50. A strong and independent NBU remains critical to achieving macroeconomic stability ### 50. A strong and independent NBU remains critical to achieving macroeconomic stability ### NBU financial autonomy and profit treatment - Ensure financial autonomy: adhere to profit retention rules and distribution of NBU profits to the state budget in line with procedures established under the NBU Law. - Commit to refrain from using NBU profit for earmarked spending and direct this revenue category to the General Fund of the State Budget. - Recognize that costs from monetary policy implementation via liquidity absorption (interest expenses on NBU CDs) are necessary and justified to support macroeconomic stability in line with the NBU mandate. ### Governance, safeguards, and Council composition - Implement Safeguards Assessment recommendations: enhance NBU’s financial autonomy, in particular secured creditor status under bank resolution, and improve the Audit Committee. - Continue working with IMF staff to develop and adopt amendments to the NBU law to strengthen collective fitness of the NBU Council. - Ensure vacant positions in the NBU Council are filled by end-July 2025 to support operational effectiveness. ### Unwinding wartime measures and exchange rate/monetary framework transition - Unwind unconventional wartime measures: ensure such measures are well-targeted, clearly communicated and time bound as liquidity conditions evolve. - Adjust monetary policy framework as conditions permit, including assessing a return to a corridor system. - Commit to phasing out war-time measures to strengthen monetary policy toolkit, uphold NBU credibility and independence, and support transition to a full-fledged inflation targeting framework with a floating exchange rate. - Phase out FX controls implemented under Resolution No. 18 gradually, consistent with the FX liberalization roadmap under the NBU’s Strategy, as conditions permit in the post-Martial Law period. - Develop necessary legal amendments for submission to Parliament with an expectation of adoption by year-end, including related to the Currency Law and the NBU Law. ### Financial reporting and EU accession preparations - Improve conceptual framework and content of the NBU’s financial reporting to provide reliable and relevant presentation of information, accounting for the purpose and unique features of central bank operations. - With IMF and other partners’ technical assistance, study experiences of European national central banks and the legal framework for accounting and financial reporting in the European System of Central Banks (ESCB). - Assess the NBU’s readiness to transition to financial reporting in line with ESCB standards. ### Financial sector stability and emergency measures - Emergency measures preserved financial stability: majority of bank branches remain operational; online banking services fully available to clients with internet connectivity; the non-cash payment system functions normally; liquidity is robust for most banks. - "Power Banking" introduced in late 2022: network currently includes over 2,400 branches or about 55 percent of the total, capable of providing banking services during prolonged power outages. - Eight small banks (around 4 percent of system net assets) had licenses revoked under Martial Law and one bank (also around 4 percent of system net assets) has been nationalized. - Updated Financial Sector Development Strategy and Lending Development Strategy in May to enhance European integration and lay groundwork for post-war recovery by developing financial and capital market infrastructure and expanding financial inclusion. ### Bank diagnostics, resilience assessment, and supervisory actions - NBU will complete a resilience assessment by end-December 2025, including asset quality reviews involving external auditors, and stress testing under baseline and adverse scenarios; results will inform schedule for closing outstanding gaps in regulatory capital requirements and harmonization with EU acquis. - NBU assessed key financial and operational risks under various downside conditions and updated monitoring and emergency response frameworks (Structural Benchmark, end October 2024). - In line with Terms of Reference adopted January 2023: (i) complete an independent asset quality review (AQR) once conditions have stabilized; and (ii) carry out a subsequent bank viability assessment. - Current prohibition on bank capital distributions will remain in place until independent AQR findings have been fully reflected in banks’ regulatory ratios and financial statements; banks will not be subject to further fiscal measures that erode capital buffers. - Interim regulatory activities will be informed by supervisory observations and resilience assessments. ### Resolution, DGF, contingency planning, and legal changes - Take all necessary steps to preserve financial stability and limit potential fiscal cost of interventions; NBU and Deposit Guarantee Fund (DGF) prepared contingency plans in consultation with key stakeholders and IMF staff. - Financial Stability Council approved contingency plans related to potential adverse rulings from constitutional challenges against the DGF Law and litigation risks concerning past bank resolution decisions. - Prepare legislative changes to close gaps in early intervention, temporary administration, and resolution of insolvent banks as set out in the NBU-DGF roadmap; draft law expected to be adopted by end-December 2025. - Implement action plan approved by revived NBU-DGF coordination committee and continue to maintain emergency financial backstops at least until the target ratio has been reached. - NBU aligned frameworks for counterparty eligibility in monetary policy operations with international best practice and coordinated with lender-of-last-resort operations. ### Financial safety net roles and DGF governance - Refrain from making changes to allocation of roles and responsibilities of financial safety net stakeholders during Martial Law. - Maintain current financial safety net design; DGF’s role in safeguarding deposits and addressing insolvent banks is essential. - Working group established by Financial Stability Council to review DGF governance arrangements and prepare legislative proposals to close gaps relative to good practice by end-September 2025. - New appointment procedures to include engagement of an independent HR firm and a nomination committee comprised of voting representatives and IFIs as observers. ### State ownership, SOB strategy, and privatization - 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 be 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 coming under state ownership will not be recapitalized using fiscal resources and will be transferred to the DGF for resolution upon breach of prudential requirements (Continuous Structural Benchmark). - Prepare and implement framework to inform decisions on additional banks under state control to preserve value and ensure effective operational management. - Undertake analysis of banking system and wartime developments; informed by NBU resilience assessment, develop capital management plans and adjust SOB business plans needing capital increases. - MoF, as SOB shareholder, instructed SOBs to maintain best practice risk appetite frameworks; NBU to assess these frameworks as a thematic review in 2025 annual Supervisory Review and Evaluation Process. - Once independent AQR concluded, use results to update general SOB strategy and strategies for individual majority public-owned banks, including privatization in line with Financial Sector Strategy. - Parliament approved law on SOB privatization in October 2024. Preparing two systemic SOBs for sale, Sense Bank and Ukrgasbank; plan to appoint an internationally recognized financial advisor at appropriate time using a transparent procedure and in consultation with IFIs. Privatization of SOBs is excluded from the general privatization law. - Ensure SOB supervisory boards remain fully operational, including for Sense Bank, given uncertainties in timing of sale processes. - Ministry of Economy, in consultation with MOF, NBU, and IFIs, to implement changes to mortgage finance “eOselia” program by UFHC balancing affordable housing, new construction, and minimizing fiscal use; UFHC strategic plan to be approved by the company’s Supervisory Board by end-June 2025. - No further budget resources allocated to the UFHC in 2025 until strategy is complete. ### Financial and credit market infrastructure alignment with international good practice - Financial reporting: restored mandatory quality control requirements for audit companies applying to non-bank financial companies. NSSMC to continue providing access to financial reporting files and define tasks for expanding the Financial Reporting Collection Center by end-December 2025. Key tasks include identifying budgets to integrate software systems with state users’ information systems. - Bank capital rules: NBU aligned banks’ regulatory capital structure and leverage ratio calculations with EU rules and will implement capital requirements in 2025. With World Bank support, closed key gaps in minimum capital requirements relative to EU standards. Updated credit risk weighting exposure requirements and introduced provisions for calculating settlement risk; phased implementation to facilitate integration into banks’ business plans. - Legislative amendments submitted in February 2025 to increase banks’ minimum share capital to the equivalent of EUR 5 million, which includes a six-month transition period for existing banks. - NBU will continue monitoring economic conditions and relax controls and reinstate pre-war regulations when safe to do so, based on banks’ adherence to new capital requirements aligned with EU standards, resilience assessment results, and the banking system’s role in lending and domestic debt market involvement. - Remove regulatory arbitrage in supervisory enforcement: prepare and submit to Parliament amendments to Article 73 of the Law of Ukraine On Banks and Banking to set upper limit of fines based on a bank’s regulatory capital rather than its registered authorized capital by end-September 2025. - Immovable property databases and indices: Ministry of Justice and NBU improved mechanisms for real estate transaction information collection and exchange. Processing of price data administered by SPFU as part of the Unified Database. Make legislative changes to expand Unified Database to include non-taxable real estate transactions by end-December 2025. Prepare residential real estate price indices methodology by end-December 2025 in consultation with IFIs and IMF technical assistance to facilitate eventual publication. - Virtual assets: prepare an update of legislation with input from Fund technical assistance and in consultation with IFIs by end-October 2025 to align with international best practice while considering economic development goals and mitigating price and financial stability risks. Decide regulation and supervision roles in consultation with the Financial Stability Council and the IMF. If needed, prepare a Memorandum of Understanding in consultation with IFIs defining coordination and information sharing arrangements by end-September 2025. - Non-performing exposures: aligned definition of non-performing exposures with EU Acquis; take further steps to strengthen banks’ NPL workout capacity and promote secondary market for NPLs in line with NPL strategy approved by the Financial Stability Council. - NBU’s status as a secured creditor: strengthen NBU’s status as a secured creditor in line with the IMF's Safeguards Assessment. Parliament expected to adopt legislative amendments by end-August 2025 to strengthen mechanisms for extraordinary satisfaction of the NBU’s claims through collateral, management, and sale of collateral. ### Strengthening banking supervision and operational resilience - Supervisory panels: implemented “supervisory panels” as a consulting body to NBU Supervisory Committees to provide additional independent review by subject matter experts. Conducted effectiveness survey end-September 2024 and adjusted processes in consultation with IMF staff. - Transition to risk-based supervision: implemented risk assessment methodology to inform supervisory engagement priorities. Refine supervisory methodology and expand supervisory plan to include all material bank risks. Develop methodologies for increased capital adequacy and liquidity requirements based on supervisory risk assessments by end-December 2025. - Organizational adjustments: change organizational structure for bank supervision to leverage efficiencies; develop expertise for supervision of information and communications technology risks as part of operational risk; improve professional capacity including development of professional profiles and a multi-year training program for new hires. - AML and Banking Supervision: strengthen risk-based AML/CFT supervision of banks, payment service providers and non-bank financial institutions, particularly relating to corruption, financial crimes and illegal activities. Amend Article 32 of the AML/CFT law and corresponding amendments to Article 73 of the Banking Law by end-June 2025 to ensure penalties for AML/CFT violations by entities regulated and supervised by the NBU are effective, dissuasive and proportionate, in line with FATF standards. Draft law #13233 approved by the government and submitted to the Parliamentary Committee on Finance, Taxation and Customs Policy for consideration. - Commit to invest in building capacity of new and existing NBU staff to improve organizational performance and responsiveness in the AML/CFT framework. - Supervision of banking hybrid business models: address banks’ hybrid models including Banking-as-a-Service and mitigate critical third-party risk. Structural Benchmark end-September 2025 proposed to be reset to end-June 2026. Steps include: - (i) prepare a concept note on oversight of critical third-party risk, including digital operational resilience (completed May 2025); - (ii) enhance regulatory requirements to address third-party risk for banks and non-banks by end-March 2026; - (iii) implement the requirements by end-June 2026; - (iv) if needed, develop and submit a draft law to Parliament in consultation with IFIs including measures for detection, containment, and mitigation of critical third-party risk under both going- and gone-concern conditions. Entities identified as critical third parties will be subject to NBU’s fit and proper rules. - Transfer of bank ownership: ensure any future transfers of bank ownership, including following seizures during Martial Law, take place with due regard to the Law of Ukraine on Banks and Banking and following formal notification, review, and approval by the NBU. *Source: 1ukrea2025002-print-pdf - 50. A strong and independent NBU remains critical to achieving macroeconomic stability* ### 60. We will strengthen the legal, regulatory, and supervisory framework for NBFIs and ### We will strengthen the legal, regulatory, and supervisory framework for NBFIs and financial markets ### Legal framework and implementation milestones - Between December 2021–July 2023, legislation was passed on Financial Services and Financial Companies (#1953), Insurance (#1909) and Credit Unions (#3254). - Most provisions of these laws came into force in January 2024 and the NBU has prepared implementing regulations. - Rules for insurance intermediaries apply from January 2025, and Solvency II will apply from January 2027. - The NBU and DGF plan to develop a deposit insurance framework for credit unions and a guarantee framework for life insurance companies after Martial Law is lifted and once the regulations required for enforcing the above laws are fully implemented. ### Capital, reporting, and supervisory approaches for NBFIs - The NBU has developed a supervisory risk assessment methodology that distinguishes between the types of NBFIs. - By end-December 2025, the NBU will test this methodology to refine it and transition to a risk-based approach for supervising NBFIs. - The NSSMC will prepare a draft regulation for financial intermediaries by end-September 2025, which will bring their capital requirements into line with the EU acquis. - The regulation will be enacted by the NSSMC by end-December 2025 following consultation with IFIs. ### NBFI governance and ownership transparency - The NBU will continue to strengthen its review of NBFIs and their ownership structures to ensure compliance with transparency standards and that NBFI owners meet requirements for business reputation, and financial/property status. ### Payments market reforms and supervisory strengthening - Supervisory priorities (in consultation with IFIs): - (i) further develop the early warning system and transition to risk-based supervision in the payment market by end-December 2025; - (ii) develop the reporting system; and - (iii) strengthen supervision capacity through hiring specialists and building analytical capacity. - The NBU will issue market guidance by end-June 2025 on measures to strengthen the risk-based payments monitoring by banks and non-bank payment service providers and will continue to introduce regulation, including in the self-governed market, to restrict abnormal behavior. - To minimize illegal use of the payment infrastructure, the NBU will prepare by end-June 2025 a legislative proposal to: - (i) extend the supervisor’s authority to limit operations of payment service providers non-compliant with regulatory requirements; - (ii) establish a public register to be used by banks when establishing business relations and servicing customers; and - (iii) align services with EU norms. - Additionally, by end-December 2025 the NBU will prepare a legislative proposal to: - (i) align payment acquiring services with EU norms; - (ii) extend the NBU’s supervisory and regulatory powers to technology operators on the payments market; - (iii) clearly delineate financial and payment licenses, while transition options will be given to market players; and - (iv) establish clear ownership structure requirements for payment service providers to enhance transparency and integrity in the market. ### Capital market regulation and IOSCO harmonization - Following enactment of Law 3585-IX in March 2024 on improvement of state regulation of capital and commodity markets, authorities are conducting the screening process to become a signatory of IOSCO’s multilateral MoU by end-June 2025 with full implementation of the other provisions of the law by end-December 2025. - NSSMC preparatory actions (in consultation with IFIs): - (i) proposed a reorganizational and operational strategy; - (ii) updated the Commission’s Employees Code of Ethics; - (iii) initiated an advance independent fit and proper review of NSSMC Chair and Commissioners in accordance with Article 12 of the law and disclosures made in line with the Code of Ethics (not delivered as of Structural Benchmark end-January 2025); and - (iv) strengthened the effectiveness of capital flow measures, including through regulatory harmonization and aligning capital flow restrictions for securities operations with those applied to bank operations. - The NSSMC did not complete item (iii) by end-January 2025; the NSSMC will complete the independent fit and proper review (Structural Benchmark, end-June 2025 proposed to be reset to end-August 2025). - To strengthen capital flow restrictions, OTC FX bond operations carried out by non-banks will be required to be settled through the Settlement Center by mid-June 2025. ### Related parties, insurance transparency, and NBU legal capacity - Related parties: a draft law will be submitted to Parliament to (i) strengthen the related parties’ definition to capture economic interdependencies and related party risks; and (ii) adjust restrictions on related party market transactions. Steps will be taken to facilitate adoption by end-September 2025. - Insurance transparency: auditors have been required to confirm that insurers have acceptable assets and to assess their value for the 2023 financial year. Feasibility of updating disclosure requirements for insurance and reinsurance brokers will be assessed by end-December 2025. - NBU legal capacity and enforcement: the NBU, in collaboration with the Ministry of Internal Affairs and the National Police of Ukraine, will propose coordination arrangements by end-June 2025 to promote more effective detection, documentation, and processing of administrative offenses related to unauthorized provision of financial and payment services. - In consultation with IMF staff, proposals will be developed to improve legislation regulating the license revocation and liquidation procedures for non-bank financial institutions to respond effectively to critical threats from adverse court rulings regarding NBU decisions. ### Monitoring financial and credit market challenges under Martial Law - Debt market infrastructure: mechanisms for foreign investors to directly access marketable debt instruments have been implemented. The 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. - The NBU will develop an action plan for practical implementation of the targeted model of capital market infrastructure by end-June 2025 (in consultation with NSSMC, Ministry of Finance, and IFIs). - NDU ownership: a roadmap to facilitate transfer of the state’s share in the NDU’s authorized capital to the management of the NBU will be approved by the Financial Stability Council (FSC) by end-July 2025. - Stock exchange risks: NBU and NSSMC coordinated to facilitate launching by Settlement Center, an NBU majority owned central counterparty, contract making and clearing services for over-the-counter transactions in government bonds. - War risk insurance system: FSC working group prepared and submitted draft law (#12372) to Parliament in December 2024 following public consultation; adoption targeted by end-December 2025. - Financial inclusion: updated financial inclusion strategy in consultation with IFIs by end-July 2025, based on collated data with World Bank assistance. Draft law #13018-D for a restricted banking license is due to be adopted by end-June 2025; 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: Financial Stability Council approved a strategy in July 2024; NBU will prepare detailed action plans by end-May 2025 to implement the Strategy’s second phase. The NBU will have a mortgage lending market concept approved by the FSC by end-June 2025 following consultation with IFIs. - Responsible consumer lending: a draft law on improving state regulation and the functioning of credit bureaus was submitted to Parliament in February; steps will be taken to facilitate adoption by Parliament by end-December 2025. Supervision of credit bureaus will be enhanced by establishing requirements for ownership and internal controls within six months of the law being adopted and signed by the President. - Monetary derivative instruments: the NBU, in consultation with IFIs and via technical assistance, prepared a concept note to introduce and develop foreign exchange derivative financial instruments. In May the NBU enabled FX forward transactions between banks and allowed FX sales from customers with delivery, while clarifying relevant provisions of Resolution No. 18. ### Financial market infrastructure reform to attract private investment for reconstruction - An interagency FSC working group including all policy stakeholders has been formed to reform market standards and infrastructure to attract private capital. - The NBU, NSSMC, and MOF, in consultation with IFIs, will finalize a concept note by end-June 2025 outlining steps to identify, prioritize, and implement the reform agenda and coordination arrangements. The Financial Sector Strategy will be updated as appropriate. A project management office with IFI assistance will support task forces on deliverables, coordination, market research, outreach, and monitoring. - The NBU and NSSMC will prepare a prioritized roadmap for financial market infrastructure reforms in consultation with IFIs and other stakeholders aimed at maximizing private capital attraction (proposed Structural Benchmark, end-October 2025). The roadmap will include activities to: - (i) further coordinate and develop public, private, and public-private deal pipelines; - (ii) engage with industry on market instrument reforms; - (iii) prioritize new market instruments, including securitizations, covered bonds, loan syndications, loan sub-participations; and - (iv) reform existing investment frameworks (including JIIs) and lending instruments (such as factoring and leasing). - Legislative proposals to align securitizations and covered bonds frameworks with international standards will be prepared for submission to Parliament in consultation with IFIs and industry (proposed Structural Benchmark, end-March 2026). ### Additional specific reforms and timelines - JII framework: prepare a roadmap by end-July 2025 to close gaps in the Joint Investment Institutions framework relative to international good practice and in consultation with IFIs, including consideration of fiscal implications of associated tax expenditures. - Regulatory Equivalence with EU: further align banking norms with the EU to achieve Regulatory Equivalence. The NBU will prepare legislative amendments by end-September 2025 aimed at aligning banking secrecy and disclosures with Directive 2013+36/EC (CRD IV). - Valuation standards: implement European (TEGOVA) and international valuation standards (IVS) (proposed Structural Benchmark, end-December 2025) by: - (i) submitting to Parliament by end-August 2025 amendments to the law “On Valuation of Property, Property Rights and Professional Valuation Activities in Ukraine”; - (ii) adopting the law by end-December 2025; and - (iii) proposing an implementation roadmap including transitional arrangements, supportive regulation/guidance, steps to strengthen the valuers’ profession (including additional training requirements for valuation of financial assets), and creation of a register of valuations for financial assets. ### Asset recovery and governance commitments - Commitment to continue efforts to recover value from assets of failed banks and to abstain from any interference with current asset recovery strategies of the largest bank nationalized in 2016 and of the DGF. - Accounting Chamber of Ukraine (ACU): following the December 2024 enactment of the reform law, the selection process for six ACU vacancies has been initiated. The Advisory Group of Experts is expected to be formed by end-June and the selection process and appointment of all members of the ACU completed by end-March 2026. ### Anti-corruption and rule of law reforms - Criminal Procedure Code amendments to strengthen corruption investigations will be enacted, including: - (i) enable the Prosecutor General to delegate to the SAPO management of extraditions and mutual legal assistance requests in relation to corruption investigations; - (ii) remove the mandatory dismissal of pre-trial investigations due to the lapse of time limits of pre-trial investigation after notice of suspicion; and - (iii) enable the investigating judge, upon expiration of timelines and motion of the defendant or affected parties, to compel prosecutors to decide on the pre-trial investigation or reject the motion (Structural Benchmark, end-July 2025). Full legal certainty on timelines of pre-trial investigation after notice of suspicion will be provided. - NABU external audit: inaugural external audit of the NABU’s effectiveness was published in May (Structural Benchmark, end-July 2025, met); the report found NABU moderately effective and included recommendations that NABU will address in an action plan as part of a broader NABU strategy for 2025-30. - Forensic expert capacity: ensure NABU has access to independent and competent forensic experts by end-February 2026. The Ministry of Justice will conduct consultations on establishing a dedicated independent forensic expert institution with an independent oversight board. - NABU wiretapping implementation preparations are underway for the post-Martial Law period, including securing resources, equipment and technological solutions; NABU is finalizing tendering for specified equipment. - SAPO audit: 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. - Asset declarations: since restoration of public access in January 2024, the NACP will continue to enhance capacities for risk-based verification of asset declarations focusing on public officials under NABU’s jurisdiction in higher risk areas, including reconstruction and recovery. With IMF technical assistance, the NACP will publish guidance on risk-based, prioritized and comprehensive verification and lifestyle monitoring by end-September 2025. - High Anti-Corruption Court (HACC): Members of the Public Council of International Experts (PCIE) appointed to vet candidates for 24 vacancies (15 first instance, 9 appellate). Ensure open and competitive selection within an 18-month extension of the PCIE mandate. In May 2025 the High Council of Justice voted in favor of two candidates for appointment to the HACC; legislature adopted a law in the same month to streamline the selection process. - ACU audit of HACC (December 2024) recommendations: (i) provide HACC appropriate premises; (ii) develop indicators of average duration of anti-corruption cases; and (iii) improve internal control systems. Appropriate premises will be identified and refurbished by end-October 2025. *Source: 1ukrea2025002-print-pdf - 60. We will strengthen the legal, regulatory, and supervisory framework for NBFIs and financial markets.* ### 68. We are committed to advancing the rule of law and judicial reforms. In March 2025, a ### We are committed to advancing the rule of law and judicial reforms. In March 2025, a ### Rule of law and judicial reforms - March 2025: a law was enacted for the Specialized Administrative Courts (SAC) (with first instance and appellate levels) to hear administrative cases against national state agencies by judges who have been properly vetted for professional competence and integrity with decisive and crucial vote of independent experts. - May: The President submitted a law to Parliament, after consulting with the High Council of Justice, to formally create the SAC. - Ongoing: Appointment of members of the Expert Council is proceeding, with an aim to appoint the minimum number of judges within the timelines provided for in the law. ### AML/CFT (Anti‑Money Laundering / Countering the Financing of Terrorism) - NBU actions: - The NBU is taking steps to ensure that risk-based implementation of AML tools helps prevent, detect, and deter the laundering of proceeds of corruption. - Following the August 2024 NBU guidance, financial institutions and covered non-bank institutions are implementing a risk-based approach to politically exposed persons, and are being monitored by the NBU for compliance within the risk-based supervisory approach. - Ultimate Beneficial Ownership (UBO) regime enhancements (committed actions by September 2025): - CMU will adopt changes to the Martial Law procurement decree No.1178 to require the publication of UBO information for companies that have received direct contracts or contracts concluded under a negotiated procedure for public procurement. - UBO information will be published for successful non-resident bidders (whereas currently, only successful resident bidders are subject to publication). - Respective changes will be reflected in the draft Law “On Public Procurement” (No.11520) before the Second Reading. - Enhanced sanctioning regime: revise the legal framework, in consultation with the IMF, to ensure effective, proportionate, and dissuasive action against non-compliance with beneficial ownership requirements. - State Financial Monitoring Service (SFMS) / Financial Intelligence Unit (FIU) strengthening: - Operations and effectiveness in analyzing and disseminating suspicious transaction reports will be strengthened through development and implementation of a technical assistance roadmap. - Independent fact-finding review of strengths and weaknesses of the SFMS to be undertaken by end-December 2025 in consultation with the IMF and relevant stakeholders, including agreement on terms of reference, criteria and methodology. - Review will be carried out by an internationally recognized firm and will analyze information provided by the SFMS in accordance with the requirements of the EU Anti-money laundering/countering the financing of terrorism (AML/ CFT) legislative package and the FATF Standards. - Review is preparatory for the upcoming MONEYVAL assessment and aims to align the system with the harmonized (operational) framework of European countries (as set out in EU law). ### Corporate governance in State-Owned Banks (SOBs) and State-Owned Enterprises (SOEs) - SOB corporate governance commitments: - Continue strengthening governance of SOBs and uphold corporate governance reforms to ensure professional and commercial operation without political interference on operational matters. - Updated framework for setting and paying remuneration to Senior Management of all SOBs based on principles of international competitiveness, consistency, proportionality to functions/duties/responsibilities, consideration of part-time nature of roles and Martial Law restrictions. - Implement procedure for conducting performance assessments for all SOBs in 2025. - First performance assessment to be conducted by the MOF for each of the banks in end-November 2025. - February 2026: MOF will publish the key findings of its first annual assessment, together with the CMU’s proposed actions to address the findings. - SOB Nomination Committee (NomCom) and board selection: - Update NomCom rules in consultation with IFIs and ensure all SOB independent supervisory board vacancies are filled. - April 2025: updated independent supervisory board selection process to enable applicants to one SOB to be considered for possible vacancies in other SOBs. - Review and update SOB NomCom processes as necessary based on lessons learned from past NomComs in consultation with IFIs by end-September 2025. - SOE corporate governance and State Ownership Policy (SOP): - Implement law #3587-IX and the SOP in close consultation with international partners. - CMU approved regulation for the financial indicators in August 2024 (No. 984) consistent with MOF gatekeeper role to limit quasi-fiscal risks and help safeguard debt sustainability. - If necessary, review the financial indicators at the latest in early 2027 before the next SOE financial planning season in 2028; changes to be made through a CMU resolution. - Produced a comprehensive SOP, State Dividend Policy and privatization strategy in October 2024; implement SOP during 2025-26 as per SOP Action Plan: - Implement framework for privatizations (full or partial) in the future. - Prepare a concept for consolidated SOE management (see ¶75). - Require financial statements prepared in accordance with IFRS, subject to an appropriate transition period. - Implement SOE information disclosure and SOE remuneration policy (not applicable to SOBs). - Consult with the IMF and international partners on such draft legislation and CMU resolutions. - Commit to review and publish the SOP by December 2025. - Assess financial viability of key SOEs as input to framework to deal with quasi-fiscal costs, including legacy Public Service Obligations (PSOs) with IMF TA (see ¶32). - Revise selection and appointment processes for SOE supervisory board members and adopt appropriate changes to relevant CMU by-laws, including Resolutions 142 and 143, by end-August 2025 (Structural Benchmark, end-August 2025) in consultation with Fund staff and international partners. - First stage to enhance efficiency of NomCom activities, standardize recruitment documentation, and improve transparency of NomCom decisions. - Adopt roadmap for more substantial medium-term SOE board recruitment reforms aligned with international best practices, taking into account SOE status and triage results. Roadmap aims include: a) streamlining and centralizing the selection procedure for supervisory board candidates, including an IFI-agreed monitoring process; b) clearly identifying and delineating roles and responsibilities of key decision makers; c) increasing efficiency of each stage and shortening selection time; d) ensuring proper composition of supervisory boards with regards to SOE profile and required competencies; e) improving onboarding for new board members. - Modernized SOE board appointment procedures intended to catalyze private foreign investments into strategic and systemic SOEs post-Martial Law. - Energy SOE reforms: - Supervisory Boards of GTSO and Ukrenergo plan to promptly select new CEOs under OECD standards; selection of new Naftogaz CEO welcomed. - Independent evaluation of supervisory boards of GTSO, Naftogaz and Ukrenergo launched in January 2025 and finalized ahead of the May timeline. - Plan to promptly select the fifth supervisory board member of Energoatom under OECD standards and expand the Board to seven members. ### Exploring centralized SOE management (¶75) - Exploring options, in close consultation with international partners, to enhance SOE management, including potential introduction of a centralized SOE management model consistent with SOP and international best practices. - Actions and principles: - Define roles and mandates of key government institutions engaged in SOE management (MOF, MOE, CMU, other relevant line ministries, and State Property Fund (SPFU)). - Ensure strong MOF gatekeeper role for SOE financial oversight, limit quasi-fiscal risks, and help safeguard debt sustainability. - Ensure SOE dividends are directed to the state budget and transparently reported to ensure accountability and oversight. - Any primary legislation to formalize a centralized SOE management model for non-strategic SOEs will be consistent with NomCom Roadmap (see ¶74) and other SOP reforms. - Centralization objective: professionalize the state’s ownership function; proceed with caution and only on clear legal mandate with adequate MOF oversight, fiscal transparency, robust safeguards against political interference, merit-based leadership, and rigorous, internationally aligned reporting and accountability. ### Energy sector reforms and immediate priorities - Immediate priority: mitigate adverse impact of the war on the energy sector. - Capacity repairs and additions: - After repairing 4GW of energy capacity in 2024, plan to repair another 3GW for 2025. - Over 0.8GW of new power generation was commissioned and connected to the energy grid in 2024. - 0.9GW of distributed gas-fired generation planned in 2025. - Resilience and decentralization: - Aim to make the energy system more resilient through decentralized energy generation, including gas turbines, and the Green Transformation in conducive market and regulatory environment with an independent energy regulator. - Affected companies are mostly relying on working capital to repair and restore energy facilities; donor support continues for equipment. - Need additional donor financial assistance for repairs and decentralized electricity generation support programs, including gas generation projects. - Expanded role of 5-7 -9 and the BDF to support the energy sector and implementing SOB energy support lending programs, including for households. - Gas imports and PSO compensation (2025): - For 2025, plan significant gas imports following large-scale attacks on gas infrastructure. - Naftogaz has secured financing for gas imports from the EBRD and bilateral donors; authorities are working to secure additional donor financing. - If Naftogaz faces a liquidity shortfall, assess amount of PSO compensation in 2025 based on actual documentary-proven expenditures of Naftogaz verified by the State Audit Service and other stakeholders. - Relevant calculations to 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 assessment, available financing, and capped at UAH 60 billion (about 0.8 percent of GDP). - Potential post-war reform measures (once conditions allow): - Additional gradual tariff increases after the war (subject to a new tariff methodology and social considerations). - External financing and transparent and exceptional direct budget support to energy SOEs pending available budgetary resources. - Restore and enhance competition in wholesale and retail gas markets. - Gradual increase in gas and electricity tariffs to cost recovery after the war, while allocating adequate and well-targeted support to protect vulnerable households. - CMU will adopt a roadmap for gradual liberalization of gas and electricity markets within 6 months of the end of Martial Law, with a time-bound implementation plan for the post-Martial Law period; roadmap to be based on technical analysis of the financial condition of the sector, in coordination with the European Commission. - A working group of key government stakeholders, including macro critical SOEs, would coordinate technical analysis and advance the roadmap. - Adopt a law on market coupling in the coming months to significantly advance integration of Ukraine’s energy market with the EU. - NEURC independence and accountability: - Commit to ensure independence of the National Energy and Utilities Regulatory Commission (NEURC). - Develop an accountability framework for NEURC that enshrines regular external assessments of NEURC’s governance and independence frameworks in the law. - External assessments to be requested by NEURC to the Energy Community Secretariat (ECS). - First external assessment of NEURC to be finalized and published by December-2025 (Structural Benchmark, end-October-2025, proposed to be reset to end-December 2025). - Relevant NEURC law, including provisions for the external assessment, will be enacted in a timely manner, taking into consideration NEURC law recommendations of the ECS. - Fill three vacant positions for NEURC Commissioners on a timely basis consistent with legal provisions. - Ensure NEURC has sufficient staff to take on expanded mandate such as REMIT implementation in line with EU regulations and support energy decentralization plans. - District Heating Companies (DHCs): - Tackle arrears and debt of DHCs comprehensively once war-related pressures on the budget subside by developing a new tariff methodology with cost-reflective tariffs. - Completed review of arrears and debts of DHCs by a reputable audit firm in October 2024, clarifying stock of arrears and financial situation of DHCs including drivers of arrears accumulation. *Source: 1ukrea2025002-print-pdf - 68.* ### 80. 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 ### Program 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 Ninth and Tenth Reviews are expected to take place on or after November 30, 2025 and February 28, 2026 respectively, based on quantitative performance criteria for end-September 2025 and end-December 2025, respectively, and corresponding SBs. - Authorities commit to providing IMF staff all data needed for adequate monitoring of the program, including as detailed in the attached TMU. ### Quantitative performance criteria and indicative targets (selected items from Table 1) - I. Quantitative Performance Criteria (end of period; millions of Ukrainian hryvnia, unless indicated otherwise) - Floor on the non-defense cash primary balance of the general government, excluding budget support grants (- implies a deficit) 2/ 3/: - Jun 2026 QPCAdjustor Adjusted QPC ActualStatusEBS/25/18ITEBS/25/18QPCEBS/25/18QPCEBS/25/18ITIT I. entries include: 254,8000 254,800 381,442 Met 547,200 547,200 752,400 752,400 822,000 827,000 117,800 153,600 460,500 - Floor on tax revenues (excluding Social Security Contributions): - 485,0000 485,000 614,434 Met 1,019,600 1,019,600 1,622,200 1,622,200 2,491,045 2,491,045 599,000 599,000 1,292,800 - Ceiling on publicly guaranteed debt 3/: - 62,860 7,839 70,699 7,839 Met 64,357 64,357 64,357 64,357 64,357 64,357 68,000 68,000 68,000 - Floor on net international reserves (in millions of U.S. dollars) 3/: - 27,200 -4,176 23,024 26,924 Met 27,700 28,450 24,000 26,000 42,000 35,000 37,300 34,300 34,300 - II. Indicative Targets (end of period; millions of Ukrainian hryvnia, unless indicated otherwise) - Cash balance of the general government, excluding budget support grants, treasury report at current exchange rates (- implies a deficit; in billions of Ukrainian hryvnia): - -410.5 ...... -259.8 ... -821.0 -821.0 -1,248.6 -1,275.0 -1,710.4 -1,960.4 -340.0 -340.0 -590.0 - Ceiling on general government arrears: - 1,8000 1,800 1,421 Met 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 - Floor on social spending: - 132,0000 132,000 164,874 Met 271,200 271,200 414,000 414,000 560,900 560,900 160,000 160,000 327,000 - Ceiling on general government borrowing from the NBU 4/ 5/: - -9840 -984 -1,029 Met -4,100 -4,100 -1,500 -1,500 -6,500 -6,500 -2,500 -2,500 -6,264 - III. Continuous performance criterion - Ceiling on non-accumulation of new external debt payments arrears by the general government: - 0000 Met 000000000 - IV. Memorandum items (selected) - External project financing (in millions of U.S. dollars): 378......12...1,1337372,2661,8753,7763,776250250250 - External budget financing (in millions of U.S. dollars) 6/: 12,198......8,381...25,01119,90334,33628,77354,48849,8352,9235,1709,778 - Budget support grants (in millions of U.S. dollars): 429......0...9674311,2884311,6101,610161161295 - Budget support loans (in millions of U.S. dollars) 6/: 11,770......8,381...24,04419,47333,04728,34252,87848,2252,7625,0099,483 - Interest payments: 86,200......59,305...244,600223,740366,100307,450488,800438,790107,77393,600250,500 - NBU profit transfers to the government: 0......0...63,90084,159 63,900 84,15963,90084,15900151,300 - Spending from receipts resulting from sales of confiscated Russian assets and transfers of bank accounts: 4,000 ......0 ... 6,0006,0008,0008,0009,93513,016000 - Spending on gas purchases, PSO compensation and transfer to GTSO: 0......0...0000060,000000 - Notes: - Sources: Ukranian authorities and IMF staff estimates and projections. - 1/ Definitions and adjustors are specificied in the Technical Memorandum of Understanding (TMU). - 2/ Targets and projections for 2025 and 2026 are cumulative flows from January 1, 2025, and 2026, respectively. - 3/ Calculated using program accounting exchange rates as specified in the TMU. - 4/ From end of previous quarter. - 5/ For March 2025 onwards, calculated using actual and projected redemptions of government bonds as of May 28, 2025. - 6/ Excludes prospective IMF disbursements under the EFF. ### Structural Benchmarks and implementation status (selected highlights from Table 2) - Several fiscal, governance/anti-corruption, monetary, financial sector, energy, and SOE corporate governance SBs and prior actions are listed with timing and status. - Met SBs (examples with timing): - 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 — Fiscal — End-May 2023 — Met - Prepare an action plan to address weaknesses in taxpayers’ perception survey — 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 National Revenue Strategy — Fiscal — End-December 2023 — Met - Adopt legislation to enhance the institutional autonomy and effectiveness of the SAPO — Governance/Anti-Corruption — End-December 2023 — Met - Update and publish the Medium-Term Debt Management Strategy — Fiscal — End-October 2023 — Met - Review PIM procedures and develop roadmap so public investment projects follow unified PIM approaches — Fiscal — End-December 2023 — Met - Adopt the National Revenue Strategy — Fiscal — End-December 2023 — Met - NBU to assess key financial and operational risks and prepare contingency plans — Financial Sector — End-October 2024 — Met - Adopt Budget Code amendments in line with Action 1 under the June 2024 PIM Action Plan — Fiscal — End-January 2025 — Met - CMU to approve a methodological framework underpinning the PIM process — Fiscal — End-February 2025 — Met - Submit legislative amendments to Parliament to introduce tax reporting requirements for digital platform operators — Fiscal — End-April 2025 — Met - 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-July 2025 — Met - Not Met or delayed SBs (examples): - 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 — Governance/Anti-Corruption — End-July 2023 — Not Met (implemented with delay) - Amend the AML/CFT Law to re-establish enhanced due diligence measures on politically exposed persons — Governance/Anti-Corruption — End-September 2023 — Not Met (implemented with delay) - Enact amendments to the procedural code to rationalize matters to be heard at first instance by anti-corruption judges — Governance/Anti-Corruption — End-April 2024 — Not Met (implemented with delay) - Enact a law to establish a new court to hear administrative cases against national state agencies — Governance/Anti-Corruption — End-December 2024 — Not Met (implemented with delay) - Prepare a comprehensive operational strategy for the NSSMC, including initiating an independent fit and proper review — Financial Sector — End-January 2025 — Not Met - Proposed resets and proposed timings (examples): - Appoint a permanent head of SCS — Fiscal — End-June 2025 — Proposed reset to End-December 2025 - Complete the independent fit and proper review of the NSSMC — Financial Sector — End-June 2025 — Proposed reset to End-August 2025 - Prepare and submit to parliament a draft law on financial sector critical third-party risk — Financial Sector — End-September 2025 — Proposed reset to End-June 2026 - Complete and publish an external assessment of NEURC by the Energy Community Secretariat (upon request) — Energy — End-October 2025 — Proposed reset to End-December 2025 ### Technical Memorandum of Understanding (TMU) key definitions and exchange rate accounting - The TMU sets out understandings between the Ukrainian authorities and IMF staff regarding definitions of variables subject to targets for the Extended Arrangement under the Extended Fund Facility (EFF). - The quantitative performance criteria and indicative targets are shown in Table 1 of the MEFP; definitions of these targets and the adjustors are described in Section I of the TMU. Reporting requirements are specified in Section III of the TMU. - For program purposes, all exchange rates used to evaluate reserve levels and monetary aggregates are: - Official exchange rate of the Ukrainian hryvnia to the U.S. dollar: 36.5686, set by NBU as of March 13, 2023. - Reference exchange rates as of March 13, 2023: - Swiss Franc: 0.9107 Swiss Franc per U.S. dollar - Euro: 0.933 euro per U.S. Dollar - Pound Sterling: 0.8226 pound per U.S. dollar - Australian Dollar: 1.5435 dollars per U.S. dollars - Canadian Dollar: 1.3715 dollars per U.S. dollar - Chinese Renminbi: 6.875 yuan per U.S. dollar - Japanese Yen: 133.960 yen per U.S. dollar - Norwegian Krone: 10.565 per dollar - Accounting exchange rate for the SDR: 0.748641 SDR per U.S. dollar. - Official gold holdings valuation: 1,902.6 dollars per fine ounce. - These accounting exchange rates are kept fixed over the program period. The program’s exchange rate may differ from the actual exchange rate set in the foreign exchange market of Ukraine. Setting a program exchange rate for computing monetary aggregates does not imply a target exchange rate for policy purposes. *Source: IMF — Attachment II. Technical Memorandum of Understanding (June 19, 2025) and Tables 1–2 in the MEFP.* ### 4. The general government is defined as comprising the central (state) government, including ### 4. The general government is defined as comprising the central (state) government, including ### Definition of the general government - The general government comprises: - 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 which provide resources to key spending units. - The budget of the general government comprises: - (i) the state budget; - (ii) all local government budgets; and - (iii) if not already included in (i), the budgets of the extra budgetary funds listed above, any other extra budgetary funds included in the monetary statistics compiled by the NBU, and special accounts. - The government will inform IMF staff immediately of the creation or any pending reclassification of any new funds, programs, or entities. ### Definition of debt (program purposes) - 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). - “Debt” means a current (i.e., not contingent) liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in the form of assets (including currency) or services at some future time(s). Debts include: - i. Loans: advances of money to the obligor by the lender to be repaid in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets equivalent to fully collateralized loans (e.g., repurchase agreements and official swap arrangements). - ii. Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until after delivery of goods or services. - iii. Leases: arrangements providing property use rights for specified period(s) shorter than the expected service life; debt equals the present value (at lease inception) of all lease payments expected during the agreement period excluding payments covering operation, repair, or maintenance. - Arrears, penalties, and judicially awarded damages arising from failure to make payments under contractual obligations that constitute debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. ### GDP definition 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 (program purposes) - External financing definitions reference Table B. - Budget support loans and grants: - Un-earmarked financial support recorded in the general fund of the government’s fiscal accounts. - Include 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 recorded in special fund expenditures and part of government financing. - Include 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 (program purposes) - Include expenditures of the defense and security sector pursuant to the Law of Ukraine “On National Security of Ukraine”. - Include total amounts of all current (including goods and services, wage bill, social payments, etc.) and capital expenditures. - Include expenditures through the state budget general fund. ### Own revenues of budgetary institutions - Defined in Item 15, Part 1, Article 2 of the Budget Code. - Include payments received by budgetary institutions for provision of services, performance of works, targeted activities, grants, gifts, charitable contributions, proceeds from sale of products or property, and other activities in the prescribed manner. ### Proceeds of sales of confiscated Russian assets and related treatment - Proceeds of sales of confiscated Russian assets or bank account balances (including those directed toward the Fund for the Liquidation of the Consequences of the Armed Aggression) are recorded below the line as deficit financing sources with counter-entry into deposits of the Treasury Single Account. ### Overdue accounts payables (domestic arrears) - Defined per Order of the Ministry of Finance No. 372 dated April 2, 2014: - Arrears are payments due on the 30th day after the deadline for mandatory payment in line with the legal contract in effect. - If payment deadline not specified, arrears count from the 30th day after confirmation of goods received, works done, or services rendered. - Specific arrears categories: - a. Budgetary arrears on social payments and wages: arrears of the consolidated budget on wages, pensions, and social benefits of central or local governments. Timeframe for wage arrears is the same 30-day rule. Arrears in the security and defense sector may be presented in aggregated form considering Martial Law specifics. - b. Wages: comprise all forms of remuneration for work performed for standard and overtime work in all subcategories, including defense and security service. - c. Arrears of social funds (Pension and Unemployment Fund of Ukraine): arrears with regard to all insurance benefits of these funds; arrears refer to payments not executed at the 30th day after the deadline for payment. Excludes unpaid pensions to individuals who continue to reside in territories that are or were in direct combat zones and temporarily occupied by Russia. ### Quantitative performance criteria and indicative targets — Net International Reserves (NIR) - Definition: - NIR of the NBU are the dollar value of the difference between usable gross international reserve assets and reserve-related liabilities to nonresidents, evaluated at program exchange rates (see Table A for components and data sources). - Usable gross international reserves comprise all readily available claims on nonresidents denominated in convertible foreign currencies, consistent with the Balance of Payments Manual (Sixth Edition) and the SDDS (Table 6.1, item A). - Exclusions from usable reserves inter alia: - a. 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. - b. Any precious metals or metal deposits, other than monetary gold and gold deposits. - c. Any assets that correspond to claims of commercial banks in foreign currency on the NBU and any reserve assets that are (i) encumbered; or (ii) pledged as collateral (so far as not already included in foreign liabilities, or excluded from reserve assets); or (iii) frozen. - d. Any reserve assets not readily available for intervention in the foreign exchange market (e.g., not fully under NBU control or lack quality/liquidity limiting 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 asset (refers to the notional value of the commitments, not the market value); - all foreign exchange liabilities of the NBU to resident entities (e.g., claims in foreign exchange of domestic banks, and NBU credits in foreign exchange from domestic market), which are not already excluded from reserve assets, but excluding foreign exchange liabilities to the general government, or related to deposit guarantees. - Table A (components of NIR) references NBU balance sheet and memorandum account line items (e.g., 1100, 1107, 1011, 1017, 1201, 1202, 2746 minus 4746, 1211, 1212, IMF Finance Department, 1300, 1305, 1307, 1308 minus 1306; and liability items 3201, 3210, 3211, 3401, 8805, 3230, 3232, 3233, 8815; IMF, Finance Department). ### NIR adjustors - Downward adjustors: - Full amount of cumulative shortfall in external budget support financing disbursements (defined in paragraph 7) relative to the baseline projection (Table B). - Full amount of cumulative shortfall in net issuance (gross issuance minus redemption and interest payments) of central government’s domestic foreign exchange securities relative to amounts expected under the baseline (Table C). - Downward adjustment by the amount of a reserve currency (principal and interest due) when the NBU repays non-reserve currency provided under a central bank swap agreement. - Symmetric adjustors: - If the NBU converts any non-reserve currency provided under a central bank swap into a reserve currency through an outright sale, NIR targets are adjusted upward by the amount converted at the time of conversion. - If the NBU requests use (draws) any reserve currency provided under a central bank swap agreement with maturity over 1 year, NIR targets are adjusted upward by the amount used with maturity over 1 year; NIR targets are adjusted downward when the NBU repays these amounts. ### Table B: Gross Disbursements from IFIs and Official Sources (cumulative in USD millions, at program exchange rates) - Flows in USD million, cumulative from January 1, 2025 for 2025 and from January 1, 2026 for 2026, calculated at program exchange rates. Prospective IMF disbursements under the EFF are excluded. Totals differ from Ukrainian authorities' projections under the budget due to different exchange rate assumptions. Project support is in the form of loans. Includes the UK's ERA contribution. - 2025 and 2026 cumulative figures (columns correspond to test dates end-Jun., end-Sep., end-Dec., end-Mar., end-Jun.): - Total official support: 20,640 30,647 53,611 5,420 10,028 - Budget support: 19,903 28,773 49,835 5,170 9,778 - Loans: 19,473 28,342 48,225 5,009 9,483 - Grants: 431 431 1,610 161 295 - Project support: 737 1,875 3,776 250 250 ### Table C: Issuance of Central Government Domestic FX Securities (cumulative in USD millions, at program exchange rates) - Flows in USD million, cumulative from January 1, 2025 for 2025 and from January 1, 2026 for 2026, calculated at program exchange rates. - Net issuance of central government domestic FX securities: -440 -480 -504 -10 -21 - Gross issuance: 1,101 2,425 3,325 450 844 - Repayment: 1,541 2,905 3,829 460 866 - Redemption: 1,463 2,787 3,687 450 844 - Interest: 78 118 142 102 1 - (Note: these figures are presented in the same test-date column order as Table B: end-Jun., end-Sep., end-Dec., end-Mar., end-Jun.) ### Ceiling on General Government Direct Borrowing from the NBU (indicative target) - Definition: - General government direct borrowing from the NBU, net of redemptions and repayments, is the cumulative change in the stock of outstanding claims on the general government held by the NBU, including general government securities (measured at face value), direct loans and credits, other accounts receivable, and overdraft transfers from the NBU in accounts of the general government. - Excludes securities acquired as collateral under loans provided by the NBU during the measurement period; loans exclude those to the Deposit Guarantee Fund. - Change is measured relative to the stock as of the end of the preceding quarter and adjusted for exchange rate valuation effects using program exchange rates. - For the Eighth Review, the preceding quarter is December 2024 and the latest as of assessment is March 2025. - Detailed breakdown of accounts to be provided in a format agreed with IMF staff. - Preconditions: - An additional precondition for activating monetary financing is the drawing down of government deposits (consistent with paragraph 49 of the MEFP), underpinned by a framework mutually agreed between the MOF and NBU, and for which an NBU resolution was adopted in September 2024. ### Adjustors for the ceiling on borrowing from the NBU - Adjustors apply if both conditions hold: - (i) shortfall in external financing as defined in Table B; and - (ii) primary issuances on government bonds (measured at face value, excluding short-term issuances with primary maturities less than 3 months) during the 3-month period prior to the request for monetary financing exceed percentage thresholds of actual redemptions over the same period listed in Table D (123 for the target dates in 2025 and 2026). - If both conditions verified: - The ceiling will be adjusted upward by the smaller of: - the amount of the shortfall in external financing adjusted for additional primary issuances of government bonds; or - a cap on general government borrowing from the NBU equivalent to gross borrowing of UAH50 billion every quarter. - The ceiling resets every quarter (June 30, 2025; September 30, 2025; December 31, 2025 for 2025 targets; March 31, 2026; June 30, 2026 for 2026 targets) and is not carried over between quarters. - Amount of the shortfall in external financing is assessed as total cumulative shortfall from end-December 2024 for 2025 targets, and end-December 2025 for 2026 targets, measured on the last day of the previous month. - If the 15-business-day interval for reaching agreement and making payments falls past the relevant test date, the ceiling will be subject to an automatic upward adjustor by the amount of the payment. ### Table D: Adjustors for the ceiling on general government direct borrowing from the NBU (in UAH billion) - Columns correspond to test dates: Jun 30, Sep 30, Dec 30, Mar 31, Jun 30 (years 2025 and 2026 as indicated). - Actual rollover rate on three month period prior to requesting monetary financing (first line for the test dates in 2025 and 2026): 123 137 153 123 123 - Memo: Projected redemptions (in UAH billions), as of May 23 2025: 45.9 48.5 43.5 47.5 43.7 - Adjustment to ceiling on general government borrowing from the NBU, net of redemptions, is the smaller of external financing as defined in Table B (if any) or this amount (in UAH billion): -122.7 -119.2 -128.3 -101.3 -90.3 ### Floor on Overall Cash Balance of the General Government excluding Budget Support Grants (indicative target) - Definition: - The overall cash balance excluding budget support grants is measured as the balance in paragraph 20 adjusted by the amount of budget support grants (Table B) recorded above the line in non-tax revenues. - Balance is measured cumulatively from January 1 of a calendar year. For program target computational purposes, a positive number is a surplus and a negative number is a deficit. - Measurement components (net financing flows excluding valuation changes): - Total net treasury bill sales (in hryvnias and foreign currency) as per NBU registry (net treasury bill sales defined as cumulative funds realized from primary auction sales and government securities issued for recapitalization of banks and SOEs less cumulative redemption of principal 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 (monetary statistics from NBU): all non-treasury bill financing in domestic or foreign currency extended to the general government by banks less change in all government deposits in the banking system; plus any other financing extended by entities not reflected in NBU monetary statistics. - Total receipts from privatization (including change in 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 the general government or the NBU to nonresidents for purposes of financing the general government. - Difference between disbursements of foreign loans attracted by the State (including budget support, including associated non-cash transactions beginning with the end-December 2024 test date; project support, including on-lent to public enterprises) and amortization of foreign credits by the general government (including on-lent project loans). - 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. - Notes: - From here on, treasury bills are defined as all treasury securities (including long-term instruments or treasury bonds). - Financing related to Naftogaz’s recapitalization is included in Naftogaz’s cash deficit financing when used by Naftogaz to obtain financing (as collateral for a loan or as an outright sale). - For the duration of the ERA arrangement with the United Kingdom, an adjustor will be included in the deficit calculation for the balance of the account at the Bank of England implementing the arrangement. *Source: 1ukrea2025002-print-pdf - 4. The general government is defined as comprising the central (state) government, including* ### 21. For the purposes of measuring the balance of the general government, all flows to/from the ### For the purposes of measuring the balance of the general government, all flows to/from the budget in foreign currency (including from the issuance of foreign currency denominated domestic financial instruments) will be accounted for based on paragraph 3 of this TMU ### Measurement rules for FX flows and government deposits - All flows to/from the budget in foreign currency are accounted for based on paragraph 3 of this TMU. - Exceptions: external disbursements and amortizations of municipal governments and commercial bank direct credit are accounted for at current exchange rates. - Financing changes resulting from exchange rate valuation of foreign currency deposits are excluded from the computation of balance. - Government deposits in the banking system exclude VAT accounts used for electronic administration and escrow accounts of taxpayers used for customs clearance. ### D. Floor on Non-Defense Cash Primary Balance of the General Government Excluding Budget Support Grants (Quantitative Performance Criterion) - Definition: - Non-Defense Cash Primary Balance of the General Government excluding budget support grants = Overall Balance of the General Government excluding budget grants (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 as defined in paragraph 8 of this TMU. - Measured on a cumulative basis starting from January 1st of each calendar year. - Adjustors for Balances in Parts C and D: - Upward adjustor: the floor will be adjusted upward by the full amount of any increase above the projected stock of budgetary arrears (overdue account payables) in state budget and social funds (definition excludes domestic arrears in territories that are or were in direct combat zones and temporarily occupied by Russia). - Automatic downward adjustor for shortfalls in external budget support loans: if cumulative proceeds from external budget support loans (in hryvnia evaluated at program exchange rates) fall short of projections, the floor will be adjusted downward by the full amount of the shortfall. - Automatic downward adjustor for government bonds issued for bank recapitalization and DGF financing: corresponds to the full amount of such bonds, up to a cumulative maximum amount to be set in future reviews. The amount included in the targets is zero. - Automatic upward adjustor for NBU profits transferred in excess of specified thresholds: - UAH 0 billion for end-March 2025, - UAH 84.159 billion for the remaining test dates in 2025, - UAH 0 billion for end-March 2026, - UAH 151.3 billion for all remaining test dates in 2026. - Automatic downward adjustor to accommodate gas purchases, PSO compensation and transfer to GTSO up to a cumulative maximum amount of UAH 60 billion for December 2025 and zero in 2026, conditional upon availability of financing. - Automatic downward adjustor for receipts from sales of confiscated Russian assets and transfers of bank accounts: up to a cumulative maximum amount of UAH 13.0 billion by end-December 2025. This amount reflects the balance of the Fund for the Liquidation of the Consequences of the Armed Aggression, which stood at UAH 11.9 billion as of May 1, 2025. Data from territories that are or were in direct combat zones and temporarily occupied by Russia are excluded during Martial law. - Note: Project support disbursements will not be adjusted for the return of funds from under-executed projects. ### E. Floor on Tax Revenues (excluding SSC) (Quantitative Performance Criterion) - Measured cumulatively starting January 1st of each calendar year. - Includes total tax revenues and fees as defined by national tax legislation, including pension fees imposed on certain transactions, excluding Social Security Contributions tax. - Cumulative targets are set out in Table 1 of the MEFP. ### F. Floor on the General Government Social Spending (Indicative Target) - Social spending defined as spending on social programs through the General Fund and Special Funds; covers categories reflected in budget treasury code 2700. - Includes social insurance and social assistance programs on budget and transfers to the Pension Fund. - Indicative Target is set in hryvnias on a cumulative basis starting January 1st of each calendar year. ### G. Ceiling on the General Government Domestic Arrears (Indicative Target) - Derived from definition in paragraph 11 of this TMU and reporting format in paragraph 81. - Cumulative target starting January 1st each calendar year; covers arrears of the state budget (general and special funds) and social funds. - The stock of arrears measured in that way will not exceed the stock of arrears at end December 2022. - Excludes arrears accrued in territories that are or were in direct combat zones and temporarily occupied by Russia as of the applicable test date. ### H. Ceiling on Non-Accumulation of New External Debt Payments Arrears by the General Government (Continuous Performance Criterion) - Definition: Arrears are external debt obligations of the general government not paid when due according to contractual terms (including contractual grace periods). Excludes arrears on external financial obligations subject to rescheduling. “External” = debt payments to non-residents. ### I. 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 2025: - Ceiling = UAH 62.86 billion for end-March 2025. - Ceiling = UAH 64.36 billion for all remaining test dates in 2025. - Applies to cumulative year-to-date amount of guarantees issued by the central (state) government from January 1, 2025 including guarantees to priority sectors. - Program exchange rates apply to all non-UAH denominated debt. - Excludes guarantees for NBU borrowings from IMF. - Automatic upward adjustor for guarantees signed for selected donor-financed projects: - Adjustor capped at UAH 115 billion in 2025. - Projects subject to the adjustor in 2025 are those on the list of projects financed under government guarantees based on international agreements approved by the Strategic Investment Council; to be discussed in subsequent program reviews. - In 2026, the adjustor will be consistent with total public investment projects approved in the 2026 annual budget law and discussed in subsequent program reviews. ### J. Other Continuous Performance Criteria - During the EFF period, 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 inconsistent with Article VIII; - (iv) impose or intensify import restrictions for balance of payments reasons. ### II. Official Exchange Rate - Historical note: UAH/USD 36.5686 as set by the NBU, effective 9am on July 21, 2022, until October 3, 2023. - Since October 3, 2023: NBU regime = managed flexibility; official hryvnia/US dollar exchange rate set daily at the weighted average rate determined from interbank market transactions using a two-stage cut-off system for transactions with extreme parameters. - Transactions used to calculate official rate: all tod, tom, and spot (T+2) USD purchase/sale transactions with a volume of USD 100,000 to USD 5 million inclusive between banks and between banks and the NBU, reported via trade information systems before 3 p.m. on the same day. - Official exchange rates for other currencies determined by NBU based on official USD rate and cross rates. - Publication: official exchange rates published daily on the NBU’s website no later than 3:30 pm of the day of the calculation and take effect the next business day. ### III. Reporting Requirements — National Bank of Ukraine (NBU) - Monthly sectoral balance sheets for the NBU and other depository corporations (banks) according to SRFs: provided no later than the 25th day of the following month (SRFs for end of reporting year: no later than the 41st day after the reporting year). - Weekly: daily operational data on stock of net and gross international reserves at actual and program exchange rates; full breakdown of NBU accounts included in net international reserves; any additional information needed for IMF monitoring. - Monthly (no later than the 21st of the following month): balance data on 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 currency composition of reserve assets and liabilities. - Daily: information on total foreign exchange sales (including total from nonresidents and sales by clients in the interbank market, and any obligatory sales) and approved foreign exchange demand in the interbank market, including Naftogaz foreign exchange purchases; daily information on official FX interventions and intervention quotations in agreed breakdown; results of any FX auctions. - Weekly: information as agreed with IMF staff on indicators of FX interventions approved by the NBU Board and related computations. - Immediate notification to IMF of updates to FX interventions methodology documentation and related decisions. - 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.” - NBU will continue to publish daily holdings of domestic government securities and provide the IMF 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; - monthly report on government securities holdings in a format agreed with IMF staff broken down by currencies and by holders (non-resident investors, resident non-bank, and resident banks), with resident banks further broken down by bank group (State Participation, Foreign Banking, and Private Capital). - Daily: information on transactions (volumes and yields) on the secondary market treasury bills (including OTC transactions and breakout for any NBU transactions). - Monthly (as approved by NBU Board): financial statements (income and expenses, balances on general reserves, calculations of profit distribution to the budget) for the current year and, if available, projections for the following two years; IMF must be notified immediately of any update. - Daily and monthly (formats and timeliness agreed with IMF staff): data on NBU financing operations of banks (including swaps or refinancing) and operations of mopping up liquidity (including CDs issuance); monthly information on collateral pledged to the NBU for loans (by bank and loan type and by collateral type, haircut, and currency). - Monthly: bank-by-bank information on NBU refinancing, broken down by operations (with settlement and maturity dates), and collateral pools broken down by asset types and securities (with values before and after haircuts); monthly reporting will separately identify banks under temporary administration or liquidation. - Monthly (no later than 30 days after reporting month; end-of-year data: no later than 41st day): core FSIs for individual banks in State Participation Group, Foreign Banking Group and Private Capital Group, in IMF Compilation Guide format. - Daily and monthly (no later than 25th day after report month; end-of-year: no later than 41st day): depository corporations surveys and additional information needed to monitor monetary policy and banking sector developments, including: - domestic claims, including NBU loans and liabilities with banks; - detailed information on loans of the banking sector provided to the general government, with breakdown by indebtedness of central (state) government and local budgets and the DGF, including in national and foreign currency, by loan and by security; - balances of government funds held at the NBU, including Single Treasury Account denominated in national currency (account 3240 L) and Treasury funds denominated in foreign currency (account 3513 L) and DGF; - computation of Target on General Government Borrowing from the NBU in a format agreed with IMF staff. - Monthly: data on transactions affecting the balance of the account administering the United Kingdom’s ERA financing. - Monthly: projections for external payments falling due in the next 12 months. - Quarterly (within 80 days following the end of the quarter): data on actual settlement of external obligations, separately reflecting principal and interest payments and actual outturns for both public and private sectors. - Quarterly: stock of short- and long-term external debt for both public and private sectors; information on stock of external arrears to be reported on a continuous basis. - Daily: - data on foreign exchange export proceeds and foreign exchange sales; - data on import transactions for goods and services; - data on amounts of foreign exchange transferred from abroad to benefit physical persons—residents and nonresidents—to be paid in cash without opening an account; - data on foreign exchange wires from Ukraine abroad for current foreign exchange nontrade transactions on the basis of the orders of physical persons; - data on sales and purchases of foreign exchange cash by individuals (incl. through banks, exchange offices, and UkrPoshta). - Weekly: volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons. - Monthly: data on certain transfers of non-cash FX from Ukraine to benefit non-residents. - Monthly: aggregated data on the number and amounts of e-limits granted to legal entities and physical individuals and on the transfer and purpose of foreign exchange outside Ukraine within the e-limits. - Daily: data on foreign assets and liabilities of the overall banking system (excl. the NBU); banks’ open FX positions by main groups of banks; aggregated deposits for the overall banking system (excl. the NBU) broken down by households and legal entities, maturity, and by national and foreign currency; aggregated loans for the overall banking system (excl. the NBU) broken down by households and legal entities 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); foreign liabilities broken down by type, holder (banks, other financial institutions, nonfinancial corporate, and individuals) and remaining maturity (less than one month, one to three months, three to 12 months and over 12 months). For foreign credit lines from banks and for securities, rollover rates will also be provided. *Source: IMF staff technical memorandum (selected excerpts).* ### 45. The NBU will provide, on a daily basis, bank-by-bank data for the largest 35 banks on the ### The NBU will provide, on a daily basis, bank-by-bank data for the largest 35 banks on the ### Daily reporting by NBU - The NBU will provide, on a daily basis, 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); - deposits from customers. - The NBU will also provide, on a daily basis, 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); - foreign exchange net open position. - The data will be reported by domestic and foreign currency. - Deposits data will be reported by households and legal entities and by maturity (current accounts, saving accounts, and time deposits). - For the aggregate of the banking sector as well as groups of banks, the NBU will provide data on deposits and credits excluding those banks in liquidation since 2014. - The NBU will provide to the IMF on a daily basis aggregated data on main currency flows, including government foreign receipts and payments by currencies as well as interbank market operations by currencies. - The NBU will continue to provide daily information on exchange market transactions including the exchange rate. ### Weekly, monthly, and other high-frequency reporting by NBU - On a monthly basis: - Reserve requirements at the individual bank level, including the breakdown between the reserve requirements fulfilled by reserves and that by government securities. - Bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: the average interest rate on deposits to customers (by domestic and foreign currency; non-financial corporations and households; by maturity—demand and time accounts). - In an agreed format, data for the entire banking sector, and on an aggregated and bank-by-bank basis for State Participation Group, Foreign Banking Group and Private Capital Group banks: risk weighted assets and other risk exposures; 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; 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. - For the entire banking sector and bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: the amount of loans and claims (by households in domestic and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign currency, maturity, and by borrower classification categories); collateral for loans and claims (by type of collateral, legal entities in domestic and foreign currency, households in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories); provisions on loans and claims (by households in domestic and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign currency, and by borrower classification categories); large exposures (loans equal to or greater than 10 percent of equity); refinanced loans; restructured loans (by households, legal entities, and banks); 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). - Bank-by-bank for State Participation Group, Foreign Banking Group and Private Capital Group banks: the amount of deposits of related parties (by domestic and foreign currencies, and households and legal entities); deposits of related parties pledged as (cash cover) collateral (by domestic and foreign currencies, and households and legal entities); other liabilities to related parties (by domestic and foreign currencies); related-party loans (by households, legal entities, and banks); counterparty names and amounts of the largest 20 loans to related parties; collateral for loans and claims on related parties (by type of collateral, legal entities, households, and banks in domestic and foreign currencies, as well as by borrower classification categories); provisions on loans and claims on related parties (by households, legal entities, and banks in domestic and foreign currencies, as well as by borrower classification categories). - 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). - 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: 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. - 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: 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. - The NBU will report on a monthly basis and bank-by-bank the amount by which the State Participation Group, Foreign Banking Group and identified Private Capital Group banks' regulatory capital has been increased, disclosing the instrument or transactions by which the regulatory capital has been increased (e.g., capital injection, conversion of subordinated debt to equity, etc.). - The NBU will, on a monthly basis, inform the IMF of any regulatory and supervisory measures against banks violating the NBU regulations on capital adequacy, liquidity ratio, large exposures, and related or connected lending, as well as about decisions on declaring a bank as problem or insolvent, including banks whose license has been revoked without declaring the bank insolvent. - The NBU will 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. - On a weekly basis (after Martial Law is cancelled), the NBU will provide the IMF the average interest rate on interbank borrowings (by domestic and foreign currency, and by maturity—overnight, 1–7 days, and over one week). - Upon request, the NBU will provide to the IMF banks’ net expected outflow of cash for a 30-day period. - The NBU will continue to provide detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter. - The NBU Internal Audit Department will continue to provide an assurance report to the Fund, no later than six weeks after each test date, confirming that: - (i) the monetary data are in accordance with program definitions and have been verified and reconciled to accounting records; and - (ii) that there have been no changes to the chart of accounts or valuation methods that would impact the data reporting. - The NBU will continue to provide the IMF with a copy of the annual management letter from the external auditor within six weeks of completion of each audit. ### Notifications and accounting changes - The NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, banks, or nonbank entities and individuals, and will provide information on outstanding interest and principal payments. - The NBU will inform IMF staff of any changes to reserve requirements for other depository corporations. - The NBU will communicate (electronically) to the IMF staff any changes in the accounting and valuation principles applicable to the balance sheet data and will notify the staff before introducing any changes to the Charts of Accounts and reporting forms of both the NBU and the commercial banks. ### Monthly reporting on government securities and coupons - Monthly, the NBU will provide to the IMF and the Ministry of Finance data on the monthly coupons and principal to be paid for the period till the end of 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). - The data on resident banks will be further broken down by bank group (State Participation, Foreign Banking, and Private Capital) and include ISIN-level. - Annually, the NBU will provide information on hryvnia-denominated securities that are indexed (i.e., to inflation; USD), broken down by the type of the owner. - The Ministry of Finance, together with NBU, on a monthly basis, will provide information about redemptions of domestic bonds and bills in favor of residents (banks, non-banks) and non-residents. - The Ministry of Finance, together with NBU, on a weekly basis, will provide information on face value of government bonds redeemed and face value of government bonds placed during the week. ### Deposit Guarantee Fund (DGF) reporting - The DGF will provide, on a monthly basis, data on the total number and volume of household deposits broken down in groups by deposit size; reported bank-by-bank for the largest 35 banks and on aggregate for the remaining banks. - The DGF will report to the IMF on a monthly basis and bank-by-bank for all banks in the banking system the amount of insured deposits and total household deposits, reported by domestic and foreign currency. - The DGF will report to the IMF on a monthly basis and bank-by-bank the total insured deposits and remaining insured deposits to be paid by the DGF for the banks under liquidation and under provisional administration, by domestic and foreign currency. - The DGF will report to the IMF on a monthly basis the financial position of the DGF, including information about the cash balance, bond holdings, credit lines, and loans. - The DGF will report to the IMF on a monthly basis the financing arrangements of the DGF, including information about contracted financing from MoF. - The DGF will report to the IMF on a monthly basis a one-year forecast of the amount and type of financial resources that the DGF expects to receive from MoF, NBU and other entities, the amount that DGF expects to pay out to insured depositors in banks in liquidation, and the amount of asset recoveries expected by DGF. ### Ministry of Finance reporting - The Ministry of Finance will provide the IMF with the monthly consolidated balances (end-month) of other non-general government entities, including SOEs, holding accounts at the Treasury no later than 25 days after the end of the month. - The Treasury will continue to provide to the IMF: - reports on daily operational budget execution indicators; - daily inflow of borrowed funds (by currency of issuance) to the state budget and expenditures related to debt service (interest payments and principals) including data on government foreign exchange deposits, in a format agreed with IMF staff; - 10-day and monthly basis data on the execution of the state, local, and consolidated budgets on the revenue side and data on revenues from the social security contributions, including by oblast breakdown; - monthly data on funds deposited with the Single Treasury Account, on the registration accounts of the entities which are not included in the state sector, information on balance of funds as of the 1st day of the month on the account #3712 “accounts of other clients of the Treasury of Ukraine,” on inflow to the State budget from placing Treasury or any other liabilities to households in foreign and domestic currency and their redemption. - The Ministry of Finance will continue to provide to the IMF in electronic form monthly and quarterly treasury reports, including on accounts payable by budget institutions no later than 25 and 35 days after the end of the period, respectively. - The Ministry of Finance will continue to provide to the IMF in electronic form the final fiscal accounts at the end of each fiscal year, no later than March of the following year. - The Ministry of Finance will report data on the public wage bill (excluding SOEs) in line with the template agreed with the IMF staff, including all payment categories, including defense wages. - The Ministry of Finance will provide quarterly Treasury reports on expenditure under the medical guarantee program by economic classification. - The Ministry of Finance will report to the IMF quarterly information on municipal borrowing and amortization of debt in format agreed with IMF staff. - The Ministry of Finance will report to the IMF on a monthly basis, no later than 15 days after the end of the month, the cash balance of the general government, with details on: - budget execution data for privatization receipts of the state and local governments; - disbursements of external credits (including budget support and project loans including on lending) to the consolidated budget and amortization of external debt by the consolidated budget; - net domestic borrowing of the general government, including net T-bill issuance, issuance of other government debt instruments, and change in government deposits. - The Ministry of Finance will provide in electronic form on a quarterly basis, no later than 25 days after the end of the quarter, an updated list of project financing credits (distinguishing grant and loan financing) to be disbursed to the special fund of the State Budget of Ukraine (project-by-project basis), as well aggregated cash expenditures for such projects through the most recent month. - The Ministry of Finance will provide data on the stock of all budgetary arrears on a monthly basis, no later than 25 days after the end of the month, including separate line items for wages, pensions, social benefits accrued by social funds, energy, communal services, and all other arrears on goods and services and capital expenditures. - The Treasury will report monthly data on accounts payable for state and local budgets (economic classification of expenditures). - The Pension Fund will provide monthly reports on net unpaid pensions to the individuals who resided or continue to reside in the territories that are or were in direct combat zones and temporarily occupied by Russia. The provided information will include defense and law-enforcement. - The Ministry of Finance will provide a decomposition of own revenues of budgetary institutions (budget treasury code 25000000) into proceeds from fees for services provided by budget institutions in accordance with the law (budget treasury code 25010000) and other sources of own revenues of budgetary institutions (budget treasury code 25020000) no later than 25 days after the end of the quarter. - The Ministry of Finance will provide monthly information, no later than 25 days after the end of each month, on the amounts and terms of all external debt contracted or guaranteed by the central government, including external and domestic credit to key budgetary spending units as well as nongovernment units that is guaranteed by the government (amount of sovereign guarantees extended by executive resolutions and actually effectuated; total amount of outstanding guarantees and list of their recipients). - The Ministry of Finance will provide monthly information, no later than 25 days after the end of each month, on the balances of sub-accounts 3551 and 3559. - The Ministry of Finance will provide monthly information, no later than 25 days after the end of each month, on the utilization of ERA financing. - The Ministry of Finance will provide semi-annual information, no later than 25 days after receiving information from the European Commission, the distribution of ULCM resources corresponding to ERA loans on the total amounts distributed, the amounts corresponding to interest and principal by donor, and the outstanding balances of ERA loans by donor. - The Ministry of Finance will provide to the IMF in electronic form on a quarterly basis, no later than 25 days after the end of the quarter: - (a) data on the outstanding stock of domestic and external debt of the state and local budgets (including general and special funds); - (b) the monthly forecasts of planned and actual external debt disbursement, amortization, and interest payments (including general and special funds), broken down in detail by creditor categories and currency as agreed with Fund staff. - The Ministry of Finance will also report the accumulation of any budgetary arrears on external and domestic debt service. *Source: 1ukrea2025002-print-pdf* ### 85. The Ministry of Finance will provide to the IMF in electronic form on a semi-annual basis, no ### 85. The Ministry of Finance will provide to the IMF in electronic form on a semi-annual basis, no later than 25 days after the end of Q2 and Q4, disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements. ### Debt stock, payments, and disbursements - Semi-annual provision to the IMF in electronic form, no later than 25 days after the end of Q2 and Q4. - Data scope: disaggregated bond-by-bond (loan-by-loan) data regarding the debt stock, associated payments, and disbursements. ### Government guarantees and credit exposure - Monthly provision, no later than 25 days after the end of the month, of data on external and domestic credit to: - key budgetary spending units; and - nongovernment units that is guaranteed by the government. - Data specifics: - amount of sovereign guarantees extended by executive resolutions and actually effectuated; - total amount of outstanding guarantees; and - list of guarantee recipients. ### Budgetary funds, operational data, and annual statements - Quarterly provision, no later than 50 days after the end of each quarter (each month in case of the Pension Fund), of: - approved budgets and quarterly operational data on revenue, expenditures, arrears, and balance sheets for: - the Pension Fund (detailed breakdown of revenues and expenditure by main categories expected); - Employment Fund (detailed breakdown of revenues and expenditure by main categories expected); and - any other extra budgetary funds managed at the state level. - Daily operational data for the Pension Fund. - Within-year amendments to the budgets of these funds reported within a week after their approval. - Annual requirement: 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. ### Recapitalization and fiscal risk registry - Monthly reporting requirement, 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. - Cost components to be reported: - upfront impact on the cash balance of the general government of the recapitalization of banks and SOEs; - costs associated with the payment of interests; - respective changes as a result of supplementary budgets. - Quarterly provision of performance reports for the Fund for Entrepreneurship Development. - Registry of fiscal risks: available to IMF staff on a semi-annual basis or, if available, on a sooner basis. ### Tax administration reporting (STS and SCS) - Quarterly listing by STS and State Customs Service (SCS), no later than two months after the end of the quarter: - all tax exemptions granted, specifying beneficiary, duration, and estimated subsequent revenue loss for the current fiscal year. - Revenues foregone include losses from the simplified tax regime by groups of beneficiaries. - VAT refund information from STS: monthly, no later than 25 days after the end of the month, in the following format: - (i) beginning stock of refund requests; - (ii) refund requests paid in cash; - (iii) refunds netted out against obligations of the taxpayer; - (iv) denied requests; - (v) new refund requests; - (vi) end-of-period stock of requests; and - (vii) stock of VAT refund arrears (unsettled VAT refund claims submitted to the STS more than 74 days before the end of period). - Monthly STS reports on tax positions: - 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 fields include: - Total stock, o/w Principal, Interest, Penalties; - Tax Arrears of Taxpayers Undergoing Bankruptcy; - Total Tax Arrears net of Taxpayers in Bankruptcy Procedures; - Taxes from Code 11010000 to 31020000. - Quarterly STS information, no later than 25 days after the end of each quarter: - number of tax appeals and associated disputed amounts received by the STS in each reporting period; - number of internally resolved appeals indicating appeals resolved in favor of the controlling body, in favor of taxpayer, and partial satisfaction. ### 5-7-9 loan program reporting - Monthly provision by the Ministry of Finance: - number and amount of loans under the 5-7 -9 program; - breakdown by sectors of loans. ### Energy, utilities, and large SOE reporting - Naftogaz Group and GTSO monthly reporting (each month, no later than the 25th of the following month) in electronic form (in an agreed format) to IMF staff: - information on cash flows; - for Naftogaz Group: volumes and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households, heating utilities, budget institutions, and industries); - main revenue, expenditure, and financing items. - Monthly updates on Naftogaz financial liabilities, with a schedule of loan-by-loan interest and principal payments. - Ministry of Economy quarterly reporting, no later than 80 days after the end of each quarter: - consolidated information from the financial statements of the 10 largest SOEs, including: - (a) gross profit/losses; - (b) net financial results; - (c) subsidies received from the budget; - (d) guarantees granted from the budget; - (e) stock of debt, broken down by domestic and foreign; - (f) taxes and dividends paid; - (g) wage arrears; and - (h) other payment arrears. - Agency for the Restoration and Development of the Infrastructure of Ukraine: - monthly reports on execution of budgetary programs associated with road construction and maintenance, including borrowing (disbursements, interests, and amortization) in line with the format agreed with IMF staff. ### Macroeconomic statistics revisions - State Statistics Service obligation: - in case of any revisions of gross domestic product, 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: content unit 1ukrea2025002-print-pdf pages covering paragraphs 85–97.* ### 98. The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on ### The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on ### Quarterly social assistance data requirement - The Ministry of Social Policy will collect and submit to IMF staff on a quarterly basis data on social assistance programs, including those existing before the war and newly emerging categories. - The data will be presented in an agreed excel format and must 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. ### Program implementation and macroeconomic context - Program performance: - All end-March quantitative performance criteria (QPCs) for this review have been met. - Continuous PCs and all end-March indicative targets (ITs) were met. - Prior action for the Eight Review assessed to be met: on June 17, the Ministry of Finance submitted a draft medium-term action plan for customs reform to the Cabinet of Ministers. - Macro outlook and war impact: - Real GDP expanded by 2.9 percent y/y in 2024, 0.6pp below the seventh review forecast. - More than a quarter of Ukraine’s population has been displaced, either internally or abroad. - According to the fourth Rapid Damage and Needs Assessment (RDNA4), covering February 2022 to December 2024: - Total damages in the energy and extractives sectors amount to US$20.5 billion. - Recovery and reconstruction needs estimated at US$68 billion. - Total direct damages from the Russia’s invasion are estimated at US$176 billion, with total reconstruction and ‘build back better’ costs reaching US$524 billion. - Reconstruction-related developments: - Ratification in May by the Verkhovna Rada of Ukraine’s agreement with the US on an economic partnership to establish a Reconstruction Investment Fund (RIF). - Ukraine Plan implementation: in the first quarter of 2025, 13 out of 16 qualitative and quantitative reform steps under the Ukraine Plan have been satisfactorily fulfilled. - Subject to EU approval, the fourth Ukraine Facility instalment of EUR 3.1 billion is expected in mid-August. ### Monetary and exchange rate policies - Inflation and expectations: - In May, headline inflation spiked to 15.9 percent y-o-y. - Core inflation: up to 12.3 percent y-o-y in May vs 11.7 percent y-o-y in January. - NBU policy actions: - The key policy rate (KPR) was raised in several steps from 13 percent to 15.5 percent in March 2025. - NBU measures included expanding interest rate spread and banks’ limits on 3-month CDs. - The NBU maintained forward guidance toward keeping its key policy rate unchanged longer than envisaged by the April macroeconomic forecast and — if needed — taking additional measures. - Authorities requested to tighten the NIR target for end-September 2025 to safeguard reserves. ### Financial sector resilience and reforms - Banking sector indicators and activity: - In April, the annual rates of growth in the net portfolio of hryvnia loans to households and businesses reached 34 percent and 29 percent, respectively. - Banks are using net profits to replenish capital and support credit growth. - Regulatory alignment and infrastructure: - Approximately 77 percent convergence achieved in aligning legislation with EU norms on early intervention, temporary administration, and resolution of insolvent banks. - Target model of capital market infrastructure envisages a vertically integrated holding entity including a stock exchange, majority stake in the CCP (Settlement Center) and 25 percent of the CSD (National Depository of Ukraine). - The NSSMC is implementing IOSCO-related reforms, including a fit and proper review of commissioners and an updated Code of Ethics. ### Fiscal policy, revenue, and budgetary support - Fiscal performance and outlook: - Tax collections have continued to exceed expectations. - The overall deficit (excluding budget support grants) is now projected at 22.1 percent of GDP. - A Supplementary Budget for 2025 has been submitted to the Cabinet of Ministers and integrated into the program macro-framework. - Revenue mobilization and reforms: - Reforms under the National Revenue Strategy (NRS) remain a high priority. - A compliance review of existing UA tax legislation with EU directives starts in June 2025 and will inform revenue mobilization measures in 2027–2028. - Prior action: authorities submitted to the CMU a reform plan for the State Customs Service (SCS) until 2030. - International support and financing: - Since the start of Russia’s full-scale invasion, Ukraine has received nearly US$135 billion in budget support from international partners (as of June 20, 2025). - Under the EFF program, disbursements have reached US$91 billion, including US$15.9 billion received during January–May 15, 2025. - Under the G7’s US$50 billion ERA Loans initiative, Ukraine has received US$16.9 billion including EUR 7 billion from the European Union fifth EUR 1 billion tranche disbursed in June. ### Governance and institutional reforms - Anti-corruption and rule of law: - An audit of NABU found it moderately effective and set out recommendations for a NABU action plan as part of a 2025–30 strategy. - Roadmap on the Rule of Law includes conducting regular audits of anti-corruption agencies, including NABU, SAPO, and NAPC. - Judicial and accountability reforms: - Law established a Specialized District Administrative Court (SAC) and a Specialized Appellate Administrative Court for administrative cases against national government bodies. - Selection processes for the Accounting Chamber of Ukraine (ACU) members initiated; full appointment expected by March 2026. - SOE governance and energy sector leadership: - Authorities commit to strengthen SOE corporate governance per the SOP Action Plan. - New CEOs of Naftogaz and Ukrenergo appointed via open competitive processes; a new CEO of GTSOU to be selected promptly. ### Key policy recommendations and commitments - Social assistance data: ensure timely quarterly submission in agreed excel format with program-level disaggregation (a)–(d). - Maintain macro-financial stability through: - Continued tight monetary stance and careful FX liberalization aligned with the NBU’s Strategy. - Preserving adequate FX reserves and calibrating FX liberalization measures gradually and conditions-based. - Accelerate structural reforms to support recovery and EU accession: - Deepen NRS implementation, modernize tax and customs administration, and harmonize fiscal legislation with EU standards. - Advance banking sector alignment with EU norms and capital markets infrastructure reforms to attract private investment for reconstruction. - Implement governance, anti-corruption, and judicial reforms consistent with roadmaps and program conditionalities. - Sustain donor engagement and predictable financing: - Ensure full, timely, and predictable disbursements on terms consistent with debt sustainability to safeguard macroeconomic stability. *Supplementary information for the Eighth Review under the Extended Arrangement under the Extended Fund Facility, June 26, 2025; statement dated June 30, 2025.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1ukrea2025002-print-pdf.pdf_