## _cr15218

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---

### EXECUTIVE SUMMARY — Stabilization and recent developments
- Economy fragile with "signs of stabilization have been emerging."
- Conflict and exchange rate shock:
  - Escalation of the conflict in January and sharp depreciation of the exchange rate in February deepened the recession in 2015:Q1.
  - GDP in 2015:Q1 declined by 17.2 percent y-o-y, "some 1¼ percentage point worse than expected at the outset of the program."
- Inflation:
  - Peaked at 61 percent y-o-y in April.
  - Moderated to 57½ percent y-o-y and 0.4 percent m-o-m in June.
  - Seasonally adjusted annualized inflation in May–June 2015 fell to 13 percent.
- Balance of payments and external flows:
  - Current account deficit in January–May 2015 narrowed to US$0.35 billion.
  - Private outflows were lower than projected (by about US$0.7 billion).
  - Official financing, excluding the IMF, amounted to US$1.4 billion (below the projected US$2.5 billion).
- Banking and deposits:
  - Hryvnia deposits increased by 1.9 percent q-o-q in 2015:Q2 (after -0.8 percent in 2015:Q1).
  - FX deposits outflows slowed to -2.4 percent q-o-q on average in 2015:Q2 from -3.1 percent on average in 2015:Q1.
  - Aggregate liquidity ratio among the 35 largest banks was 15.2 percent at end-June; seven domestic privately-owned banks had liquidity ratios below 5 percent.
- Program implementation:
  - "All performance criteria (PCs) for end-March 2015 and, based on preliminary information, all PCs for end-June were met."
  - Eight benchmarks completed, four with delays, two converted into prior actions.
- IMF recommendation:
  - Staff recommends completion of the first review and a purchase equivalent to SDR 1,182.1 million.
- Preconditions for program success:
  - (i) full and timely implementation of envisaged policies; (ii) adequate and timely external financing from official sector and private sector via the debt operation; (iii) non-intensification of the conflict in the East.

### DEBT OPERATION — perimeter, amounts, and process
- Perimeter and amounts:
  - Public and State-owned-Enterprise (SoE) debt included in the debt operation: US$22.7 billion.
  - Sovereign and sovereign-guaranteed external debt under restructuring: about US$19.3 billion.
  - Creditor committee represents four large private bondholders holding US$8.9 billion (nearly 40 percent of the debt subject to the operation).
  - External debt of state-owned entities included (UkrEximBank, Oschadbank, Ukrainian Railways): about US$3.4 billion.
  - Oschadbank consent solicitation covers Eurobonds and loans amounting to US$1.3 billion.
  - UkrEximBank deal announced on three Eurobonds amounting to US$1.5 billion.
- Process and progress:
  - Engagement with ad hoc creditor committee intensified; confidentiality agreements signed and direct discussions held.
  - Authorities remained current on debt service but authorized parliament (May 19) to permit a moratorium on payments if negotiations do not make adequate progress.

### MACROECONOMIC FRAMEWORK AND RISKS — revisions and outlook
- Revisions to 2015 projections:
  - Growth: 2015 baseline growth projection marked down to -9 percent (relative to -5½ percent at the EFF approval).
  - Inflation: 2015 end-year inflation revised to 46 percent (compared to 27 percent at program approval).
  - Inflation outlook: projected to recede to around 12 percent in 2016.
  - Balance of payments: "The current account deficit is expected to widen to 1.7 percent of GDP in 2015."
- Drivers of downgrade:
  - Delayed pickup in industrial production, construction, retail trade; expectations of weaker agricultural season.
- Recovery:
  - Expected to start gradually in second half of 2015 and take hold through 2016; medium-term growth projections unchanged.
- Risks (downside dominant):
  - Further conflict intensification.
  - Delayed external financing and protracted debt operation discussions.
  - Incomplete implementation of reforms.
  - Weak bank balance sheets and potential entrenchment of higher inflation expectations.

### POLICY PRIORITIES AND SUPPORTING MEASURES
- Monetary and exchange rate policy:
  - Continue prudent monetary policy, maintain exchange rate flexibility, accumulate reserves through market purchases, and improve banks’ financial health.
  - NBU discount rate kept unchanged at 30 percent; NBU CD rates kept at 20–27 percent (effective absorption rates).
  - NBU to continue accumulating reserves and to maintain administrative measures until conditions for unwinding are met; a conditions-based plan developed with Fund staff.
- Fiscal policy and energy sector:
  - Strengthen public finances via fiscal consolidation and Naftogaz reform.
  - Authorities committed to programmed budget deficit of 4.2 percent of GDP and targeted primary surplus of 1.1 percent of GDP in 2015.
  - 2016 targets: general government deficit of 3¾ percent of GDP and a primary balance of 1.4 percent of GDP.
  - Planned measures to cover fiscal gap include: agriculture VAT reforms, SSC reform, natural resource taxation changes, revenue administration reforms, pension reform.
- Structural reforms:
  - Advance anti-corruption framework and judicial system reforms.
  - Overhaul SOE sector and improve business climate.
  - Priorities: make NAB operational, implement AML upgrades, adopt corporate governance law for SOEs, proceed with privatization of identified assets.
- Financing and monitoring:
  - Timely external financing from official and private sectors essential.
  - Program monitoring through LOI/MEFP, TMU, PCs, structural benchmarks, and quarterly reviews.

### MONETARY, FX, AND RESERVES — developments and guidance
- Exchange rate and reserves:
  - Average exchange rate projected at UAH 22/US$1 in 2015; NBU accumulated reserves through market purchases of about US$1 billion by end-June.
  - Gross reserves kept at US$10.3 billion at end-June (in line with program projections excluding second IMF disbursement).
  - Swap line with the People’s Bank of China: RMB 15 billion (about US$2.4 billion) extended until 2018.
- Policy guidance:
  - Maintain tight monetary policy to support disinflation and protect vulnerable incomes.
  - Continue targeted buildup of reserves; administrative measures to guard against BoP pressures will remain for the time being.
  - Conditions for gradual removal of administrative measures: successful debt operation, full bank recapitalization implementation, attainment of target NIR, and Naftogaz transition to interbank FX purchases.

### BANKING SECTOR — diagnostics, recapitalization, and resolution
- Key indicators and developments:
  - NPL ratio reached 24.1 percent at end-May (20.4 percent in January).
  - Aggregate regulatory capital adequacy ratio (CAR) dropped to 7.7 percent at end-May 2015 (13.8 percent at end-January).
  - Since January 2014, 51 insolvent banks (21.8 percent of system assets) intervened (42 liquidated, remaining under temporary administration).
- Recapitalization to end-June 2015:
  - Thirteen banks raised a cumulative UAH 45.6 billion (2.3 percent of GDP); five banks did not and were resolved.
  - Total fiscal cost of recapitalization estimated at 9½ percent of GDP, out of which 6.9 percent of GDP remain available for future needs.
- Diagnostics and timelines:
  - New diagnostics based on data as of March 2015 underway.
  - Authorities agreed to grant banks up to end-2018 to complete full recapitalization.
  - Largest 20 banks to submit recapitalization plans between August–October 2015.
  - Any bank with negative equity after diagnostics must bring equity to positive within three months after receipt of final capital need estimate.
  - Statutory 10 percent CAR requirement to be restored gradually by end-December 2018.
- Related-party and legal reforms:
  - Top 10 banks submitted related party exposure reports by mid-June; independent accounting firm review begun.
  - Legal framework to prevent appeals by borrowers defined as related parties from halting unwinding plans (prior action).
- Contingency and resolution principles:
  - Bail-in of non-deposit unsecured creditors before public funds injected; shareholders to be diluted prior to public capital injection.
  - Transfer of provisioned related loans into specialized unit inside bank if needed.
  - Financial Stability Council to develop public communication strategy on depositor protection.

### FISCAL POLICY — performance, targets, and structural measures
- Fiscal outturns:
  - End-March general government balance in surplus of UAH 3.1 billion in 2015:Q1; measured below the line surplus of UAH 14.5 billion owing to valuation effects.
  - VAT refund arrears increased; indicative target missed for March and June 2015.
- 2015 fiscal commitments:
  - Programmed budget deficit of 4.2 percent of GDP and primary surplus target of 1.1 percent of GDP.
  - Small projected revenue overperformance to finance national security needs, pensions and social assistance, clearing VAT refund arrears, and judicial/civil service reforms.
- 2016 budget strategy:
  - General government deficit target of 3¾ percent of GDP; primary balance of 1.4 percent of GDP.
  - To offset about 2¼ percent of GDP one-time 2015 revenue loss, planned revenue-raising and spending-cut measures of about equal proportions.
  - Specific measures and yields:
    - Agriculture VAT reform effective January 1, 2016 — expected yield about 0.3 percent of GDP.
    - SSC reform — aim to raise 0.5 percent of GDP in 2016.
    - Revenue administration and customs reforms expected to raise at least 0.3 percent of GDP in 2016.
    - Pension reform parliamentary adoption expected by end-December 2015 (structural benchmark).

### ENERGY POLICY — pricing, Naftogaz, and social protection
- Price adjustments:
  - Gas prices for households increased by 285 percent on average, effective April 1.
  - Heating prices increased by 67 percent, effective May 8.
  - Program targets: reach 75 percent of cost recovery gas and heating prices by April 2016 and 100 percent by April 2017.
- Naftogaz:
  - 2015:Q1 deficit UAH 14.3 billion (0.7 percent of annual GDP), within program target; commitment to keep Naftogaz’s deficit below 3.1 percent of GDP for 2015.
  - Independent audit of Naftogaz receivables completed (Price Waterhouse Coopers; end-June SB).
  - Gas market law approved April 8; effective October 1, 2015; Naftogaz restructuring planned to be completed by June 1, 2016.
- Social safety net and targeting:
  - Energy-related benefits scaled up from UAH 6 billion in 2014 to around UAH 21 billion in 2015 and UAH 43 billion in 2016.
  - Energy-related benefits increase from 0.4 percent of GDP in 2014 to budgeted 1.2 percent in 2015.
  - Authorities committed to streamline energy-related social assistance programs by May 2016; interim elimination of "energy compensation" program and means-testing of privileges.

### STRUCTURAL REFORMS, ANTI-CORRUPTION, JUDICIAL AND SOE REFORM
- Anti-corruption and AML:
  - National Anti-corruption Bureau (NAB) established (end-April SB); program implementing anti-corruption strategy until 2017 adopted.
  - NAB operationalization and specialized anti-corruption prosecution function are structural benchmarks with specified timetables (end-September 2015; end-January 2016).
- Business climate and deregulation:
  - Laws adopted: Law on Investor Protection; deregulation action plan; two laws reducing licenses and permits.
  - RIA methodology and requirement that new/amended draft legislation include quantitative regulatory impact analysis starting October 2015.
- Judiciary reforms:
  - Law on the Judiciary adopted (February) with follow-up constitutional amendments needed; measures include order of payment procedure, garnishment reforms, private enforcement profession by end-September 2015.
- SOE reform:
  - SOE assets around 50 percent of GDP; 1,833 operating SOEs with output around 10 percent of GDP; top 100 SOEs account for around 90 percent of SOE assets.
  - 740 out of 1,833 operating SOEs were loss-making through 2014:Q3 with losses around 1 percent of GDP.
  - SOE liabilities around 12.3 percent of GDP (excluding Naftogaz; including Naftogaz ratio reaches 22.8 percent of GDP).
  - Near-term priorities: inter-ministerial fiscal-risk working group; privatization action plans for five companies by end-September 2015 (structural benchmark); list of 10 SOEs posing biggest fiscal risks to be prepared by mid-September 2015; detailed restructuring plans for five by end-January 2016 (structural benchmark).

### PROGRAM FINANCING, DSA, AND MARKET ACCESS ASSUMPTIONS
- Financing assurances and pledges:
  - Turkey: US$50 million budget support and US$10 million humanitarian assistance.
  - Sweden: in discussions about US$100 million loan in 2016.
  - Canada’s C$200 million and EC’s €250 million have been disbursed.
  - US-guaranteed US$1 billion bond issued.
  - EC third MFA operation for €1.8 billion ratified; €600 million expected before end-July.
  - Two DPLs of US$500 million each from the World Bank and associated US$300 million loan from Japan expected pending prior actions.
- IMF financing schedule (selected):
  - Total: 12,348 Millions of SDRs / 17,504 Millions of US$ / 900 Percent of quota.
  - Initial purchase, Mar 11, 2015: 3,546.000 SDRs / 5,017.30 US$ / 258.45 percent of quota.
  - Second line item (June 15, 2015): 1,182.100 SDRs / 1,665.82 US$ / 86.16 percent of quota — Condition: First review and end-March 2015 performance criteria.
- DSA conclusions:
  - With full implementation, adequate official financing, and no intensification of conflict, public debt is assessed as sustainable with high probability.
  - Public debt after the debt operation projected to peak at 94 percent of GDP in 2015, then decline below 71 percent of GDP by 2020.
  - External debt peak around 148 percent of GDP in 2015; downward path contingent on current account reduction and voluntary private debt restructuring.
- DSA risks and stress tests:
  - Growth shock (cumulative decline ~9 percentage points in 2016–17): debt-to-GDP nearly 116 percent in 2017.
  - Real exchange rate shock similar to 2014: debt ratio stays above 100 percent of GDP.
  - Combined macro-fiscal shock: debt above 200 percent of GDP in 2017.
  - Contingent liabilities shock (banking sector deterioration + growth shock): debt peaks at 113 percent of GDP in 2017.
  - Under baseline, average gross financing needs below 15 percent of GDP except breaching in 2015.

### MONITORING, REPORTING, AND CONDITIONALITY
- Monitoring framework:
  - Implementation monitored via prior actions, quantitative PCs, indicative targets, continuous PCs, structural benchmarks, and quarterly reviews (MEFP and TMU).
- Selected quantitative targets and memoranda (examples preserved exactly as in TMU/Table 2):
  - Ceiling on the cash deficit of the general government: March 2015 PC: 20,400; June 2015 Adj. PC: 13,357; September 2015 Actual: -14,536; December 2015 PC: 32,700; March 2016 PC: 34,110; End-2016 PC: 43,100.
  - Floor on cumulative change in net international reserves (millions of U.S. dollars): December 2014: 1,827; March 2015 PC: -2,502; June 2015 Adj. PC: -2,639; September 2015 Actual: -2,125; December 2015 PC: -1,448.
  - Ceiling on cumulative change in net domestic assets of the NBU: December 2014: 304,385; March 2015 PC: 57,704; June 2015 Adj. PC: 62,490; September 2015 Actual: 32,303; December 2015 PC: 76,176.
  - Ceiling on net accumulation of VAT refund arrears: December 2014: 697; March 2015 PC: 0; June 2015 Adj. PC: 2,942.
  - Memorandum: Naftogaz deficit — March 2015 PC: 16,100; June 2015 Adj. PC: 16,100; September 2015 Actual: 14,293; December 2015 PC: 29,300; End-2016 PC: 54,000; overall fiscal envelope for energy-related social assistance set at UAH 43 billion (structural benchmark timing).
- TMU definitions and adjustors:
  - Program exchange rate for computations: 15.7686 Hryvnia per U.S. dollar.
  - NIR, NDA, monetary base defined with specific inclusions/exclusions; adjustment mechanisms outlined for program disbursements, exceptional financing, NBU operations, and Naftogaz transactions.
- Reporting obligations (frequency highlights):
  - NBU to provide daily information on FX interventions, interbank market operations, balances, operational monetary survey, bank-by-bank data for largest 35 banks, and detailed liquidity/position indicators.
  - NBU to provide weekly/bi-weekly/monthly supervisory, liquidity, risk-weighted assets, FSI, loan and deposit breakdowns, and monthly banking sector reports.
  - DGF to provide monthly data on insured deposits, payouts, and one-year forecasts.
  - Ministry of Finance to provide monthly and quarterly treasury reports, monthly cash-deficit reports (within 15 days), monthly debt and debt-service reporting (within 25 days), and monthly data on recapitalization costs.
  - Naftogaz, Ministry of Energy, and sectoral agencies to provide monthly consolidated gas-sector financial indicators and weekly Naftogaz FX purchase data.

### IMPLEMENTATION STATUS AND STAFF ASSESSMENT
- Program compliance:
  - All end-March PCs, the continuous PC, and most structural benchmarks through June 2015 met (some with delay); end-June PCs met on preliminary basis.
  - Prior actions completed include NBU governance amendments (Laws 2742 and 2743) and lifting moratoria relevant to Naftogaz collections (Law 2956).
- Staff view on exceptional access criteria:
  - Criterion 1: Ukraine experiencing exceptional BoP pressures; official reserves US$10.3 billion at end-June covering 23 percent of short-term debt.
  - Criterion 2: DSA indicates high probability public debt sustainable in medium term conditional on program implementation and debt operation.
  - Criterion 3: Prospects to regain private market access before end of program with successful program and debt operation; moratorium would necessitate continued good-faith negotiations per Fund policy.
  - Criterion 4: Program provides reasonably strong prospect of success given authorities’ performance and commitments, though conflict and political pressures remain major challenges.
- Staff recommendation:
  - Complete the first review and authorize a purchase of SDR 1,182.1 million.

*Italic: Executive Summary and excerpts from IMF staff report and MEFP for Ukraine (content unit: _cr15218).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Stabilization and recent developments
- The economy remains fragile, but "signs of stabilization have been emerging."
- Conflict and exchange rate shock effects:
  - Escalation of the conflict in January and a sharp depreciation of the exchange rate in February deepened the recession in 2015:Q1.
  - GDP in 2015:Q1 declined by 17.2 percent y-o-y, "some 1¼ percentage point worse than expected at the outset of the program."
- Inflation developments:
  - Inflation peaked at 61 percent y-o-y in April.
  - Inflation moderated to 57½ percent y-o-y in June and 0.4 percent m-o-m in June.
  - Seasonally adjusted annualized inflation in May–June 2015 fell to 13 percent.
- Balance of payments and external flows:
  - Current account deficit in January–May 2015 narrowed to US$0.35 billion.
  - Private outflows were lower than projected (by about US$0.7 billion).
  - Official financing, excluding the IMF, amounted to US$1.4 billion (below the projected US$2.5 billion).
- Banking and deposits:
  - Hryvnia deposits increased by 1.9 percent q-o-q in 2015:Q2, following a 0.8 percent decline in 2015:Q1.
  - FX deposits outflows slowed to -2.4 percent q-o-q on average in 2015:Q2 from -3.1 percent on average in 2015:Q1.
  - Aggregate liquidity ratio among the 35 largest banks was 15.2 percent at end-June; seven domestic privately-owned banks had liquidity ratios below 5 percent.

### Program implementation and IMF review
- Implementation status:
  - "All performance criteria (PCs) for end-March 2015 and, based on preliminary information, all PCs for end-June were met."
  - Eight benchmarks were completed, four with delays, and two were converted into prior actions.
- IMF recommendation:
  - Staff recommends completion of the first review.
  - The purchase released upon completion of the review would be in the amount equivalent to SDR 1,182.1 million.
- Preconditions for program success:
  - (i) full and timely implementation of envisaged policies; (ii) adequate and timely external financing from the official sector and the private sector via the debt operation; and (iii) non-intensification of the conflict in the East.

### Debt operation (restructuring)
- Perimeter and amounts:
  - Public and State-owned-Enterprise (SoE) debt included in the debt operation: US$22.7 billion.
  - Sovereign and sovereign-guaranteed external debt under restructuring: about US$19.3 billion.
  - Creditor committee represents four large private bondholders holding US$8.9 billion (nearly 40 percent of the debt subject to the operation).
  - External debt of state-owned entities included (UkrEximBank, Oschadbank, Ukrainian Railways): about US$3.4 billion.
  - Oschadbank consent solicitation covers Eurobonds and loans amounting to US$1.3 billion.
  - UkrEximBank deal announced on three Eurobonds amounting to US$1.5 billion.
- Process and progress:
  - Engagement with the ad hoc creditor committee intensified; members signed confidentiality agreements and held direct discussions (noted progress but differences remain, particularly on nominal haircut).
  - Authorities have remained current on debt service obligations but authorized parliament (May 19) to permit a moratorium on payments if negotiations do not make adequate progress.

### Macroeconomic framework and risks
- Revisions to 2015 projections:
  - Growth: 2015 baseline growth projection marked down to -9 percent (relative to -5½ percent at the EFF approval).
  - Inflation: 2015 end-year inflation revised to 46 percent (compared to 27 percent at program approval).
  - Inflation outlook: projected to recede to around 12 percent in 2016 as one-off effects subside.
  - Balance of payments: "The current account deficit is expected to widen to 1.7 percent of GDP in 2015."
- Drivers and risks:
  - Growth downgrade driven by delayed pickup in industrial production, construction, and retail trade, and expectations of a weaker agricultural season.
  - Recovery expected to start gradually in second half of 2015 and take hold through 2016; medium-term growth projections unchanged.
  - Risks include further conflict intensification, delayed external financing, incomplete implementation of reforms, and weak bank balance sheets.

### Policy priorities and supporting measures
- Monetary and exchange rate policy:
  - Continue the current prudent monetary policy, maintain exchange rate flexibility, and improve banks’ financial health.
- Fiscal policy and energy sector:
  - Strengthen public finances via fiscal consolidation and Naftogaz’s reform, while revamping the social safety net.
- Structural reforms:
  - Advance anti-corruption framework and judicial system reforms, overhaul the State-Owned Enterprise (SOE) sector, and improve business climate.
- Financing and program monitoring:
  - Program monitoring and financing assurances remain critical to sustain the program; timely external financing from official and private sectors is essential.

*Executive Summary, IMF staff report for Ukraine, July 22, 2015.*

### 1.4 percent of GDP at program approval. Both exports and imports are projected to decline

### _cr15218 - 1.4 percent of GDP at program approval. Both exports and imports are projected to decline

### Current account, trade, and exchange rate
- Both exports and imports are projected to decline considerably in 2015 due to:
  - falling export prices and larger-than-expected loss of export capacity stemming from the conflict; and
  - the weaker economy and steeper fall of energy consumption.
- The small increase in the current account deficit is expected to be offset by a better-than-expected financial account driven mainly by:
  - continued restructuring by private companies of their external claims; and
  - higher-than-expected net sales of FX cash by the population.
- Exchange rate projection and reserves:
  - Average exchange rate projected at UAH 22/US$1 in 2015, taking into account recent stabilization and assuming a slow depreciation in 2015:Q3 and Q4.
  - NBU accumulated reserves through market purchases of about US$1 billion by end-June.
  - Gross reserves kept at US$10.3 billion at end-June (in line with program projections excluding the second IMF disbursement).
  - Swap line with the People’s Bank of China: RMB 15 billion (about US$2.4 billion) extended until 2018.

### Risks to the outlook
- Risks remain exceptionally high, with downside risks dominating:
  - uncertainty about the duration and depth of the conflict in Eastern Ukraine;
  - prolongation of the discussions on the debt operation (which could disrupt capital flows);
  - slippages in policy implementation.
- Additional risk channels:
  - Confidence could fail to revive due to the above factors or a more protracted bank resolution process.
  - Higher-than-expected inflation—if inflation expectations become more entrenched—could reduce domestic demand further.
- Upside scenario:
  - An early resolution of the conflict could boost confidence and growth faster than projected.

### Monetary and exchange rate policy — background and stance
- Policy performance:
  - Authorities met the end-March NIR and NDA targets with comfortable margins.
  - NBU discount rate kept unchanged at 30 percent.
  - NBU CD rates kept at 20–27 percent (the effective rates at which it has been absorbing liquidity).
- Inflation monitoring:
  - NBU is closely monitoring price developments and the impact of large supply shocks from exchange rate depreciation and energy price hikes on inflation expectations.
- Interbank FX market and administrative measures:
  - Since program approval, the interbank FX market has become more balanced and volatility has declined.
  - Temporary administrative measures tightened at program onset helped contain BoP pressures and were recently extended for three more months.
  - Despite administrative measures, the spread between NBU official rate and the black cash market rate has been narrow.
- Reserve accumulation policy:
  - NBU to continue accumulating reserves through market purchases in keeping with program targets.
  - Ministry of Finance started partially rolling over government domestic FX debt liabilities by offering suitable interest rate and maturity instruments.
  - Naftogaz and other SOEs will seek to meet import FX needs from the FX market or through FX borrowing, including from multilateral and regional development banks.
- Capital and administrative restrictions:
  - Current framework of capital and administrative restrictions remains appropriate for the time being.
  - Authorities committed to removing administrative measures, including capital flow measures, once conditions allow.
  - A conditions-based plan for gradual removal of restrictions (introduced since early 2014) has been developed with Fund staff.
- Institutional strengthening:
  - Parliament passed amendments to the NBU law as a prior action, enhancing the supervisory mandate of the NBU Council and strengthening the NBU Executive Board’s ability to formulate and implement financial and monetary policies.
  - Amendments uphold financial autonomy of the NBU by ensuring profits can be distributed only after audited annual financial statements are ready and NBU general reserves are replenished.
- Monetary policy conditionality:
  - Authorities and staff agreed current policy stance is appropriate because:
    - inflation has started to decelerate and expectations remain contained;
    - the NBU’s effective policy rate remains positive in real terms vis-à-vis core inflation on a forward-looking basis at 3–12 month horizons;
    - further tightening would have significant negative implications on credit, economic activity, and the fragile banks.
  - If inflation expectations remain well anchored, inflation subsides in line with program projections, and FX market stability continues, the monetary policy stance could be eased later in the year to support economic activity.

### Banking sector — background, diagnostics, and policies
- Banking sector strains and key indicators:
  - NPL ratio reached 24.1 percent at end-May compared to 20.4 percent in January.
    - Slightly less than half of the increase due to new impaired loans; the rest from declining credit stock and valuation effects.
  - Aggregate regulatory capital adequacy ratio (CAR) dropped to 7.7 percent at end-May 2015 compared to 13.8 percent at end-January.
    - Decline reflects (i) impact of exchange rate depreciation on banks’ negative open position in FX; (ii) higher NPLs; and (iii) increased provisioning (from 63.7 percent of nonperforming loans to 68.5 percent).
  - Since January 2014, 51 insolvent banks, accounting for 21.8 percent of the system’s total assets, have been intervened (42 liquidated and the remaining placed under temporary administration), including two large banks.
- Related-party lending:
  - Top 10 banks submitted reports on related party exposure by mid-June; independent accounting firm review has begun.
  - Authorities plan to:
    - create an internal committee to oversee the related-party review process and advise the NBU Board on approval of banks’ unwinding plans; and
    - enhance NBU monitoring capacity through greater information sharing with public registers and other financial sector regulators on shareholdings and asset ownership.
  - Legal framework to be strengthened to ensure appeals in court by borrowers defined as related parties do not halt banks’ unwinding plans.
- Supervision and reporting:
  - Establishment of a credit registry at the NBU and enhanced reporting of banks under special administration.
  - Discretionary supervisory powers to request higher recapitalization as a result of provisioning requirements above IFRS are being reinforced.
- Bank recapitalization and resolution:
  - Recapitalization through end-June 2015:
    - Thirteen banks raised capital by a cumulative UAH 45.6 billion (2.3 percent of GDP).
    - Five banks did not and were resolved.
    - Total fiscal cost of recapitalization remains at an estimated 9½ percent of GDP, out of which 6.9 percent of GDP remain available for future needs.
  - New diagnostics:
    - A new wave of bank diagnostics, based on data as of March 2015, is underway to identify capital shortages due to recent shocks.
    - Authorities have agreed to grant banks up to end-2018 to complete full recapitalization.
    - The largest 20 banks are set to submit credible recapitalization plans between August–October 2015, including clear commitments on capital injections.
  - Contingency planning to minimize fiscal costs in potential resolution of SIBs includes:
    - provisioning related loans in full and transferring them into a specialized unit inside the bank if needed; and
    - injecting public funds in SIBs only after shareholders have been completely diluted and non-deposit unsecured creditors are bailed in.
  - Financial Stability Council to develop a public communication strategy explaining depositor protection and steps to restore financial stability.
- Strengthening the Deposit Guarantee Fund (DGF):
  - Timeframe to complete bank liquidation extended from three to five years to maximize asset recovery.
  - Due diligence investigations (forensic audits) of failed banks launched.
- Addressing NPLs and legal reforms:
  - Authorities will draw on recent Fund TA and strengthen legal framework related to private debt restructuring.
  - Parliament will approve by end-March 2016 (structural benchmark) amendments listed in MEFP ¶17 to strengthen corporate insolvency and credit enforcement regimes and remove tax impediments.
    - These include amendments to the Bankruptcy Law, relevant laws to strengthen the legal environment of credit, and the Tax Code and other regulations to remove disincentives to insolvency and debt-restructuring activities.
  - Authorities progressing on designing a coordinated out-of-court restructuring arrangement for corporate debt (MEFP ¶18) and facilitating restructuring of foreign-currency denominated mortgage loans through voluntary negotiation (MEFP ¶19).
  - President committed to veto recent legislation on FX loan conversion (which would require banks to convert retail FX loans into hryvnia at the exchange rate when the loan was issued).

### Fiscal policy — performance, reforms, and targets
- Fiscal performance and budget execution:
  - End-March general government deficit target was met with a large margin; general government balance was in surplus of UAH 3.1 billion in 2015:Q1.
    - Measured below the line, as per the TMU, the surplus amounted to UAH 14.5 billion owing to valuation effects from large exchange rate depreciation in 2015:Q1.
    - This more than offset the increase in arrears in VAT refunds, an indicative target missed for both March and June 2015.
  - Tax revenues benefited from higher-than-projected inflation and exchange rate depreciation.
  - General government spending temporarily lower than projected due to strict discipline amid tight domestic financing conditions.
- Fiscal structural reforms underway:
  - Revenue administration:
    - Coherent revenue administration reform strategy developed and implementation started.
    - Decision for revenue administration organized along functional streams, each headed by one deputy commissioner.
    - Measures include fight against corruption, improve transparency, demilitarize tax police and merge with customs’ compliance enforcement, accountability framework for leadership, new financial model, and downsizing.
  - Health and education:
    - Parliament approved laws allowing public procurement of medicines through UN-based organizations to reduce costs.
    - Draft laws for public financing changes for healthcare and education being finalized to allow consolidation of the secondary school network.
  - Public procurement:
    - Piloting e-procurement in various ministries and drafting legislation to facilitate a new procurement system starting from 2016.
- 2015 budget targets and priorities:
  - Authorities committed to meet programmed budget deficit of 4.2 percent of GDP and targeted primary surplus of 1.1 percent of GDP to keep public debt sustainable after the debt operation.
  - Small projected revenue overperformance—after accounting for higher interest costs from exchange rate depreciation and monetary tightening—will finance immediate priority needs and structural reforms covering:
    - national security needs;
    - pensions and social assistance, including support for internally displaced persons;
    - clearing VAT refund arrears; and
    - supporting judicial and civil service reforms (MEFP ¶23).
- 2016 fiscal policy targets and measures:
  - Authorities committed to program’s general government deficit target of 3¾ percent of GDP and a primary balance of 1.4 percent of GDP.
  - Target is ambitious due mainly to a large (about 2¼ percent of GDP) loss of one-time 2015 revenue in 2016 from the temporary import surcharge and smaller NBU profit transfer.
  - To meet the deficit target, authorities intend to implement revenue-raising and spending-cut measures of about equal proportions; precise measures still evolving.
  - Planned structural policies to cover fiscal gap include:
    - Agriculture VAT: tax code amendments to be submitted to parliament in September proposing elimination of special VAT regime for agriculture effective January 1, 2016.
    - Social Security Contribution (SSC) reform: authorities will develop specific target features of reformed SSC in close consultations with Fund staff; one option is to set a minimum income threshold against which SSC has to be paid.
    - Natural resource taxation: by end-July 2015 authorities will submit tax code amendments to shift tax burden from royalties to profits to balance preserving revenue relative to GDP and encouraging investment.
    - Revenue administration reform measures for 2015 include introduction of special VAT accounts nationwide (pilot phase until June 2015), moving large taxpayers to a designated large taxpayers’ office, and design of measures to enhance taxation of high-net-worth individuals.
    - Pension reform: authorities will subject the system to a thorough review to launch substantial reform aiming to reduce the pension bill already in 2016; sequence to start with pay-as-you-go system reform to reduce structural deficit.

*International Monetary Fund — Ukraine staff report excerpt*

### introduction of the funded pillar by the time when all key preconditions are expected to be in

### introduction of the funded pillar by the time when all key preconditions are expected to be in place

### Fiscal framework, pension reform, and wage bill
- Pension reform: Parliamentary adoption of the pension reform is expected by end-December 2015 (MEFP ¶24).
- Wage bill: The authorities will continue downsizing the budget sector, with proper compensation and safety-net programs (MEFP ¶24).
- Medium-term budget framework:
  - The authorities remain committed to maintain key macroeconomic indicators, fiscal objectives and targets, and revenue and expenditure policies in line with the program commitments.
  - The expenditure ceilings will be calibrated to deliver the adjustment needed for 2016–18.
  - Total expenditure in 2016 will be contained below 43.4 percent of GDP, of which current expenditure will not exceed 40.8 percent of GDP.
  - The medium-term budget planning process will be strengthened to ensure that targeted ceilings for 2017–18 are achieved.

### ENERGY POLICY — Background
- Progress on Naftogaz deficit:
  - In 2015:Q1, the deficit reached 0.7 percent of GDP, within the program target.
  - Revenue collections were lower than projected, in part due to the weak economy; expenditures were contained, in part by lower import volumes.
  - Under the latest projected energy import prices and exchange rate, the 2015 deficit target relative to GDP remains within reach, as does the medium-term objective to eliminate the Naftogaz deficit by 2017.
- Footnotes:
  - An interim agreement through 2015:Q2 was reached in March between Naftogaz and Gazprom at a price of US$248/tcm. Trilateral negotiations for 2015:Q3 ended without agreement; talks for Q4 and beyond expected to resume later in 2015.
  - The impact of the delay on Naftogaz’s deficit is estimated to be around 0.04 percent of GDP.

### ENERGY POLICY — Policies
- Rationale: Very low residential gas and district heating prices encourage excessive energy consumption, lead to large losses by Naftogaz, drive gas imports up, discourage investment in domestic production, and breed governance problems.
- Price adjustments:
  - Gas prices for households were increased by 285 percent on average, effective April 1.
  - Heating prices were increased by 67 percent, effective May 8.
  - Program targets: reach 75 percent of cost recovery gas and heating prices based on international prices by April 2016 and 100 percent by April 2017.
- Social safety net and targeting:
  - Energy-related benefits will be scaled up from UAH 6 billion in 2014 to around UAH 21 billion this year and UAH 43 billion in 2016 (Table 1).
  - Energy-related benefits would increase from 0.4 percent of GDP in 2014 to a budgeted 1.2 percent this year, which is expected to be sufficient to cover eligible households.
  - Reforms to ensure sustainability of social assistance in 2016 and beyond: staff and authorities agreed to streamline energy-related social assistance programs by May 2016 to improve targeting and manage fiscal costs (Box 1).
  - Interim measures: elimination of the “energy compensation” program; two remaining programs are the category-based privileges program and the formula-based housing utilities subsidy program. Authorities committed to streamline these two programs and modify the benefits formula by May 2016 to reduce near-universal coverage at upper income levels; the privileges program is being means tested in the meantime.
  - Illustration of a fiscally sustainable option: increase average household contribution by 2 percent of income and 8 percent of the utility bill on average, and even less for lower income groups.
- Gas market law and Naftogaz reforms:
  - The gas market law approved by parliament in April becomes effective on October 1 and establishes a new gas market model, paving the way for Naftogaz’s restructuring, planned to be completed by June 1, 2016.
  - An independent audit of Naftogaz receivables (end-June SB) has been completed.
  - Legislative amendments to improve Naftogaz collections were delayed (end-March SB). On May 14, the 2005 moratorium on enforcement proceedings against energy companies was lifted, effective September 1.
  - The moratorium on enforcement proceedings against companies with at least 25 percent state ownership with debts to Naftogaz and its daughter companies is expected to be lifted as a prior action.

### STRUCTURAL REFORMS — Background and recent actions
- Anti-corruption and AML:
  - National Anti-corruption Bureau (NAB) established (end-April SB).
  - AML framework being strengthened to assist prevention and detection of misuse of financial institutions by corrupt officials (end-June SB).
  - A program implementing the anti-corruption strategy until 2017 has recently been adopted by the Cabinet of Ministers.
- Business climate and deregulation:
  - April: parliament adopted a Law on Investor Protection to safeguard minority shareholder rights, improve transparency in business transactions, and strengthen independent audits.
  - March: government adopted a deregulation action plan to remove many regulatory and legislative impediments; first monthly report on implementation published on the SRS website.
  - Two laws substantially reducing the number of licenses and permits were adopted by parliament in March.
- Judiciary:
  - February: parliament adopted a Law on the Judiciary and the Status of Judges as an initial step to strengthen effectiveness of the judiciary; Venice Commission identified important shortfalls, necessitating amendment of the constitution.
  - May: law on selective increases of court fees approved to provide financial incentives and complement the judiciary budget.
- SOE reform progress:
  - First annual report on Ukraine’s top 100 SOEs published.
  - May: cabinet approved a list of about 350 state-owned assets subject to privatization in 2015 and State Property Fund prepared a privatization strategy for 10 SOEs among them.
  - May: first statement of fiscal risks assessment prepared and SOE reform strategy adopted.
  - Draft law on corporate governance prepared; new nomination procedure for appointment of CEOs in SOEs through an independent committee being implemented.

### STRUCTURAL REFORMS — Policies, benchmarks, and SOE sector details
- Business climate actions near term:
  - Ensure full implementation of the deregulation action plan.
  - Prepare broad-scale revision of regulatory norms to reduce burden and administrative costs on business.
  - Ensure all new and amended draft legislation includes a quantitative analysis of regulatory impact starting October 2015.
  - Make the recently adopted law on licensing of business activities fully operational (MEFP ¶29).
- Anti-corruption and AML policy priorities:
  - Make NAB operational (structural benchmark) and able to access relevant information and supported by a specialized and autonomous anticorruption prosecution function (structural benchmark).
  - NBU and financial intelligence unit to continue implementing the AML framework with Fund TA coordination.
  - Amend legal framework for asset disclosure to ensure high-level officials disclose assets they beneficially own or control.
- Judicial reform measures:
  - Ensure the High Council of Justice becomes fully operational, including prompt allocation of the budget to meet salary requirements.
  - Develop measures to speed up debt-claim enforcement (order of payment procedure, garnishment, and setting up a private enforcement profession).
- SOE reform near-term priorities:
  - Enhance SOE fiscal-risk assessment by establishing an inter-ministerial working group to identify and monitor fiscal risks and prepare recommendations for risk-mitigating measures.
  - Proceed with privatization and restructuring agenda: adopt, by cabinet resolution, action plans for five companies by end-September 2015 (structural benchmark).
  - Prepare a list of 10 SOEs posing the biggest fiscal risks to be restructured and prepare detailed restructuring action plans for five of these companies by end-January 2016 (structural benchmark).
  - Pursue necessary legislative steps, including adoption of a government decree mandating external audits for at least the largest 100 SOEs and review needed changes to SOE remuneration policy (MEFP ¶30).

- Box 2 — Key SOE sector statistics and risks:
  - SOE assets equivalent to around 50 percent of GDP.
  - Ukraine has 1,833 operating SOEs out of 3,350 registered SOEs, with output amounting to around 10 percent of GDP.
  - Top 100 SOEs account for around 90 percent of total SOE assets.
  - 740 out of 1,833 operating SOEs were loss-making through 2014:Q3, with losses amounting to around 1 percent of GDP.
  - SOE liabilities around 12.3 percent of GDP. (Numbers exclude Naftogaz; including Naftogaz, the ratio reaches 22.8 percent of GDP.)
  - Direct subsidies to SOEs in 2014 amounted to around 2 percent of GDP while the stock of outstanding loan guarantees is around 3.5 percent of GDP.
  - Reform agenda elements: improve budgetary oversight via fiscal risk assessment; implement comprehensive ownership policy; strengthen corporate governance including new law on corporate governance; prioritize enterprises for restructuring; transparent privatization.

### PROGRAM FINANCING AND MODALITIES — Monitoring and financing assurances
- Program monitoring:
  - Attached LOI and MEFP describe authorities’ progress and set commitments.
  - Modifications to program conditionality proposed plus PCs for end-September 2015 and end-December 2015, and new structural benchmarks (MEFP Table 1).
  - One structural benchmark relating to the Code on Civil Procedure proposed to be reset due to additional time needed for technical preparations.
- Financing assurances for next 12 months:
  - Turkey announced fresh financing of US$50 million for budget support and US$10 million worth of humanitarian assistance.
  - Sweden is in discussions about extending a US$100 million loan in 2016.
  - Canada’s C$200 million and EC’s €250 million have been disbursed.
  - A US-guaranteed US$1 billion bond has been issued.
  - Authorities ratified an agreement with the EC on a third MFA operation for €1.8 billion, of which €600 million is expected to be disbursed before end-July.
  - Two DPLs of US$500 million each from the World Bank and an associated loan of US$300 million from Japan are expected to be disbursed shortly once related prior actions are met.
  - Disbursements from other multilateral and bilateral donors are broadly on track.

### PROGRAM FINANCING AND MODALITIES — Capacity to repay the Fund and program risks
- Capacity to repay and projections:
  - Under the baseline, Ukraine’s capacity to repay the Fund remains adequate (Table 7).
  - Repayment to the Fund over the next five years would peak at a manageable 7.6 percent of reserves in 2018.
  - The debt operation would keep gross financing needs contained during the period when the first large repayments come due to the Fund in 2018 as well as during the post-program period.
  - By the end of the arrangement in early 2019, outstanding credit to the Fund is expected to peak at about 16.4 percent of GDP, or 54 percent of gross reserves.
  - Debt service to the Fund as a ratio of exports of goods and services would peak at 4 percent in 2018.
- Risks:
  - Risks remain exceptionally high given large uncertainties around the baseline scenario.
  - Main risk: geopolitical developments; a prolonged or intensified conflict could weigh further on market and investment sentiment and adversely affect repayment capacity.
  - Policy risks: policy reversals, including on the flexible exchange rate policy and fiscal/energy price adjustment, could lead to continuing balance of payments problems and raise repayment risks.
  - Contingency stance: if discussions with private creditors reach an impasse and timely agreement is infeasible, authorities have publicly noted preparedness to impose a temporary moratorium on debt payments while continuing best efforts to reach an appropriate restructuring agreement.

*Source: IMF staff and the authorities’ LOI and MEFP as reported in the provided content.*

### 44.      A recent safeguards mission confirmed that the NBU has made progress in

### 44.      A recent safeguards mission confirmed that the NBU has made progress in

### Safeguards, governance, and loan-management reforms
- A recent safeguards mission confirmed that the NBU has made progress in strengthening its governance and control environment.
- Amendments to the NBU legal framework, enacted in June (prior action), will further improve financial autonomy and governance.
- To address credit risks from financial assistance to domestic banks, the assessment recommended that the ongoing reforms of the loan management process be given priority and fully implemented by October 2015 (MEFP ¶31).

### Exceptional Access Criteria — staff assessment and findings
- Staff is of the view that the program continues to satisfy the substantive criteria for exceptional access, premised on full implementation of authorities’ policies under the program.

- Criterion 1:
  - The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current account or the capital account resulting in a need for Fund financing that cannot be met within the normal limits.
  - Ukraine is experiencing exceptional balance of payments pressures emanating from both the current and capital accounts.
  - Official reserves remain low at US$10.3 billion at end-June, covering only 23 percent of short-term debt.
  - To stabilize the foreign exchange market, a package of capital control measures has been implemented.
  - Ukraine faces risks of further economic and trade disruptions from an escalation of geopolitical tensions.
  - Together, these factors generate actual and potential financing needs beyond what can be financed within normal limits, despite expected financial support from the international community.

- Criterion 2:
  - A rigorous and systemic analysis indicates a high probability that public debt is sustainable in the medium term.
  - The authorities have made progress in discussions with creditors towards the debt operation in line with its stated objective (see ¶10 above).
  - After the debt operation, public debt-to-GDP ratio is projected to decline steadily to around 70.8 percent of GDP by 2020.
  - While debt would remain high relative to high-risk thresholds, this is compensated by gross financing needs staying significantly below DSA higher risk benchmarks.
  - Sensitivity tests show debt remains on a sustainable path after a number of macroeconomic shocks.
  - A large shock associated with a sharp escalation of the conflict in the east could render debt dynamics unsustainable, but most observers consider this scenario unlikely.
  - Staff judges that the debt will become sustainable over the medium term with high probability.

- Criterion 3:
  - The member has prospects of gaining or regaining access to private capital markets within the timeframe when Fund resources are outstanding.
  - The policy and financing mix under the program addresses long-standing domestic and external imbalances needed to stabilize the economy and revive growth in the medium term.
  - Completion of the debt operation in line with the authorities’ objectives would improve confidence, helping to bring Ukraine CDS and bond spreads down and ultimately lead to regaining market access.
  - Staff anticipates that with successful implementation of the program and the debt operation, combined with support from the broader international community, Ukraine has good prospects for regaining access to private capital markets before the end of the program period.
  - If an agreement with creditors is not reached within a reasonable period and a moratorium on debt service is imposed, arrears to private creditors will provide temporary program financing; in this event, authorities should continue good-faith efforts to reach a collaborative agreement in line with the Fund’s lending into arrears policy.
  - For debt owed to official creditors, staff is of the view that there are a range of options that would be available to deal with these claims, if a need arises.

- Criterion 4:
  - The policy program provides a reasonably strong prospect of success, including the member’s adjustment plans and institutional and political capacity.
  - The authorities performed reasonably well under the SBA-supported program and the EFF-supported one is on track with all PCs for end-March and end-June met.
  - Key prior actions and structural reforms implemented include: NBU independence, Naftogaz reforms, gas-market law, anti-corruption legislation, SOE reforms, and banking resolution.
  - The conflict in the East and growing populist pressures in parliament present major challenges, but authorities’ willingness and capacity to implement the program and prevent policy reversals remain strong, as evidenced by parliament’s recent refusal to consider populist bills that aimed to roll back program policies and the president’s commitment to veto any such legislation (MEFP ¶23).
  - Given implementation of program conditionality and indications of stabilization of Ukraine’s conflict situation, staff sees reasonably good prospects for program success.

### Macroeconomic outlook, risks, and policy recommendations (paras 45–51)
- Tentative signs of stabilization:
  - Balance of payments is in line with program projections.
  - The foreign exchange market has stabilized.
  - The NBU is accumulating reserves.
  - The fiscal position was better than programmed.
  - The recession is more prolonged and inflation higher, posing new challenges.

- Monetary policy and reserves:
  - Maintain an appropriately tight monetary policy oriented toward supporting disinflation and protecting the incomes of the most vulnerable.
  - Continue targeted buildup of reserves; NBU should continue to accumulate reserves through market purchases as market conditions permit.
  - For the time being, administrative measures will need to continue to guard against BOP pressures.
  - As external stability becomes more entrenched and disinflation gains speed, monetary policy can be carefully eased to support economic activity.
  - Proceed, in close consultations with the Fund, with removing administrative measures in a gradual and sequenced manner, carefully monitoring impacts.
  - The temporary import surcharge should be allowed to expire at end-2015 as planned.

- Banking sector and NBU institutional reform:
  - Advance in a decisive manner implementation of the program’s strategy to strengthen banks’ financial health through recapitalization, reduction of related-party lending, and resolution of impaired assets to regain public confidence and support economic recovery.
  - Proceed with NBU institutional reform to entrench central bank independence and facilitate implementation of inflation targeting in due course.

- Fiscal policy and structural reforms:
  - Maintain fiscal discipline in 2015 and formulate a robust 2016 budget consistent with the program to reduce fiscal vulnerabilities.
  - Proceed with reforms to rationalize expenditure and improve tax administration; strengthen the social safety net.
  - Pension, health, and education reforms remain critical to keep the budget in line with program understandings in 2016 and beyond; success will require careful design and building stakeholder coalitions to overcome resistance.
  - Implement structural measures to enhance collections of receivables and reform Naftogaz expeditiously to limit Naftogaz’s fiscal burden in the short run and eliminate Naftogaz deficit by 2017 as targeted.

- Structural and governance reforms to revive investment and private activity:
  - Further substantial progress with structural reforms is essential to enable strong recovery of investment and private economic activity.
  - Priorities: overhauling governance and fighting corruption, improving the business climate, and reforming state-owned enterprises.
  - Anti-corruption and judiciary reforms should proceed in a timely manner.
  - Successful SOE reform will substantially limit fiscal risks and support private-sector development.

- External financing and debt operation:
  - Authorities need to ensure that all conditions for the disbursement of multilateral and official bilateral loans are implemented on a timely basis.
  - Authorities and creditors need to continue efforts to reach a collaborative agreement in line with program objectives to close financing gaps and restore debt sustainability with high probability.
  - Because Ukraine lacks the resources under the program to fully service its debts on the original terms and has passed legislation enabling a moratorium, and since significant debt service will come due by the end of the third quarter of 2015, timely completion of the debt operation with high participation is important.
  - If the authorities decide on imposing a moratorium, it would be important for Ukraine to continue efforts to reach a collaborative agreement with creditors in line with the Fund’s policy on lending into arrears (private creditors); staff sees a range of options for official creditors’ claims if needed.

*IMF Staff Report excerpt (paragraphs 44–51).*

### 52.      In view of the authorities’ performance under the program, their policy commitments

### _cr15218 - 52.      In view of the authorities’ performance under the program, their policy commitments

### Program assessment and recommendation
- Staff recommends the completion of the first review based on:
  - "the authorities’ performance under the program, their policy commitments for the period ahead, and progress towards the debt operation in line with its stated objectives."

### Real economy — key developments and projections
- Recession has deepened, driven by loss of capacity caused by conflict in the East.
- Real GDP:
  - 2014: -9.0 (year-on-year percent change shown in figures and Table 1)
  - 2015 (projected): -9.0 (Table 1 shows Real GDP -9.0 for 2015)
  - Subsequent projections (Table 1): 2016: 2.0; 2017: 2.0; 2018: 3.5; 2019: 4.0; 2020: 4.0
- Contributions to GDP (Table 1, percent change where provided):
  - Domestic demand: -13.5 (2014), -7.7 (2015), -13.1 (2015 baseline), turning positive thereafter
  - Private consumption: -7.7 (2014), -5.2 (2015), -8.2 (2015 baseline)
  - Investment: -5.9 (2014), -2.3 (2015), -3.3 (2015 baseline)
  - Net exports contributed positively in 2014: 6.6
- Labor market:
  - Unemployment (ILO definition): 2014: 11.5; 2015: 11.5; projected 2016: 11.0; 2017: 11.0; 2018: 9.4; 2019: 8.5; 2020: 8.1; 2020 (Table 1) end: 8.0
- Wages and real incomes:
  - Nominal monthly wages (average): 2014: 14.5; 2015: 22.3; subsequent decline to 10.6 (2016) and gradual recovery
  - Real monthly wages (average): 2014: -5.5; 2015: -14.2; 2016: -18.5; recovery thereafter

### Inflation, monetary policy, and exchange rate
- Inflation:
  - GDP deflator: 2014: 14.8; 2015: 27.6; 2015 projection peak: 39.0 (Table 1: "GDP deflator14.8 27.6 39.0 10.6 12.0 9.9 8.0 6.0 6.0")
  - Consumer prices (period average): 2014: 12.1; 2015: 33.5; 2016: 50.0; projected 2017: 10.6; 2018: 14.2; 2019: 9.9; 2020: 7.0
  - After peaking in April, inflation eased sharply reflecting weak demand and hryvnia stabilization (Figure 2 caption).
- Exchange rate:
  - Since the NBU has let the exchange rate float, the hryvnia has lost about 60 percent of its value, though it has remained broadly stable in recent months (Figure 2 caption).
  - Hryvnia per U.S. dollar (end of period) (Table 1): 2014: 15.8; 2015: 22.0; 2016: 23.5; 2017: 22.7; 2018: 24.4; 2019: 24.9; 2020: 25.1; 2021: 25.4; 2022: 25.5
- Money and credit (Table 1, end of period percent change):
  - Base money: 2014: 8.5; 2015: 27.3; 2016: 27.3; 2017: 11.3; 2018: 17.7; 2019: 12.4; 2020: 10.7; 2021: 9.5; 2022: 8.3
  - Broad money: 2014: 5.3; 2015: 19.1; 2016: 24.5; 2017: 15.4; 2018: 22.5; 2019: 17.4; 2020: 16.1; 2021: 13.3; 2022: 10.3

### External sector — developments, financing, and risks
- External position improved in 2015:Q1 in line with program projections (Figure 3 caption).
- Current account:
  - Current account balance (Table 3, billions of U.S. dollars): 2014: -6.2; 2015: -1.2; 2016 (proj): -1.5; 2017: -1.2; 2018: -1.5; 2019: -1.5; 2020: -1.6; 2021: -2.4; 2022: -3.4
  - Current account (percent of GDP, Table 3 memo): 2014: -4.7; 2015: -1.4; 2016: -1.7; 2017: -1.3; 2018: -1.6; 2019: -1.4; 2020: -1.4; 2021: -1.9; 2022: -2.5
- Gross reserves (end of period, billions of U.S. dollars): 2014: 7.5; 2015: 18.3; 2016: 18.3; 2017: 22.3; 2018: 22.3; 2019: 28.5; 2020: 35.2; 2021: 38.4; 2022: 38.4 (Table 3 and Table 4)
- External debt and financing needs:
  - Total external debt (percent of GDP, Table 3 memo): 2014: 100.4; 2015: 158.4; 2016: 147.7; 2017: 149.5; 2018: 144.8; 2019: 135.7; 2020: 127.8; 2021: 119.4; 2022: 109.9
  - Gross external financing requirements (Table 4, total financing requirements, billions of U.S. dollars): 2014: 66.9; 2015: 48.2; 2016: 49.3; 2017: 51.6; 2018: 52.1; 2019: 49.4; 2020: 48.6; 2021: 48.2; 2022: 53.8
  - Portfolio investment (Table 4): 2014: 3.5; 2015: 5.6; 2016: 6.3; 2017: 3.6; 2018: 3.5; 2019: 4.5; 2020: 2.6; 2021: 1.1; 2022: 5.0

### Public finances and debt projections
- Fiscal balances (Table 2):
  - Revenue (billions of Ukrainian hryvnias): 2014: 639.7; 2015: 792.5; 2016: 808.4; 2017: 840.2; 2018: 898.3; 2019: 1,028.8; 2020: 1,155.5; 2021: 1,273.5; 2022: 1,399.7
  - Expenditure (billions of Ukrainian hryvnias): 2014: 710.5; 2015: 870.7; 2016: 891.1; 2017: 916.4; 2018: 982.7; 2019: 1,107.6; 2020: 1,229.4; 2021: 1,348.9; 2022: 1,476.0
  - Overall balance (general government, billions of UAH): 2014: -70.8; 2015: -78.2; 2016: -82.7; 2017: -76.2; 2018: -84.4; 2019: -78.8; 2020: -73.9; 2021: -75.4; 2022: -76.3
  - General government balance (percent of GDP, Table 2 continuation): 2014: -4.5; 2015: -4.2; 2016: -4.2; 2017: -3.7; 2018: -3.7; 2019: -3.1; 2020: -2.6; 2021: -2.4; 2022: -2.2
- Public debt:
  - Public and Publicly Guaranteed Debt (percent of GDP, Table 2 memo): 2014: 71.2; 2015: 94.1; 2016: 94.4; 2017: 92.6; 2018: 92.1; 2019: 87.8; 2020: 82.4; 2021: 76.9; 2022: 70.8
  - Public debt excluding guarantees (end of period, percent of GDP): 2014: 61.4; 2015: 74.9; 2016: 75.5; 2017: 72.1; 2018: 71.1; 2019: 66.1; 2020: 61.4; 2021: 57.9; 2022: 54.3
  - Public Debt Held Outside the Public Sector (percent of GDP): 2014: 49.6; 2015: 72.3; 2016: 73.1; 2017: 74.8; 2018: 74.9; 2019: 74.1; 2020: 72.2; 2021: 69.9; 2022: 65.6
- Debt operation and sustainability:
  - Annex assessment: "Under the policy and financing package supporting the extended arrangement under the EFF, including the expected outturn from the debt operation, Ukraine’s public debt is assessed as sustainable with high probability."
  - Key assumptions for DSA: (i) full implementation of policies under the program; (ii) adequate and timely external financing from the official sector and, via a debt operation, the private sector; (iii) the non-intensification of the conflict in the East.
  - Public debt after the debt operation is projected to peak at 94 percent of GDP in 2015, above the 70 percent of GDP high-risk benchmark in the debt sustainability framework, then decline to below 71 percent of GDP by 2020 (Annex).
  - External DSA: external debt would peak at about 148 percent of GDP in 2015 (Annex / Table 3 memo).

### Financial sector and banking system
- Banking sector stress:
  - Deposit outflows and credit squeeze: money growth slowed after spurt of inflation; credit growth negative in real terms (Figure 6 captions, Table 5).
  - Household and corporate loans declining; household loans in hryvnia and FX showed declines (Figure 4 captions).
  - Bank liquidity and NBU support: since early 2014 NBU provided massive liquidity support to banks experiencing deposit outflows (Figure 6).
- Financial soundness indicators (Table 6 highlights):
  - Number of banks: 2014 Mar: 181; 2015 Mar: 148; 2015 May: 143
  - Regulatory capital to risk-weighted assets: 2014: 14.8; 2015 Mar: 15.9; 2015 Dec: 15.6; later deteriorating to 8.4 and 7.8 in 2015 Mar/Apr/May (Table 6)
  - NPLs to total loans (NBU narrow definition): 2014: 13.3; 2015 Mar: 14.6; 2015 Dec: 19.0; 2015 Mar (subsequent): 24.7; 24.5; 24.1
  - NPLs to total loans (broader definition): 2014: 26.1; 2015 Mar: 27.7; 2015 Dec: 30.6; rising to 39.7; 43.7; 44.3
  - Return on assets (after tax; end-of-period): 2014: -0.6; 2015 Mar: 0.2; later deteriorated to -4.1; -22.3; -17.3; -12.4

### Structural reforms and governance indicators
- Structural indicators presented (Figure 7) show Ukraine lagging many CESEE peers across:
  - Ease of Doing Business (2015), Global Competitiveness (2014-2015), Perception of Corruption (2014), and governance indicators (2013).
- The document highlights the need for sustained structural reforms to improve competitiveness, governance, and investor confidence.

### Debt Sustainability Analysis (Annex) — assumptions and risks
- Baseline revisions and key macro assumptions (Annex Section A):
  - Baseline growth projection for 2015 revised down to -9 percent (compared to -5½ upon EFF approval).
  - Exchange rate: average exchange rate projected at UAH 22/US$1 in 2015; expected to end the year at UAH 23.5/US$1 (compared to UAH 22/US$1 at program approval).
  - Inflation (GDP deflator) projected to peak at 39 percent in 2015 (compared to 28 percent at EFF approval).
  - Fiscal target: near-term adjustment path keeps a primary surplus target of 1.1 percent of GDP in 2015 (an improvement of 2¼ percentage points of GDP over 2014), followed by a medium-term sustained fiscal effort (Annex last paragraph).
- DSA conclusions (Annex summary):
  - With full program implementation, adequate official financing, and no intensification of conflict, public debt is assessed as sustainable with high probability.
  - Projected public debt peak at 94 percent of GDP in 2015 after the debt operation; decline to below 71 percent of GDP by 2020.
  - External debt peak around 148 percent of GDP in 2015; downward path contingent on sustained reduction in current account deficits and voluntary private debt restructuring.
  - Risks: growth shocks, real exchange rate shocks, larger-than-expected contingent liabilities from the banking sector; average gross financing needs during program and post-program expected to remain below 15 percent of GDP, mitigating some risks.

### IMF financing and purchase schedule under the Extended Arrangement
- Proposed schedule of purchases under the Extended Arrangement (Table 8):
  - Total: 12,348 (Millions of SDRs) / 17,504 (Millions of US$) / 900 (Percent of quota)
  - Initial purchase, Mar 11, 2015: 3,546.000 SDRs / 5,017.30 US$ / 258.45 percent of quota — Condition: Board approval of extended arrangement
  - Second line item (June 15, 2015): 1,182.100 SDRs / 1,665.82 US$ / 86.16 percent of quota — Condition: First review and end-March 2015 performance criteria
  - Subsequent scheduled purchases of 1,182.100 SDRs or 437.975 SDRs tied to reviews and end-quarter performance criteria through December 15, 2018.
- Table 7 (Indicators of Fund Credit) summarizes stock of existing and prospective Fund credit and obligations to the Fund in SDRs and percentages of quota, GDP, exports, and reserves across 2014–25 (select highlights):
  - Stock of existing and prospective Fund credit (Millions of SDRs): 2014: 3,941; 2015: 10,065; 2016: 11,817; 2017: 12,940; 2018: 13,206; 2019: 12,053; 2020: 10,797; 2021: 9,250; 2022: 7,411; 2023: 5,353; 2024: 3,295; 2025: 1,533
  - In percent of quota: 2014: 287; 2015: 734; 2016: 861; 2017: 943; 2018: 963; 2019: 878; 2020: 787; 2021: 674; 2022: 540; 2023: 390; 2024: 240; 2025: 112

*Source: IMF staff report and annex (as provided in the supplied content).*

### 1.6 percent (Figure 3). As noted at the time of EFF approval, this path is ambitious in the context

### _cr15218 - 1.6 percent (Figure 3). As noted at the time of EFF approval, this path is ambitious in the context

### Fiscal adjustment and banking system support
- The envisaged primary balance adjustment path is ambitious relative to past performance: an average primary deficit of 2.4 percent of GDP over 2004–13 and well above the 75th percentile of historical primary balance adjustments in countries with IMF-supported programs.
- Banking system support needs for restructuring in 2014–15 remain unchanged at 9.4 percent of GDP, preserving a buffer of nearly 4 percent of GDP in public funds to absorb additional bank recapitalization and resolution needs.

### Debt operation objectives and market access
- Program objectives guiding creditor negotiations:
  - generate about US$15 billion in public sector financing during the program period;
  - bring the public and publicly guaranteed debt/GDP ratio from a projected pre-operation 79.2 percent of GDP to under 71 percent of GDP by 2020;
  - keep the budget’s gross financing needs at an average of 10 percent of GDP (maximum of 12 percent of GDP annually) in 2019–25.
- The debt operation is expected to reduce gross financing needs during 2015–18 from an average of 18 percent of GDP to 12 percent.
- Eligible instruments and their debt and debt service (US$ billion) reported by the Ministry of Finance include:
  - Total debt service (2015–2018, Total): Total 6.2 4.9 5.7 3.2 20.0 22.7
  - Of which Principal: 5.5 3.6 4.6 2.6 16.2
  - Of which Interest: 0.7 1.3 1.1 0.6 3.8
  - Sovereign Eurobonds: 4.9 3.5 4.1 0.5 13.0 16.8 (Principal 4.4 2.6 3.3 0.0 10.3; Interest 0.5 0.9 0.8 0.5 2.8)
  - Sovereign-guaranteed Eurobonds: 0.1 0.1 1.3 0.7 2.2 (Principal 0.0 0.0 1.1 0.7 1.8; Interest 0.1 0.1 0.1 0.0 0.4)
  - Sovereign-guaranteed commercial loans: 0.2 0.3 0.1 0.3 0.8 (Principal 0.2 0.2 0.1 0.3 0.7; Interest 0.0 0.0 0.0 0.0 0.1)
  - Non-guaranteed SOEs liabilities: 1.0 1.0 0.2 1.7 3.9 (Principal 0.9 0.8 0.1 1.6 3.4; Interest 0.1 0.2 0.1 0.1 0.5)
- Official financing terms:
  - Multilateral funding tied to Euribor/Libor, loans amortizing in the range of 10–20 years with about five year grace period from multilaterals.
  - Bilateral funding at fixed annual rates below 2 percent, amortizing 10–20 years.
  - IMF lending calibrated on EFF terms.
- Market access assumptions:
  - Historical evidence suggests time to re-access markets about three years after successful debt operations; Ukraine’s time to re-access after its 1998 restructuring was about three years.
  - Assumption: by late-2017 Ukraine could re-access international capital markets.

### Public Sector Debt Sustainability Analysis (DSA) — baseline and projections
- Coverage of public debt in DSA includes: (i) central government direct debt (including domestic debt held by the NBU amounting to 20 percent of GDP at end-2014); (ii) domestic and external government guarantees on loans/bonds to SOEs; (iii) debt of local governments; (iv) NBU’s liabilities to the IMF.
- Public and publicly guaranteed debt, 2014 (UAH / US$ / Percent of GDP / Percent of total):
  - Public and publicly guaranteed debt: 111 670.8 71.2 100.0
  - Domestic debt: 49 531.4 31.6 44.4
  - Direct debt in UAH: 400 25.4 25.5 35.9
  - Direct debt in FX: 67 4.3 4.3 6.0
  - Guaranteed debt: 28 1.8 1.8 2.5
  - External debt: 62 139.4 39.6 55.6
  - External direct debt: 49 531.4 31.6 44.3
  - Multilateral: 17 110.8 10.9 15.3 (of which: IMF budget support 8 65.4 5.5 7.7)
  - Bilateral: 4 32.7 2.7 3.8
  - Sovereign Eurobonds: 27 317.3 17.4 24.4
  - Local government Eurobonds: 0.9 0.6 0.6 0.8
  - External guaranteed debt: 12 68.0 8.0 11.3 (of which: IMF loans to NBU 3 42.2 2.2 3.1; of which: Eurobonds 2 91.8 1.8 2.6; of which: Commercial loans 5 23.3 3.3 4.6)
- Baseline projections:
  - Public debt reached 71 percent of GDP at end-2014, a jump of 30 percentage points from 2013.
  - Similar factors in 2015 would lead public debt to peak at about 94 percent of GDP.
  - After completion of the debt operation, fiscal adjustment, and growth restoration, debt ratio expected to gradually converge to below 71 percent of GDP by 2020, near the DSA high-risk benchmark.
- Projected gross financing needs:
  - Program period (2015–2018): projected average gross financing needs reduced from 18 percent of GDP before the debt operation to 12 percent after the debt operation.
  - Post-program (2019–2025): keep budget gross financing needs at average 10 percent of GDP (maximum 12 percent annually).

### Risks, stress tests, and scenario outcomes (public DSA)
- Heat map and fan charts indicate significant risks to debt sustainability; uncertainty remains even with successful implementation.
- Mitigating factors: improved gross financing needs projected to average 12 percent during and 10 percent after the program.
- Stress test outcomes (selected):
  - Growth shock (cumulative growth decline of about 9 percentage points in 2016–17): debt-to-GDP ratio reaches nearly 116 percent in 2017.
  - Real exchange rate shock similar to 2014: debt ratio remains above 100 percent of GDP throughout the projection period.
  - Combined macro-fiscal shock (shocks to real growth, interest rate, primary balance, exchange rate): debt above 200 percent of GDP in 2017 (unsustainable dynamics).
  - Contingent liabilities shock (large banking sector deterioration plus a large associated shock to growth: 14 percentage points below the baseline in 2016–17): debt peaks at 113 percent of GDP in 2017. This shock’s impact is mitigated by the buffer embedded in the baseline for larger-than-expected bank restructuring costs.
- Financing needs under scenarios:
  - Under the baseline, gross financing needs breach the high-risk benchmark of 15 percent of GDP only in 2015 due to extensive support to the banking sector and Naftogaz.
  - Average gross financing need for remainder of program period lies below 10 percent of GDP.
  - Under stress tests, the combined shock raises average gross financing needs to more than 20 percent of GDP during the projection period.

### External Sector DSA — baseline, projections, and risks
- Baseline external debt projections:
  - Gross external debt-to-GDP ratio: 100 percent in 2014, peak at 148 percent of GDP in 2015, decline to 110 percent of GDP by end-2020 assuming successful policy implementation, timely external financing, and non-intensification of the conflict in the East.
- External adjustment underpins medium-term sustainability:
  - Trade balance of goods and services projected to move from a deficit close to 10 percent of GDP in 2013 to an average of below 2 percent in the medium term.
  - Debt operation expected to support improvement in the income balance of the current account.
  - Private corporations held foreign currency assets covering 84 percent of their foreign currency liabilities as of end-2014, reducing net exposure and helping meet external debt service.
  - Several large corporations have engaged in voluntary debt restructuring/rollovers.
- External downside risks:
  - Slower-than-expected export growth due to protracted war-induced supply shocks or delays finding alternative markets for products previously targeted to CIS partners could undo current account adjustment.
  - Scenario: if the current account deteriorates on average by 1 percent of GDP per year compared to the baseline, the external debt ratio would increase by about 8 percent of GDP by [text truncated in source].

*Source: IMF staff compilation from the provided chapter/section content.*

### 2020. More importantly, the external debt dynamics are significantly affected by a growth shock. A

### _cr15218 - 2020. More importantly, the external debt dynamics are significantly affected by a growth shock. A

### External debt dynamics — key finding
- A half historical standard deviation shock from the growth path under the baseline, about 2½ percentage points lower growth on average per year, increases the external debt ratio by about 23 percentage points of GDP by 2020.
- Reduced FDI due to confidence effects from a prolongation or intensification of the conflict in the East would also significantly affect external debt dynamics, with a sizable upward shift in the debt adjustment path.

### Debt Sustainability Assessment — baseline projections (selected figures)
- Nominal gross public debt: 26.2 (2013), 40.5 (2014), 71.2 (2015), 94.4 (2016), 92.1 (2017), 87.8 (2018), 82.4 (2019), 76.9 (2020), 70.8 (cumulative column header context).
- Real GDP growth (in percent): 2.6 (2013), 0.0 (2014), -6.8 (2015), -9.0 (2016), 2.0 (2017), 3.5 (2018), 4.0 (2019), 4.0 (2020), 4.0 (2020 repeated).
- Inflation (GDP deflator, in percent): 17.2 (2013), 4.3 (2014), 14.8 (2015), 39.0 (2016), 12.0 (2017), 9.9 (2018), 8.0 (2019), 6.0 (2020).
- Effective interest rate (in percent): 6.5 (2013), 8.7 (2014), 10.7 (2015), 10.9 (2016), 7.7 (2017), 7.4 (2018), 7.0 (2019), 6.9 (2020), 7.0 (2020 repeated).
- Change in gross public sector debt (cumulative): 1.0 (2013), 3.0 (2014), 30.7 (2015), 23.2 (2016), -2.3 (2017), -4.3 (2018), -5.4 (2019), -5.5 (2020), -6.0 (cumulative), -0.4 (final column).
- Primary deficit (identified debt-creating flow): 2.4 (2013), 2.3 (2014), 1.2 (2015), -1.1 (2016), -1.4 (2017), -1.6 (2018), -1.6 (2019), -1.6 (2020), -8.9 (cumulative).
- Primary (noninterest) revenue and grants (percent of GDP): 41.3 (2013), 43.3 (2014), 40.8 (2015), 40.8 (2016), 39.7 (2017), 40.0 (2018), 40.0 (2019), 40.0 (2020), 39.9 (final column), 40.5 (cumulative).
- Primary (noninterest) expenditure (percent of GDP): 43.8 (2013), 45.7 (2014), 42.0 (2015), 39.7 (2016), 38.3 (2017), 38.4 (2018), 38.4 (2019), 38.4 (2020), 38.3 (final column), 31.6 (cumulative).
- Automatic debt dynamics (cumulative): -3.1 (2013), 1.6 (2014), 25.9 (2015), -8.7 (2016), -5.4 (2017), -5.1 (2018), -4.2 (2019), -2.5 (2020), -2.3 (final column), -28.2 (cumulative).
- Net Privatization Proceeds (negative): -1.3 (2013), -0.1 (2014), -0.1 (2015), -0.4 (2016), -0.5 (2017), -0.5 (2018), -0.5 (2019), -0.5 (2020), -0.6 (final column), -2.9 (cumulative).
- Bank and Naftogaz recapitalization (identified debt-creating flows): 0.6 (2013), 0.6 (2014), 7.9 (2015), 10.2 (2016), 2.2 (2017), 0.0 (2018), 0.0 (2019), 0.0 (2020), 0.0 (final column), 12.4 (cumulative).

### Debt profile vulnerabilities and benchmarks (indicators in 2014)
- EMBIG (average over last 3 months, 05-Mar-15 through 03-Jun-15): 3356 (bp) shown in tabular heat-map context.
- Market Perception indicators and risk-assessment benchmark thresholds shown in heat-map: 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.
- External Financing Requirement defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.

### Alternative scenarios and composition of public debt (selected assumptions)
- Baseline underlying assumptions (percent): Real GDP growth: -9.0 (2015), 2.0 (2016), 3.5 (2017), 4.0 (2018), 4.0 (2019), 4.0 (2020).
- Historical scenario Real GDP growth: -9.0 (2015), 0.5 (2016), 0.5 (2017), 0.5 (2018), 0.5 (2019), 0.5 (2020).
- Constant Primary Balance Scenario primary balance assumed at 1.1 (2015–2020).
- Composition charts presented for Gross Nominal Public Debt by maturity (Medium and long-term; Short-term) and by currency (Local currency-denominated; Foreign currency-denominated).

### Macro-fiscal stress tests — representative outcomes
- Stress test scenarios include: Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Contingent Liability Shock.
- Example scenario parameterizations (selected):
  - Real GDP Growth Shock: Real GDP growth sequence -9.0 (2015), -5.0 (2016), -3.5 (2017), 4.0 (2018), 4.0 (2019), 4.0 (2020).
  - Real Interest Rate Shock: Effective interest rate sequence 10.9 (2015), 10.3 (2016), 5.7 (2017), 5.7 (2018), 5.7 (2019), 6.0 (2020) in one panel; and 10.9, 10.3, 5.8, 6.7, 7.5, 8.6 in Combined Shock panel.
  - Real Exchange Rate Shock includes inflation jump to 44.4 (2015) in one scenario panel.
- External Debt Bound Tests (averages and scenario results):
  - Historical external debt: 68 (percent of GDP).
  - Baseline external debt: 110 (percent of GDP).
  - Interest Rate Shock scenario: 114 (percent of GDP).
  - Growth Shock scenario: 132 (percent of GDP).
  - Noninterest Current Account Shock scenario: 118 (percent of GDP).
  - Combined Shock scenario: 131 (percent of GDP).
  - Combined 2/ scenario: 167 (percent of GDP).
  - Real Depreciation Shock (30% depreciation): charts and baseline/scenario/historical boxes include average projections: Baseline: 5.3; Scenario: 4.1; Historical: 0.5 (context indicates these are variable averages; original table shows three sets of Baseline/Scenario/Historical triples such as 5.3 / 4.1 / 0.5; 1.4 / -1.9 / 0.5; 5.5 / 6.1 / 7.2).

### Program External Debt Sustainability Framework (2012‒20) — selected external metrics
- Baseline external debt (percent of GDP) by year: 76.6 (2012), 78.3 (2013), 100.4 (2014), 147.7 (2015), 144.8 (2016), 135.7 (2017), 127.8 (2018), 119.4 (2019), 109.9 (2020).
- Change in external debt (percent of GDP): -0.8 (2012), 1.7 (2013), 22.1 (2014), 47.4 (2015), -2.9 (2016), -9.1 (2017), -7.9 (2018), -8.4 (2019), -9.5 (2020).
- Identified external debt-creating flows (4+8+9): -4.4 (2012), 0.9 (2013), 35.1 (2014), 12.4 (2015), -2.9 (2016), -6.2 (2017), -7.9 (2018), -6.6 (2019), -4.5 (2020).
- Current account deficit, excluding interest payments (percent of GDP): 2.4 (2012), 3.2 (2013), -1.3 (2014), -5.7 (2015), -5.9 (2016), -5.9 (2017), -5.6 (2018), -4.7 (2019), -3.8 (2020).
- Net non-debt creating capital inflows (negative): -7.0 (2012), -6.7 (2013), 1.9 (2014), -3.2 (2015), -1.7 (2016), -3.1 (2017), -4.4 (2018), -3.7 (2019), -2.6 (2020).
- Automatic debt dynamics (percent): 0.2 (2012), 4.4 (2013), 34.6 (2014), 21.3 (2015), 4.8 (2016), 2.8 (2017), 2.1 (2018), 1.9 (2019), 1.9 (2020).
- External debt-to-exports ratio (percent): 149.5 (2012), 164.5 (2013), 191.5 (2014), 248.1 (2015), 236.0 (2016), 228.8 (2017), 222.1 (2018), 211.0 (2019), 198.3 (2020).
- Gross external financing need (billions of U.S. dollars): 85.4 (2012), 73.7 (2013), 66.0 (2014), 44.0 (2015), 48.7 (2016), 45.0 (2017), 46.3 (2018), 48.2 (2019), 52.2 (2020).
- Gross external financing need (percent of GDP): 48.6 (2012), 41.0 (2013), 50.5 (2014), 50.4 (2015), 53.5 (2016), 44.5 (2017), 41.4 (2018), 39.5 (2019), 39.1 (2020).
- Scenario with key variables at their historical averages: external debt 100.4 (2014), 91.5 (2015), 85.7 (2016), 82.3 (2017), 79.7 (2018), 74.8 (2019), 67.8 (2020).

### Key macroeconomic assumptions underlying external baseline (selected)
- Real GDP growth (percent): 0.2 (2012), 0.0 (2013), -6.8 (2014), -9.0 (2015), 2.0 (2016), 3.5 (2017), 4.0 (2018), 4.0 (2019), 4.0 (2020).
- GDP deflator in U.S. dollars (change in percent): 7.4 (2012), 2.2 (2013), -21.9 (2014), -26.7 (2015), 2.4 (2016), 7.4 (2017), 6.3 (2018), 5.0 (2019), 5.2 (2020).
- Nominal external interest rate (percent): 8.0 (2012), 8.0 (2013), 5.0 (2014), 5.1 (2015), 5.3 (2016), 5.6 (2017), 5.7 (2018), 5.6 (2019), 5.8 (2020).
- Growth of exports of goods and services (U.S. dollar terms, percent): 1.3 (2012), -5.1 (2013), -19.9 (2014), -21.6 (2015), 7.3 (2016), 7.4 (2017), 7.4 (2018), 7.3 (2019), 7.2 (2020).
- Growth of imports of goods and services (U.S. dollar terms, percent): 5.4 (2012), -3.1 (2013), -27.0 (2014), -25.7 (2015), 7.1 (2016), 7.1 (2017), 7.0 (2018), 7.6 (2019), 8.0 (2020).
- Current account balance, excluding interest payments: -2.4 (2012), -3.2 (2013), 1.3 (2014), 5.7 (2015), 5.9 (2016), 5.9 (2017), 5.6 (2018), 4.7 (2019), 3.8 (2020).
- Net non-debt creating capital inflows: 7.0 (2012), 6.7 (2013), -1.9 (2014), 3.2 (2015), 1.7 (2016), 3.1 (2017), 4.4 (2018), 3.7 (2019), 2.6 (2020).

### Program and policy context — Letter of Intent (Kyiv, July 21, 2015) — selected policy notes
- Authorities confirm commitment to policies and objectives of the economic program supported by an IMF arrangement under the Extended Fund Facility (EFF).
- Recent policy actions: adopted a new gas sector law; increased gas and central heating retail prices by 285 percent and 67 percent, respectively, aimed at reaching cost recovery based on international market prices and eliminating large losses in Naftogaz while increasing allocations for social assistance programs.
- FX and reserve developments: foreign exchange market has remained broadly stable in the last few months; official reserves, although still very low, have increased considerably following disbursements from official creditors and the NBU’s foreign currency purchases from the market.
- Banking sector indicators: banks’ local currency deposits are growing again, although FX deposit outflows continue and remain a key concern.
- Fiscal outcome: Budget outturn for 2015:Q1 was stronger than expected owing mainly to large VAT revenue driven by the higher-than-expected exchange rate depreciation and inflation.

*Source: IMF staff (content unit: _cr15218 - 2020. More importantly, the external debt dynamics are significantly affected by a growth shock. A).*

### 3.      Our actions ensured that all performance criteria (PC) for end-March, the continuous PC, and

### _cr15218 - 3.      Our actions ensured that all performance criteria (PC) for end-March, the continuous PC, and

### Program compliance, legislation, and institutional actions
- All performance criteria (PC) for end-March, the continuous PC, and most structural benchmarks due through June 2015 were met, albeit some with a delay.
- End-June PCs were met (preliminary data reported in Table 2; final data to be provided before the date of the Board meeting).
- Legislation actions completed prior to review:
  - Passed necessary legislation to strengthen collections of Naftogaz receivables.
  - Passed important legislation that strengthens the NBU independence and governance arrangements (parliament passed amendments to the NBU Law; Laws 2742 and 2743 were passed as a prior action).

### Debt restructuring, bank bond reprofiling, and financing request
- Progress on state-owned bank bond reprofilings:
  - Ukreximbank: constructive discussions on US$1.5 billion Eurobonds; consensual reprofiling completed on July 8.
  - Oschadbank: launched on July 6 a consent solicitation for reprofiling of US$1.2 billion Eurobonds with backing of an ad hoc committee holding a majority of the notes.
- Reprofiling operations are fully in line with the debt operation targets under the EFF-supported program.
- Broader sovereign debt restructuring: steady progress with objective of concluding an agreement as soon as possible (joint statements with the Ad Hoc Creditor Committee on July 1 and 15 cited).
- Financing request:
  - Request completion of the first review and a disbursement in the amount of SDR 1,182.1 million.

### Macroeconomic developments and outlook (Recent developments and updated framework)
- Q1 2015 real GDP: declined by 17.2 percent (about 1¼ percentage points worse than programmed).
- Exchange rate and inflation:
  - Hryvnia halved in value in February; recovered in March–May; stabilized around UAH 21–23/US$1 in recent weeks (broadly as projected under the program).
  - Headline 12-month inflation accelerated to 61 percent y-o-y in April.
  - Inflation in June: 0.4 percent m-o-m (57½ percent y-o-y).
  - State Statistics Committee revision: effect of the April gas price increase was overstated by some 4 percentage points; CPI methodology revised accordingly.
- Balance of payments and reserves:
  - Current account performance somewhat weaker than expected, but overall balance of payments remains in line with the program.
  - Reserves reached US$10.3 billion at end-June, following the first EFF purchase, other official assistance, and NBU FX purchases.
- Updated macroeconomic framework projections:
  - Growth for 2015 revised to -9 percent (compared to -5½ percent upon EFF approval).
  - Projections for 2016–20 unchanged relative to the program.
  - Inflation at end-2015 projected at 46 percent (compared to 27 percent at the EFF approval).
  - Inflation projected to recede in 2016 to around 12 percent.
  - Current account deficit expected to widen to 1.7 percent of GDP (compared to 1.4 percent of GDP at program approval).
  - Overall balance of payments remains unchanged owing to a better-than-expected financial account driven by significant private debt restructuring, lower-than-expected FX cash outflow from the banking system, and FDI pick-up related in part to bank recapitalization.

### Policies under the program — strategy and specific measures
- Overall approach:
  - Maintain a flexible exchange rate regime and accumulate reserves as programmed.
  - Capital controls and other FX restrictive measures will largely remain in place until financial conditions stabilize; a conditions-based roadmap for unwinding these measures has been prepared.
  - Continue implementation of bank resolution strategy consistent with achieving adequate bank capitalization and gradual unwinding of related loans.
  - Continue reforms for high-quality fiscal adjustment and a successful debt operation consistent with program financing and debt sustainability objectives.
  - Prioritize repairing Naftogaz finances through energy price adjustments to market levels and structural reforms in the energy sector.
  - Reinvigorate efforts to improve the business environment and strengthen governance.

- Monetary and exchange rate policy (specific actions):
  - Rebuilding reserves:
    - NBU will continue to mop up excess FX supply and limit FX sales to facilitate external payments by the central government and prevent disorderly market conditions.
    - Naftogaz is meeting FX needs through borrowing and market purchases.
    - Swap line extension with the People’s Bank of China extended until 2018 for an amount up to the equivalent of US$2.4 billion.
    - Ministry of Finance will seek to roll over government domestic FX debt liabilities at least at the rate assumed under the program (TMU, Section 1.A).
  - Preparing for removal of administrative measures: a roadmap will be implemented gradually once prerequisites are met:
    - successful completion of the debt operation in line with objectives specified in paragraph 26 of the MEFP dated February 27, 2015;
    - full implementation of bank recapitalization based on 2014 diagnostic studies;
    - target level of the NBU’s net international reserves (NIR) as specified in the roadmap for the first stage of liberalization;
    - full transition of Naftogaz to the interbank market for its FX purchases (no further reliance on NBU reserves).
  - Monetary policy stance:
    - Aim to reduce inflation to single-digit levels.
    - Current inflation expectations: 15–20 percent for the year to June 2016.
    - Policy interest rate to remain positive in real terms on a near-term forward-looking basis to achieve operational NIR/NDA targets and anchor inflation expectations.
    - Consider easing policy later in 2015 if inflation expectations are well anchored and FX market stability entrenched; tighten policy if inflation repeatedly surprises on the upside or if strong exchange rate depreciation pressures return.
  - NBU institutional improvements:
    - Further improve NBU’s monetary policy and operational framework.
    - Strengthen NBU institutional independence and effectiveness, including safeguarding a strong balance sheet.
    - Sharpen NBU accountability and communication with market and public.

- Financial sector policies (banking system stabilization and recapitalization)
  - Key near-term priorities:
    - Stabilize banking system through prudent provision of collateralized liquidity by the NBU and close monitoring of banks’ liquidity.
    - Strengthen regulatory and supervisory framework.
    - Update and implement bank resolution strategy.
  - Legal and supervisory actions:
    - Passed legal amendments (Law 218) to increase bank owners’ liability for bank failure in case of wrongdoing and strengthen NBU powers regarding related party loans.
    - First wave of bank recapitalization completed (largest 35 banks); resolving insolvent and nonviable banks continues.
    - Five fronts of work: (i) monitor and reduce related party lending; (ii) enhance recapitalization and resolution strategy; (iii) strengthen governance and performance in the DGF and state-owned banks; (iv) improve bad loan resolution framework; (v) reform securities markets.
  - Related party exposure monitoring and capacity building:
    - By June 15, top 10 private banks submitted reports of related party exposure under the new framework.
    - Independent accounting firms began reviewing these reports based on TOR provided by the NBU with IMF and World Bank assistance.
    - Planned actions:
      - Create a committee to oversee the review process by end-July (committee to include first deputy governor and heads of SMU, On-site Supervision, Off-site Supervision, Licensing Departments; observers from IMF and WB).
      - By end-July, NBU to assess information needs and agree MOUs with authorities maintaining public registers and other financial regulators to share key corporate data; ensure sufficient budgetary allocation for SMU to be fully operational by end-September.
  - Supervisory and reporting reforms:
    - Seek parliamentary approval of amendments to establish a credit registry at the NBU by end-September 2015 (draft bill submitted to parliament).
    - Require banks to adopt full IFRS for financial reporting and accounting of daily operations no later than end-December 2015.
    - By end-September 2015, complete review of relevant regulations with Fund staff to ensure prudent, transparent, and internationally-aligned discretionary supervisory powers.
  - Recapitalization diagnostics and timelines:
    - Of 18 largest banks identified by 2014 diagnostics as having capital needs:
      - Five unable to present credible plans and have been resolved by DGF.
      - 12 have implemented recapitalization plans as agreed with the NBU.
      - One large bank set to raise remaining UAH 2.5 billion by extending a subordinated loan maturing in September.
    - New round of diagnostics (asset quality review and stress tests) initiated on April 24 on basis of TOR agreed with IMF and WB staff.
      - Results for top 10 banks available by end-August 2015.
      - Results for next 10 banks available by end-October 2015.
      - Recapitalization plans for each bank to be ready within three months after bank receives its final capital need estimate from the NBU.
    - Any bank with negative equity after diagnostics must bring equity to positive within three months after receipt of final capital need estimate; such banks will face enhanced supervisory constraints, including an in situ NBU supervisor.
    - All banks will bring post-diagnostics capital-asset ratios to at least 5 percent within six months after their recapitalization plans are accepted by the NBU.
    - Viable but undercapitalized banks may temporarily operate with capital levels below 10 percent of risk weighted assets; statutory 10 percent CAR requirement to be restored gradually by end-December 2018.
    - Support measures:
      - Established a Steering Committee (SC) to oversee diagnostic results; SC to commence consideration of reports for largest 10 banks and next 10 banks by mid-August and mid-September, respectively.
      - Identified a group of potentially problematic small banks based on quantitative criteria and supervisory intelligence; by end-August 2015 plan to complete assessment of framework regarding soundness of metrics used to identify problems and effectiveness of remedial measures.

*Attachment I. Ukraine: Memorandum of Economic and Financial Policies — excerpt (IMF).*

### 13.      Our contingency planning is being enhanced to minimize fiscal costs associated with

### _cr15218 - 13.      Our contingency planning is being enhanced to minimize fiscal costs associated with

### Contingency planning and bank-resolution principles
- The NBU and MoF agreed with IMF and WB staff on strategic and operational principles to guide the resolution of systemically important banks, establishing that:
  - Triggers for resolution should be transparent and well grounded in the law.
  - The NBU and MOF will take the lead in assessing tentative resolution options, taking into account viability criteria and including bail-in of non-deposit, unsecured creditors in line with international best practice.
  - Key management may need to be replaced promptly with independent, experienced bankers.
  - A sizeable amount of loans may need to be fully provisioned or removed to ensure bank viability, so there is a need to consider the transfer of such assets to a specialized unit (preferably inside the banks) to ensure prompt recovery.
  - Public funds are injected on market terms in order to bring the bank’s capital adequacy ratio to at least 10 percent or the average for the bank’s peer group, whichever is lower, to contain the risk that a systemic bank recapitalized with public funds may use higher capitalization to unfairly attract deposits.
  - The Financial Stability Council will need to develop a communication strategy to explain how actions protect depositors and help restore financial stability.

### Legal framework to facilitate program implementation
- Legislation to be passed will:
  - Ensure that an appeal before the judicial branch by borrowers classified by the NBU as related parties to a bank does not halt the bank’s unwinding of excess lending to insiders (prior action). The law that enhances NBU independence and institutional capacity (¶8) already includes amendments to this effect.
  - Enhance capacity to monitor, restructure and resolve problem and insolvent banks, including:
    - Refined legal provisions to facilitate resolution of systemic banks, giving the DGF the power to allow bail-in of unsecured non-depositor creditors before public funds are used and ensuring close coordination between the DGF, the MoF, and the NBU on resolution options.
    - Enhanced DGF powers to speed resolution, accelerate repayment of depositors, prevent former bank owners from participating in acquisition of other banks, and consolidate management of assets from banks under liquidation into the DGF to improve asset recovery.

### Strengthening governance and financial performance at the DGF and state-owned banks
- Measures to improve depositor payout, least cost resolution, and asset recovery:
  - Extended timeframe to complete bank liquidation from three to five years.
  - Creating a centralized unit to improve asset recovery.
  - Completed terms of reference to conduct due diligence investigations (forensic audits) of failed banks and pursuing funding to launch the bid process to select auditing firms no later than end-August 2015.
  - The DGF will develop an action plan to initiate immediate recovery of bank losses from shareholders found responsible.
  - For non-systemic banks, DGF will start preparations for takeover, including early verification of deposit records and prequalification of bidders, to improve depositor payout timeliness.
  - Banks meeting certain criteria will be automatically liquidated and the time period for temporary administration shortened to reduce asset deterioration.

- MoF actions on state-owned banks:
  - Establish a strategic plan to strengthen governance and financial performance of majority state-owned banks; an IMF-supported expert will assess and recommendations will be incorporated to finalize and publish the plan by end-September 2015 along with an implementation schedule.

### Improving the framework for resolving bad loans and corporate insolvency
- With March 2015 IMF TA, identified key reforms for corporate debt restructuring along international best practice:
  - Improvements to the corporate insolvency regime to:
    - (a) lower barriers to creditor access,
    - (b) increase involvement and protection of secured creditors and decision-making power for creditors generally,
    - (c) streamline the process to limit appeals and other delaying tactics,
    - (d) protect post-petition finance,
    - (e) develop procedures of sale to maximize value in liquidation, and
    - (f) strengthen the “claw-back” and executory contract rules to better protect the insolvency estate;
  - Removal of tax impediments to debt restructuring;
  - Strengthening the legal regime for enforcement of loan collection, including use of out-of-court enforcement mechanisms, limitations on appeals, and reduction of the need for multiple valuations.

- Legislative timetable and deliverables:
  - Form an interagency committee by end-August (representatives of all agencies, designated lead agency, and secretariat).
  - Prepare a first draft of the legislation by end-November.
  - Conduct a stakeholder workshop on the draft by end-December.
  - Submit final draft of the legislation to parliament by end-January.
  - Obtain parliamentary approval of reforms to bankruptcy law, tax code, mortgage law and commercial and civil procedure codes by end-March 2016 (structural benchmark).

### Out-of-court restructuring and mortgage loan restructuring
- Out-of-court mechanism:
  - With EBRD and WB TA, designed a coordinated out-of-court restructuring arrangement for corporate debt (the “Kyiv approach”), aligned with INSOL and the Istanbul approach.
  - Legislative framework to be introduced to parliament by end-September 2015 and adopted by end-October 2015.

- Foreign currency mortgage restructuring:
  - Steps to facilitate voluntary negotiation between borrowers and banks.
  - 11 banks have signed a Memorandum with the NBU on voluntary restructuring; other large-portfolio banks are considering signing.
  - Parliament passed Tax Code amendments in May 2015 providing borrowers tax relief from proceeds arising from partial debt forgiveness and tax deductibility of such losses to banks.
  - By end-July 2015, the NBU will issue a Code of Conduct (after consulting Fund staff and stakeholders) to guide voluntary negotiations, debt restructuring, and appeals process.

### Reforming securities markets and nonbank regulation
- Committed to overhauling securities markets’ regulation and supervision:
  - Lift the moratorium on inspections by the National Securities and Stock Market Commission by end-September 2015.
  - By end-August 2015, define an action plan (with technical assistance of international donors) to bring capital market functioning and the regulator’s powers and independence to best international practices, helping to contain evasion of capital controls by some corporates.

### Fiscal policy — objectives and recent outcomes
- Fiscal targets and commitments:
  - Reduce combined general government and Naftogaz deficit from 10.1 percent of GDP in 2014 to 7.4 percent of GDP in 2015.
  - Achieve a general government primary surplus of 1.1 percent of GDP in 2015 and 1.6 percent of GDP in the medium term.
  - Bring Naftogaz to financial health and eliminate government support to the company by 2017; from the 2017 budget any government support to Naftogaz will be in line with ESA/GFSM accounting standards.
  - Advance discussions with creditors on a debt operation aiming to complete by late September 2015 to help reach target of below 71 percent of GDP by 2020.

- Recent outturn:
  - The end-March general government deficit target was met with a significant margin: general government budget registered a surplus of UAH 3.2 billion in 2015:Q1.
  - Strong revenue growth mainly in VAT—owing to higher than projected inflation and exchange rate depreciation—and spending restraint caused by liquidity constraints early in the quarter account for this outcome.

- Revenue outlook and allocation of overperformance:
  - Revenue drivers expected to wane in the remainder of the year due to exchange rate appreciation in Q2, weak economy, and expected decline in inflation.
  - Projected small revenue overperformance will be channeled towards:
    - (i) national security needs;
    - (ii) allocating sufficient funds for pensions and social assistance, including support for internally displaced persons from the conflict in the East;
    - (iii) clearing VAT refund arrears; and
    - (iv) supporting ongoing judicial and civil service reforms.
  - MoF will prepare a plan to clear outstanding arrears to suppliers of community services stemming from tariffs below cost as mandated by the state.
  - With parliamentary majority support, committed to preventing adoption of laws inconsistent with program policies and objectives; Cabinet will submit veto proposals to the president for such bills, and for any potential new draft laws inconsistent with program policies Cabinet will submit objections to parliament.

### 2016 budget planning and specific fiscal measures
- Program deficit target:
  - Aim to achieve the program’s deficit target of 3¾ percent of GDP in 2016, a reduction of ½ percentage point relative to 2014.
  - To meet this target and offset impending revenue losses (about 2¼ percent of GDP) from expiration of the temporary import surcharge and lower NBU profit transfer, aim to undertake:
    - Revenue-raising measures totaling 1½ percent of GDP (mainly in VAT and social security contributions).
    - Expenditure cuts of about 1¾ percent of GDP.
  - Target total general government expenditure contained to 43.4 percent of GDP in the 2016 budget.

- Specific measures and expected fiscal impacts:
  - Agriculture VAT:
    - Submit Tax Code amendments by September to introduce the general VAT regime in agriculture effective January 1, 2016.
    - Expected yield: about 0.3 percent of GDP.
  - Social Security Contribution (SSC) reform:
    - Reviewing impact of amendments from December 2014 and March 2015 on reporting of actual wages; analysis will inform reform options developed in consultation with IMF staff.
    - Aim to raise 0.5 percent of GDP in extra revenue through this reform in 2016.
  - Natural resource taxation:
    - Amendments to the tax code (effective by October 1, 2015) to balance revenue preservation and investment incentives in gas and petroleum extracting companies.
  - Revenue administration reform:
    - Adopted a coherent revenue administration reform strategy with IMF input and started implementation.
    - System of special VAT accounts piloted since February 2015 and introduced nationwide from July 1, 2015 after design review.
    - Moving large taxpayers to the large taxpayers’ office and taxation of high-net-worth individuals is progressing.
    - These reforms and customs control efforts expected to raise revenue by at least 0.3 percent of GDP in 2016.
  - Public procurement:
    - Introduced an electronic procurement system on a pilot basis with EU assistance.
    - Two procurement laws under preparation: one simplifying procedures (passed on first reading in June 2015) and one for full e-procurement to be submitted before end-2015.
    - Full implementation over 2016–17 expected to save about 20 percent of the total procurement budget, with about one-half from enhanced competition and one-half from transparency-induced cost reductions.
  - Pension reform:
    - Continue broader parametric reforms to make the pay-as-you-go system financially viable; technical assistance from the IMF will be used.
    - Reforms will include termination of special pensions and tightening occupational early retirement options.
    - By end-December 2015, parliament will pass pension reform legislation agreed with IMF staff that revises pay-as-you-go parameters, abolishes special pensions, and lays conditions for adoption of a funded system (structural benchmark).
  - Health reforms:
    - Legislation allowing public procurement of medicines through UN-based organizations approved by parliament; first procurements will take place within the next few months.
    - Another legislative package changing the basis of public financing for healthcare to be submitted shortly.
  - Education reforms:
    - Amendments to legislative framework will allow consolidation of the secondary school network.
    - Local governments plan to reduce the number of schools by 5 percent after the end of the 2015–16 academic year; expected savings will be reinvested to upgrade infrastructure and support student transportation.
    - Optimization of higher education and vocational training institutions is ongoing.
  - Wage bill and employment:
    - Reduced staff employment by 26,000 positions in 2015:Q1.
    - On track to complete planned retrenchment of 3 percent of all budgetary positions by end-year.
  - Social assistance reform for energy-related benefits:
    - Effective July 1, 2015, introduced income testing into the category-based energy privileges program: eligibility limited to households with gross monthly income per capita under UAH 1710 in 2015, excluding people with disability, the military, military and police veterans, and Chernobyl survivors as specified in Law 76-VIII dated December 28, 2014.
    - From December 1, 2015, households subject to income testing per Law 76-VIII/2014 can choose between privileges programs or the housing utility subsidy (HUS) program, but not both (legislative and regulatory changes to ensure this).
    - By July 31, 2015, set up a central monitoring system of characteristics of households participating in privileges and HUS programs; start with available indicators and add the rest by October 1, 2015.
    - By May 31, 2016, reform utility-related social assistance by:
      - (i) reducing scope of energy privilege programs to cover only households exempt from income testing per Law 76-VIII/2014;
      - (ii) converging associated benefits to HUS program levels; and
      - (iii) revising the benefit formula of the expanded HUS program in consultation with IMF staff to channel benefits to vulnerable households and provide incentives for energy efficiency.
    - The overall fiscal envelope for all energy-related social assistance programs (privileges and HUS) will be set at UAH 43 billion.
    - All these reform elements will be a structural benchmark for end-May 2016.

*https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15218.pdf*

### 25.      We have made significant progress with the agreed energy sector reforms.

### _cr15218 - 25.      We have made significant progress with the agreed energy sector reforms.

### Energy sector reforms — summary of progress
- Naftogaz deficit remains within program targets:
  - In 2015:Q1, the deficit reached UAH 14.3 billion (0.7 percent of annual GDP), below the program target.
  - Commitment to keep Naftogaz’s deficit below 3.1 percent of GDP for 2015.
- Independent audit:
  - The independent audit of Naftogaz receivables (end-June SB) was completed on time by Price Waterhouse Coopers with external funding by the UK’s DFID.
  - Follow-up: Price Waterhouse Coopers will work with Naftogaz to develop recommendations to improve debt recovery and to set collections targets.
- Gas market law:
  - The gas market law was approved by parliament on April 8 (end-April SB).
  - Expected to become effective on October 1, 2015.
  - Secondary legislation is being drafted to operationalize the law.
- Public information campaigns:
  - The Ministry of Social Policy started an information campaign on assistance with the higher utility bills.
  - An information campaign on energy savings has been rolled out.

### Naftogaz revenue collection and legal measures
- Recognition of remaining work to meet programmed deficit targets; commitment to improve revenue collections.
- Legislative actions:
  - Law 2214 was passed on May 14; lifts the 2005 moratorium on collection enforcement proceedings against energy companies effective September 1, 2015 (and January 1, 2016 for Energoatom).
  - Law 2956 (lifting the moratorium on enforcement proceedings for companies with at least 25 percent state ownership that are debtors to Naftogaz and its daughter companies) was passed as a prior action for the approval of the review and will become effective upon publication, but no later than July 31, 2015.
  - Commitment: not to extend the deadlines for repeal of these two moratoria or reintroduce them once their cancellation becomes effective (including for Energoatom).

### Additional measures to generate Naftogaz revenue, increase transparency, and raise efficiency
- By August 31, 2015:
  - Revise the formula for the distribution accounts collecting district heating bill payments to include an “adjustment coefficient” that allows Naftogaz to gradually collect payments for district heating company arrears that have accumulated since November 1, 2014.
  - Adopt secondary legislation needed to facilitate application of the new gas market law. This legislation will:
    - Allow for below-international-parity gas pricing for a transition period until 2017.
    - Allow provision of subsidies to vulnerable consumers.
    - Include any necessary actions to change regulations so that distribution accounts in the gas market continue being operational.
  - Recommend to the energy regulator revisions by August 31, 2015 to certain types of contracts for gas sales that delay the timing when Naftogaz can start collection procedures on payment arrears until the subsequent year.
- By September 30, 2015:
  - Publish the independent audit on Naftogaz receivables to foster transparency and good governance. The study will contain specific targets for Naftogaz debt collections and recommendations on needed collection methods and legislative improvements.

### Governance, business climate, and state-owned enterprise (SOE) reform — actions taken
- Anti-corruption and institutional measures:
  - Establishment of the National Anti-corruption Bureau (NAB).
  - AML framework being strengthened (end-June SB).
  - Parliament adopted amendments on asset disclosures to ensure high-level officials disclose assets of which they are the ultimate owners or controllers and that the NAB can investigate fraudulent submission of information.
- Business climate and regulatory reform:
  - Supported EBRD-led initiative to establish the Business Ombudsman.
  - Implementing action plan to remove regulatory and legislative impediments to growth adopted in March.
  - Parliament adopted a deregulation law, the law on de-licensing, and the law on investor protection.
  - State Regulatory Service, with WB and external experts, is developing a methodology for regulatory impact assessment (RIA).
- SOE oversight and corporate governance:
  - A unit at the Ministry of Economy is in charge of SOE-related reform initiatives.
  - First statement of fiscal risks from SOEs has been prepared.
  - Annual report with financial indicators of the 100 largest SOEs has been published.
  - Draft law on corporate governance prepared; new nomination procedure for appointment of CEOs in SOEs through an independent committee is being implemented.
  - Cabinet approved a list of about 350 state-owned assets subject to privatization in 2015, including SOEs previously on the non-privatization list.

### Governance and anti-corruption — specific commitments and timelines
- Business climate measures:
  - The Cabinet of Ministers will ensure full implementation of the deregulation action plan; monthly implementation reports will be published on the State Regulatory Service and the Cabinet of Ministers websites.
  - Broad-scale revision of regulatory norms: (i) codification of all norms that impact business; (ii) design of criteria to assess these norms; (iii) recommendations whether the norm should be eliminated, revised or maintained. Government will adopt the reform via Cabinet of Ministers resolution.
  - Starting October 2015, all new and amended draft legislation will include a quantitative analysis of regulatory impact in line with the RIA methodology.
  - By end-July (2015), licensing entities will submit proposed rules and conditions for licenses to the Cabinet of Ministers; delays in submission or approval will not be a basis for denying a license or prohibiting business activities.
- Anti-corruption operationalization:
  - Make the NAB operational and ensure establishment of a specialized anti-corruption prosecution function in charge of overseeing NAB investigations by end-September 2015 (structural benchmark).
    - Ensure appointment of the head of the anti-corruption prosecutors and allocation of appropriate premises.
    - Amendments to the Law on Prosecutor Office for the Selection Committee composition and procedures as specified.
    - Agreement on technical details to ensure NAB’s direct electronic access to administrative and law enforcement databases; electronic mechanism between NAB and the FIU for prompt responses, with justifications if FIU deems dissemination inappropriate.
  - Ensure NAB is fully operational by end-January 2016 (structural benchmark) including:
    - Allocation of necessary infrastructure (hardware; software; access to administrative, law enforcement, and commercial databases; vehicles; special tools; investigative material), supported by appropriate budgetary allocation if necessary.
    - Operation of a hotline, including back office to identify cases deserving pre-trial investigation.
  - AML framework:
    - The NBU will develop risk-based off-site and on-site AML supervisory tools focusing on risks related to domestic politically exposed persons by end-December 2015.
  - Asset disclosure:
    - By end-December 2015, the Ministry of Justice will ensure that applicants and newly appointed officials to high-level positions under the NAB’s jurisdiction file asset disclosures electronically; disclosures will be directly and freely available to the public on a single website shortly after submission.
    - All high-level officials will report their assets electronically by end-April 2016.

### Judicial reform — targets and measures
- Areas covered: (i) judicial reform; (ii) financial efficiency; (iii) effective enforcement of commercial claims.
- Specific measures:
  - Order of Payment Procedure and Garnishments:
    - By end-December 2015, a Law will be adopted strengthening Code of Civil Procedure provisions on Order for Payment for domestic transactions and garnishment of bank accounts (modified structural benchmark).
    - Amendments will expand range of claims covered, streamline evidence required, and make use of standardized forms.
    - Goal to remove bottlenecks in garnishment: definitional issues, locating debtor bank accounts, service of process, adherence to strict timelines, and bank liability for noncompliance.
    - Complete an implementation plan for new provisions by end-December 2015.
  - Private enforcement profession:
    - Law establishing a profession of private enforcement agents to be adopted by end-September 2015.
  - High Council of Justice:
    - By end-September 2015, appoint sufficient commissioners to meet quorum requirements and allocate necessary budget for salary payments.

### SOE reform — objectives and near-term measures
- Overarching objectives:
  - Improve budgetary oversight by enhancing fiscal-risk assessment.
  - Implement comprehensive ownership policy and clear separation of ownership and regulatory functions.
  - Strengthen corporate governance, including adoption of a new law on corporate governance.
  - Prioritize enterprises subject to restructuring.
  - Implement transparent privatization of identified assets in the medium run.
- Near-term measures:
  - SOE fiscal risk assessment:
    - Establish an inter-ministerial working group led by the Ministry of Finance with participation of the Ministry of Economic Development and Trade to: (i) improve methodology for assessing risks and identify the largest 30 SOEs with the highest fiscal risks; (ii) review financial plans of these SOEs and inform respective ministry about fiscal risk aspects.
    - Update of the first SOE fiscal-risk statement to be published on Ministry of Finance and Ministry of Economic Development and Trade websites by end-October 2015.
  - Stocktaking of arrears:
    - By end-August (2015), extend coverage of SOE reporting to include all arrears of the 50 largest companies and prepare information on the stock of these arrears as of end-2013, end-2014, March 2015 and June 2015.
  - Privatization/Restructuring:
    - Completion by end-September 2015 of a review of existing SOE portfolio to identify non-operating companies for immediate liquidation; review to outline timeline, intermediate steps, and preliminary estimates of budgetary and other costs, with goal of initiating the first liquidations by end-2015.
    - Prepare priority privatization list of 10 SOEs by end-July 2015; selection based on cost-benefit analyses. Establish a working group including the State Property Fund (SPF) to develop a privatization action plan.
    - Action plans for five of these companies to be approved by SPF decision by end-August 2015.
    - Seek cabinet resolution adoption of the action plan for these five companies by end-September 2015 (structural benchmark).
    - Prepare list of 10 SOEs posing the biggest fiscal risks to be subject to restructuring other than privatization by mid-September 2015.
    - Detailed restructuring action plans for five of these companies to be agreed, in consultation with IMF staff, between the respective line ministry, Ministry of Economy and the Ministry of Finance by end-January 2016 (structural benchmark).
  - Legislative and procedural measures:
    - In July (2015), government decree mandating external audits for at least the largest 100 SOEs (by assets or revenue) was adopted.
    - By September 30, 2015, the Ministry of the Economy will adopt a regulation revising the methodology for developing SOEs’ financial plans to require inclusion of a three-year action plan to increase operating efficiency.
    - Review of SOE remuneration policy to better align shareholders and management interests; seek to strengthen legal environment for transparency and governance, including introducing supervisory boards in unitary enterprises.

### Safeguards — NBU governance, internal controls, and related measures
- In line with IMF safeguards assessment recommendations:
  - Adopted legislative amendments to the NBU Law to address governance and autonomy issues (¶8) and committed to their implementation.
  - Prompt re-establishment of an Audit Committee following constitution of a new Council of the NBU.
  - NBU established a permanent senior-level credit committee in June 2015 to oversee NBU’s lending to financial institutions.
  - A new loan origination and management process is being developed and will be implemented by October 2015.
  - Updated agreements on roles and responsibilities between the MoF and the NBU concerning servicing of future financial obligations to the IMF related to budget support.
  - Quarterly data audits are ongoing with results timely conveyed to the IMF.

*Source: _cr15218 - 25.      We have made significant progress with the agreed energy sector reforms.*

### 32.      Implementation of the policies under the program will continue to be monitored

### 32.      Implementation of the policies under the program will continue to be monitored

### Monitoring framework and instruments
- Implementation will be monitored through prior actions, quantitative performance criteria, indicative targets, continuous performance criteria, structural benchmarks, and quarterly reviews, as set out in the Memorandum of Economic and Financial Policies dated February 27, 2015 and the attached Technical Memorandum of Understanding (TMU).
- The TMU defines the quantitative performance criteria and indicative targets under the program. Prior actions and structural benchmarks are listed in Table 1 of the MEFP. Quantitative targets for target dates through end-December 2015, along with a continuous quantitative performance criterion, are set out in Table 2 of the MEFP.

### Prior actions and structural benchmarks (high-level)
- Prior actions completed or met include:
  - Parliamentary passage of Law 2956 (lifting the 2001 moratorium on enforcement proceedings for companies with at least 25 percent state ownership that are debtors to Naftogaz and its daughter companies) — Met June 18, 2015.
  - Parliamentary passage of Laws 2742 and 2743 to strengthen the governance and autonomy framework of the NBU and related provisions — Met June 18, 2015.
- Proposed/new structural benchmarks and completion dates include:
  - Parliament will approve amendments to strengthen corporate insolvency and credit enforcement regimes and remove tax impediments — End-March 2016.
  - Undertake measures to make the National Anti-Corruption Bureau operational, including prosecutorial function — End-January 2016.
  - Establish a specialized anticorruption prosecution function and enable NAB timely access to relevant information — End-September 2015.
  - Adoption by cabinet resolution of the privatization action plan for five large SOEs from priority privatization list — End-September 2015.
  - Agreement on detailed restructuring action plans for five SOEs with largest fiscal risks — End-January 2016.
  - Parliamentary passage of pension reform legislation revising PAYG parameters, abolishing special pensions, and laying conditions for adoption of a funded system — End-December 2015.
  - Reform utility-related social assistance with overall fiscal envelope for all energy-related social assistance programs (privileges and HUS) set at UAH 43 billion — End-May 2016.
- Selected previously scheduled structural benchmarks and completion notes (examples):
  - NBU Law amendments to strengthen governance and autonomy — Converted and met as a prior action (End-April 2015).
  - Law on a selective increase of court fees aiming to double court fee revenue in real terms within 12 months — Met May 22, 2015.
  - Independent audit of all Naftogaz receivables — Met June 30, 2015.
  - Several items are listed as “Met with a delay” or “Converted into a prior action” with specific completion dates included in Table 1.

### Quantitative program targets and projected performance (selected items from Table 2)
- Units: (End of period; millions of Ukrainian hryvnias, unless otherwise indicated).
- I. Quantitative performance criteria (selected)
  - Ceiling on the cash deficit of the general government (- implies a surplus):
    - December 2014: -
    - March 2015 PC: 20,400
    - June 2015 Adj. PC: 13,357
    - September 2015 Actual: -14,536
    - December 2015 PC: 32,700
    - March 2016 PC: 34,110
    - June 2016 PC: 7,816
    - End-2016 PC: 43,100
    - End-2016 Adj. PC: 82,700
    - Additional entries: 12,700; 32,400
  - Ceiling on the cash deficit of the general government and Naftogaz (- implies a surplus):
    - December 2014: -
    - March 2015 PC: 36,500
    - June 2015 Adj. PC: 29,457
    - September 2015 Actual: -243
    - December 2015 PC: 62,000
    - March 2016 PC: 59,079
    - June 2016 PC: 31,329
    - End-2016 PC: 9
    - End-2016 Adj. PC: 7,100
    - Additional entries: 144,600; 5,700; 37,100
  - Floor on cumulative change in net international reserves (in millions of U.S. dollars):
    - December 2014: 1,827
    - March 2015 PC: -2,502
    - June 2015 Adj. PC: -2,639
    - September 2015 Actual: -2,125
    - December 2015 PC: -1,448
    - March 2016 PC: -2,528
    - June 2016 PC: -1,492
    - End-2016 PC: -284
    - Additional entries: 2,098; 2,224; 2,545
  - Ceiling on cumulative change in net domestic assets of the NBU:
    - December 2014: 304,385
    - March 2015 PC: 57,704
    - June 2015 Adj. PC: 62,490
    - September 2015 Actual: 32,303
    - December 2015 PC: 76,176
    - March 2016 PC: 103,878
    - June 2016 PC: 20,709
    - End-2016 PC: 84,571
    - Additional entries: 57,720; 54,; 520; 69,445 (as printed)
  - Ceiling on publicly guaranteed debt:
    - March 2015 PC: -
    - June 2015 Adj. PC: 30,000
    - September 2015 Actual: 30,000
    - December 2015 PC: 0
    - March 2016 PC: 30,000
    - June 2016 PC: 30,000
    - Additional entries: 0; 30,000; 30,000; 20,000; 20,000
- II. Continuous performance criterion
  - Non-accumulation of new external debt payments arrears by the general government: 0 (listed repeatedly across periods).
- III. Indicative targets (selected)
  - Ceiling on cumulative change in base money:
    - December 2014: 333,194
    - March 2015 PC: 18,256
    - June 2015 Adj. PC: 18,256
    - September 2015 Actual: -1,203
    - December 2015 PC: 53,350
    - Additional entries: 53,350; -2,816; 80,086; 90,796; 89,584; 109,578
  - Ceiling on net accumulation of VAT refund arrears:
    - December 2014: 697
    - March 2015 PC: 0
    - June 2015 Adj. PC: 2,942
    - Subsequent entries include 0; 7,000; 0; 0; 0; 0
- IV. Memorandum Items (selected)
  - Naftogaz deficit:
    - December 2014: 87,301
    - March 2015 PC: 16,100
    - June 2015 Adj. PC: 16,100
    - September 2015 Actual: 14,293
    - December 2015 PC: 29,300
    - March 2016 PC: 24,970
    - June 2016 PC: 23,512
    - End-2016 PC: 54,000
    - Additional entries: 61,900; -7,000; 4,700
  - Programmed disbursements of international assistance except IMF (millions of U.S. dollars):
    - March 2015: 476
    - June 2015: 172.7
    - September 2015: 3,233
    - December 2015: 1,476
    - March 2016: 3,504
    - June 2016: 5,475
    - End-2016 entries: 6,204; 6,204
    - Percent of it applied to adjustment: 100 (repeated)
  - Purchases of foreign exchange from the NBU for the purposes of critical energy imports (incl. those of Naftogaz, millions of US dollars):
    - March 2015: 1,486
    - June 2015: 1,319.9
    - September 2015: 1,686
    - December 2015: 1,590
    - March 2016: 1,686
    - June 2016: 1,686
    - End-2016 entries: 1,686; 1,686; 1,686
  - Program exchange rate, Hryvnia per U.S. dollar: 15.7686 (repeated across periods)

### Technical Memorandum of Understanding (TMU) — key definitions, assumptions, and adjustment mechanisms
- Purpose and scope:
  - The TMU sets out definitions of variables subject to quantitative targets (performance criteria and indicative targets), methods to assess program performance, and information requirements for monitoring. It covers definitions in Section I, official exchange rate in Section II, and reporting requirements in Section III.
- Program exchange rates (kept fixed over the program period):
  - Official exchange rate of the Ukrainian hryvnia to the U.S. dollar: 15.7686 (set by the NBU as of December 31, 2014).
  - Reference exchange rates of foreign currencies reported by the ECB as of December 31, 2014 used by the NBU to set official exchange rates:
    - Swiss Franc: 0.9904 per dollar
    - Euro: 1.2141 dollars
    - Pound Sterling: 1.5587 dollars
    - Australian dollar: 0.8187 U.S. dollars
    - Canadian dollar: 0.8633 dollars
    - Japanese yen: 119.6195 per dollar
    - Norwegian Krone: 0.1343 dollars
  - Accounting exchange rate for the SDR: 0.690224 per dollar.
  - Official gold holdings valued at 1,206.00 dollars per fine ounce.
  - Note: program exchange rates are kept fixed and differ from the actual market exchange rate; setting a program exchange rate for computing monetary aggregates does not imply a target exchange rate for policy purposes.
- GDP compilation:
  - Gross domestic product is compiled as per the System of National Accounts 2008 and excludes Crimea and Sevastopol.

- Net international reserves (NIR) definition and components:
  - NIR of the NBU = dollar value of the difference between usable gross international reserve assets and reserve-related liabilities to nonresidents, evaluated at program exchange rates.
  - Usable gross international reserves comprise readily available claims on nonresidents denominated in convertible foreign currencies (consistent with BPM5 and SDDS) (Table A, item 1).
  - Exclusions from usable reserves include, inter alia:
    - assets denominated in foreign currencies held at, or claims on, domestic institutions;
    - foreign currency claims of the NBU on domestic banks, and NBU deposits held at the Interbank Foreign Currency Exchange Market and domestic banks for trading purposes;
    - any precious metals or metal deposits other than monetary gold and gold deposits;
    - any assets that correspond to claims of commercial banks in foreign currency on the NBU and any reserve assets that are encumbered, pledged as collateral (unless already included in foreign liabilities or excluded), or frozen;
    - any reserve assets not readily available for intervention due to lack of quality or liquidity.
  - Reserve-related liabilities comprise, inter alia:
    - all short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign currencies with an original maturity of one year or less;
    - the stock of IMF credit outstanding;
    - the nominal value of all derivative positions (including swaps, options, forwards, and futures) of the NBU and general government implying the sale of foreign currency or other reserve assets (notional value of commitments);
    - 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), excluding foreign exchange liabilities to the general government or related to deposit guarantees.

- Assumptions underpinning NIR/NDA targets:
  - Rollover of general government’s domestic foreign exchange debt liabilities in the amount of US$100 million in June 2015 and US$200 million in July 2015, and a rollover rate of at least 40 percent in 2016. The rollover will be achieved through issuance of new general government foreign exchange bonds with maturity of at least one year.
  - No early repayment of domestic foreign exchange bonds (in line with the authorities’ commitment).

- Adjustment mechanism for NIR targets (summary):
  - NIR targets adjusted upward (downward) by the full amount of cumulative excess (shortfall) in program disbursements relative to baseline projection (Table B). Program disbursements defined as external disbursements (excluding project-financing disbursements) from official multilateral creditors (World Bank, European Commission, European Investment Bank, European Bank for Reconstruction and Development), official bilateral creditors (net), and external bond placements usable for financing the central government budget deficit.
  - NIR targets adjusted upward by cumulative shortfall in purchases of foreign exchange from the NBU for critical energy imports (including Naftogaz) relative to baseline projection (Table C).
  - NIR targets adjusted downward by the full amount of cumulative excess in government purchases of foreign exchange from the NBU for the purpose and in the event of early repayment of the government-guaranteed part of a maturing external loan to Naftogaz; the downward adjustment capped at US$500 million.
  - If the NBU converts Renminbi or any other non-reserve currency provided under a central bank swap agreement into a reserve currency through an outright sale, a symmetric adjustor is applied: NIR targets adjusted upward by the amount converted at the time of conversion; NIR targets adjusted downward by the amount of reserve currency (principal and interest) when the NBU repays the non-reserve currency provided under the swap.
  - In the event of higher exceptional financing than envisaged under baseline (Table D), NIR targets adjusted upward by the full amount of the cumulative excess in exceptional financing in foreign exchange relative to baseline.

### Projections for adjustments and financing (Tables B–D, selected figures)
- Table B. Eurobond placements and disbursements from IFIs and official sources: projections for NIR/NDA adjustment (Cumulative flows from end-December 2014, millions of U.S. dollars at program exchange rate):
  - End-March 2015: Eurobond placement 0; World Bank 0; EU 304; Others (Canada, Germany, Japan) 173; Total 4763 (as printed).
  - End-June 2015: Eurobond placement 1,000; World Bank 500; EU 1,032; Others 701; Total 3,233.
  - End-September 2015: Eurobond placement 1,000; World Bank 1,000; EU 1,032; Others 472; Total 3,504.
  - End-December 2015: Eurobond placement 2,000; World Bank 1,000; EU 1,760; Others 715; Total 5,475.
  - End-March 2016: Eurobond placement 2,000; World Bank 1,000; EU 2,489; Others 715; Total 6,204.
  - End-June 2016: Eurobond placement 2,000; World Bank 1,000; EU 2,489; Others 715; Total 6,204.
- Table C. Purchases of foreign exchange from the NBU for critical energy imports: projections for NIR adjustment (Cumulative flows from end-December 2014, millions of U.S. dollars):
  - End-March 2015: 1,486
  - End-June 2015: 1,686
  - End-September 2015: 1,686
  - End-December 2015: 1,686
  - End-March 2016: 1,686
  - End-June 2016: 1,686
- Table D. Exceptional financing: projections for NIR/NDA adjustment (Cumulative flows from end-December 2014, millions of U.S. dollars at program exchange rate):
  - End-September 2015: 500
  - End-December 2015: 4,228
  - End-March 2016: 4,228
  - End-June 2016: 5,478

*Source: Memorandum of Economic and Financial Policies and attached Technical Memorandum of Understanding (TMU), as reproduced in the content unit.*

### 9.      Net domestic assets (NDA) of the NBU are defined as the difference between the monetary

### 9.      Net domestic assets (NDA) of the NBU are defined as the difference between the monetary

### Definition of NDA
- NDA of the NBU are defined as the difference between the monetary base (as defined below) and the NIR of the NBU (as defined above).
- For the purpose of computing the NDA target, the NIR is valued at the program exchange rates defined in paragraph 3 and expressed in hryvnia.

### Adjustment mechanism for NDA targets
- NDA targets will be adjusted downward (upward) by the full amount of the cumulative excess (shortfall) in program disbursements relative to the baseline projection (Table B) and evaluated at the program exchange rates.
- NDA targets will be adjusted downward by the full amount of the cumulative shortfall in NBU purchases of T-bonds issued by government for Naftogaz recapitalization relative to the baseline projection (Table E).
- NDA targets will be adjusted upward by the hryvnia equivalent of the full amount of the cumulative excess in government purchases of foreign exchange from the NBU for the purpose of repaying the government-guaranteed part of a maturing external loan to Naftogaz (in case this loan is repaid ahead of schedule). The upward adjustment of the NDA target will be capped to hryvnia equivalent of US$500 million, calculated using the program exchange rate defined in paragraph 3.
- NDA targets will be adjusted upward by the full amount of the cumulative excess in the total amount of NBU loans to the Deposit Guarantee Fund (DGF) as well as total amount of NBU purchases of government bonds issued for the purposes of DGF financing, and NBU purchases of government bonds issued for bank recapitalization, relative to the baseline projection, and evaluated at the program exchange rates if provided in foreign exchange (Table E).
- In case another central bank uses the hryvnia provided under a central bank swap agreement with the NBU, a symmetric adjustor will be applied to NDA targets:
  - NDA targets will be adjusted upward by the amount of hryvnia placed in a commercial bank’s account at the NBU, when the central bank uses the hryvnia.
  - NDA targets will be adjusted downward by the amount of hryvnia (both the principal and interest due), when the other central bank repays the used hryvnia.
- In the event of higher exceptional financing than envisaged under the baseline (Table D), either due to the discontinuation of payments or due to changes to the terms resulting from the issuance of new debt upon completion of the debt operation on general government direct and guaranteed debt included in the perimeter of the debt operation as published in the Cabinet of Minister’s Resolution No. 318-p on April 4, 2015, NDA targets will be adjusted downward by the full amount of the cumulative excess in exceptional financing in foreign exchange relative to the baseline and evaluated at the program exchange rates.

### Table E — NBU loans to DGF and purchases of government bonds: Projections for NDA/Monetary Base Adjustment
- (Cumulative flows from end-December 2014, millions of hryvnia)
- NBU loans to DGF and purchases of government bonds issued for DGF Financing or Bank Recapitalization / NBU purchases of government bonds issued for Naftogaz recapitalization:
  - End-March 2015: 25,000 / 17,200
  - End-June 2015: 44,000 / 26,100
  - End-September 2015: 53,000 / 28,300
  - End-December 2015: 55,000 / 28,300
  - End-March 2016: 55,000 / 28,300
  - End-June 2016: 55,000 / 28,300

### C. Ceiling on Cumulative Change in Monetary Base of the NBU (Base Money) (Indicative Target) — Definition
- The NBU’s monetary base comprises domestic currency outside banks and banks' reserves, including cash in vault of commercial banks, and funds of customers at the NBU.
- Currency outside banks is defined as Currency—banknotes and coins—(NBU accounts 3000 (net)+3001 (net)-3007A-3009A-1001A-1004A-1007A-1008A-1009A) minus cash in vault at deposit money banks (DMBs) (DMB accounts 1001A:1005A, and 1007A).
- Banks’ reserves are defined as:
  - cash in vault at deposit money banks (DMB accounts 1001A:1005A, and 1007A) plus
  - DMB correspondent account deposits at the NBU in hryvnia (NBU liabilities accounts 3200, 3203, 3204, and 3206) plus
  - funds of customers at the NBU in hryvnia (NBU liabilities accounts of groups 323, 3250, 4731, 4732, 4735, 4736, 4738, 4739, and 4750) plus
  - accrued interest on time deposits of DMBs in national currency (NBU accounts 3208L), plus
  - accrued interest on client’s current accounts in national currency.

### Adjustment mechanism for monetary base targets
- Consistent with the NDA target adjustment mechanism, monetary base targets will be adjusted upward by the full amount of the cumulative excess in the total amount of NBU loans to the Deposit Guarantee Fund (DGF) as well as total amount of NBU purchases of government bonds issued for the purposes of DGF financing or banks recapitalization, relative to the baseline projection (Table E), and evaluated at the program exchange rates if provided in foreign exchange.
- Monetary base targets will be adjusted upward by the amount of hryvnia placed in a commercial bank’s account at the NBU, when another central bank uses the hryvnia provided under a central banks swap agreement. Monetary base targets will be adjusted downward by the amount of hryvnia (both the principal and interest due), when the other central bank repays the used hryvnia.

### D. Ceiling on Cash Deficit of the General Government (Performance Criterion) — Definition
- The general government comprises the central (state) government, including the Road Fund (UkrAvtoDor), all local governments, and all extra budgetary funds, including the Pension Fund, Unemployment Fund, and the Fund for Social Insurance of Ukraine (formerly temporary disability insurance and occupational injury and disease insurance funds).
- 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, as well as any other extra budgetary funds included in the monetary statistics compiled by the NBU.
- The government will inform the IMF staff of the creation or any pending reclassification of any new funds, programs, or entities, immediately.
- The cash deficit of the general government is measured by means of net financing flows as the sum of:
  - total net treasury bill sales (in hryvnias and foreign currency) as measured by the information kept in the NBU registry of treasury bill sales (net treasury bill sales are defined as the cumulative total funds realized from the sales of treasury bills at the primary auction and government securities issued for recapitalization of banks and SOEs, less the cumulative total redemption of principal on treasury bills), excluding bonds issued to recapitalize Naftogaz and other SOEs; plus
  - other net domestic banking system credit to general government as measured by the monetary statistics provided by the NBU (this consists of all non-treasury-bill financing in either domestic or foreign currency extended to the general government by banks less the change in all government deposits in the banking system) as well as any other financing extended by entities not reflected by the monetary statistics provided by the NBU; plus
  - total receipts from privatization received by the State Property Fund and local governments (including the change in the stock of refundable participation deposits and the net sale of nonfinancial assets); plus
  - the difference between disbursements and amortization on any bond issued by the general government or the NBU to nonresidents for purposes of financing the deficit of the general government; plus
  - the difference between disbursements of foreign credits to the general government (including project loans on lent to public enterprises) and the amortization of foreign credits by the general government (including on lent project loans); plus
  - the net sales of SDR allocation in the SDR department; plus
  - the net change in general government deposits in nonresident banks, or other nonresident institutions; plus
  - net proceeds from any promissory note or other financial instruments issued by the general government.

### Measurement conventions for foreign currency flows
- All flows to/from the budget in foreign currency (including from the issuance of foreign currency denominated domestic financial instruments) will be accounted in hryvnias at the official exchange rate established as of the date of the transaction.

### Adjustment mechanism for the ceiling on the cash deficit of the general government
- The ceiling is subject to an automatic adjustor based on deviations of external project financing (disbursements from bilateral and multilateral creditors to the consolidated general government for specific project expenditure) from program projections (Table F):
  - a. If cumulative proceeds from external project financing (in hryvnia evaluated at actual exchange rates) exceed program projections, the ceiling on the consolidated general government deficit will be adjusted upward by 100 percent of the excess in external project financing.
  - b. If cumulative proceeds fall short of program projections, the ceiling on the consolidated general government deficit will be adjusted downward by 100 percent of the shortfall in external project financing.
- The ceilings at end-September and end-December 2015 are subject to an automatic adjustor corresponding to the full amount of government bonds issued for the purposes of banks recapitalization and DGF-financing, up to a cumulative maximum of UAH 152 billion in 2015.
- The ceiling is subject to an automatic adjustor on the stock of budgetary arrears on social payments (arrears defined as payments not made thirty days after due date). This excludes unpaid pensions to individuals who resided or continue to reside on territories temporarily outside government control.
- The ceiling at all 2015 test dates will be automatically adjusted downward by VAT refund arrears accumulated as defined in Section E from January 1, 2015.
- The ceilings at end-September and end-December 2015 are subject to an upward adjustment for the full amount of government repaying government-guaranteed part of an external loan to Naftogaz, if repaid ahead of schedule and recorded as above-the-line. The adjustment will be equal to the actually repaid amount in US$ terms capped at US$500 million, and recalculated in hryvnia at the actual exchange rate at the time of repayment.
- The ceilings at end-September and end-December 2015 are subject to an automatic downward adjustor corresponding to the full savings on the budgetary interest bill resulting from any restructuring or reprofiling of existing government debt to NBU as of end-2014. Such savings are determined as the difference between the actual and projected payments on government bonds held by the NBU (projected payments presented in Table G).

### Table F — External Financing of General Government Projects (Adjustment)
- (Cumulative flows from January 1, 2015, In millions of hryvnia)
  - End-March 2015: 4,523
  - End-June 2015: 11,064
  - End-September 2015: 13,000
  - End-December 2015: 14,937
  - End-March 2016 1/: 6,995
  - End-June 2016 1/: 15,107
  - 1/ Cumulative flows from January 1, 2016.

### Table G — Projected Payments of Interest on Government Bonds held by NBU
- (Cumulative flows from January 1, 2015, In billions of hryvnia)
  - End-March 2015: 7.1
  - End-June 2015: 17.4
  - End-September 2015: 30.3
  - End-December 2015: 41.8
  - End-March 2016 1/: 10.6
  - End-June 2016 1/: 21.8
  - 1/ Cumulative flows from January 1, 2016.

### E. Ceiling on VAT Refund Arrears (Indicative Target)
- The ceiling on net accumulation of VAT refund arrears is set to UAH 0 billion.
- The stock of VAT refund arrears is defined as claims not settled (through cash refund, netting out against obligations of taxpayers, payment with a government bond (VAT bond) or an official decision to reject the claim) within a specified time period after the VAT refund claim has been submitted to the State Fiscal Service (SFS).
- In 2015, this time period is 74 days.
- According to this definition, the stock of VAT refund arrears as of March 31, 2015 was UAH 2.9 billion.

### F. Ceiling on Cash Deficit of the General Government and Naftogaz (Performance Criterion) — Definition
- The cash deficit of the General Government and Naftogaz is the cash deficit of the General Government as defined above plus the cash deficit of Naftogaz.

### Naftogaz — Definition and deficit measurement
- Naftogaz is defined as the national joint stock company “Naftogaz of Ukraine.”
- The cash deficit of Naftogaz is measured from below the line as the sum of:
  - net domestic banking system credit to the company (all financing in either domestic or foreign currency extended to the company by banks less the change in company deposits in the banking system); plus
  - the difference between disbursements of private foreign loans to Naftogaz (including private placements) and the amortization of private foreign loans (including private placements); plus
  - the difference between disbursements of official foreign credits to Naftogaz (including project loans) and the amortization of official foreign credits (including project loans); plus
  - the disbursements of trade credits to import gas; plus
  - the difference between disbursements and amortization on any bonds issued by Naftogaz; plus
  - the net change in deposits of Naftogaz in nonresident banks, or other nonresident institutions; plus
  - net proceeds from any promissory note or other financial instruments issued by Naftogaz; plus
  - net receipts from sale of financial assets (including recapitalization or other form of treasury securities issued to Naftogaz, irrespective of their issuance date); plus
  - any other forms of financing of the company not identified above.

### Measurement conventions for Naftogaz foreign currency flows
- All flows in foreign currency will be accounted in hryvnias at the official exchange rate as of the date of the transaction.
- When arrears outstanding as of the test date exist, the official exchange rate on the test date will apply to their valuation.

### Adjustment mechanism for the ceiling on the cash deficit of the general government and Naftogaz
- The ceiling will be adjusted upward by the amount of financing by multilateral institutions and official bilateral creditors disbursed to Naftogaz for investment projects.
- The ceiling will be adjusted downward by the net transfers made by Gazprom (advance transit fee), measured on a cumulative basis from the beginning of each calendar year.
- The ceiling will be adjusted by the net amount of accumulated domestic arrears by Naftogaz to Ukrgazvydobuvannya and Ukrtransgaz, measured on a cumulative basis from the beginning of each calendar year.

### G. Ceiling on Non-Accumulation of New External Debt Payments Arrears by the General Government (Continuous Performance Criterion) — Definition
- An external debt payment arrear is defined as a payment by the general government which has not been made within seven days after falling due (including grace period, if any).
- The performance criterion applies on a continuous basis throughout the program period.

### H. Ceiling on Publicly Guaranteed Debt (Performance Criterion) — Definition
- The ceiling applies to the amount of guarantees issued in 2015 by the central (state) government.
- The official exchange rate will apply to all non-UAH denominated debt.
- New state guarantees in 2015 will amount to no more than UAH 30 billion.
- This ceiling excludes guarantees issued by the Ministry of Finance for NBU borrowings from IMF.

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

### II. Official Exchange Rate — Determination
- The NBU will, on a daily basis, set the official rate calculated as a weighted average of the exchange rates of the interbank market deals on the same day.
- To calculate the official exchange rate, all deals concluded on the day will be considered regardless of the settlement date (specifically, tod, tom and spot (T+2) deals will be included).
- NBU will make public its official exchange rate by no later than 18:00 of the day, preceding the one for which it is set.

### III. Reporting Requirements — National Bank of Ukraine
- The NBU will continue to provide to the IMF on a monthly basis, no later than the 25th day of the following month, a balance sheet for the NBU and a consolidated balance sheet for the deposit money banks.
- The NBU will provide to the IMF, on a daily basis, with daily data the stock of net and gross international reserves, at both actual and program exchange rates.
- In addition, it will provide on a weekly and monthly basis, no later than the 25th of the following month, the full breakdown of NBU accounts included in net international reserves (defined in Table A above).

*IMF Staff Report (excerpt).*

### 24.      The NBU will provide the IMF on a daily basis with information on obligatory foreign

### _cr15218 - 24.      The NBU will provide the IMF on a daily basis with information on obligatory foreign

### Daily reporting obligations — foreign exchange, market operations, and balances
- Paragraph 24: The NBU will provide the IMF on a daily basis with information on obligatory foreign exchange sales and approved foreign exchange demand in the interbank market, including Naftogaz foreign exchange purchases. The NBU will provide the IMF on a daily basis with information on official foreign exchange interventions and intervention quotations. In this context, it will also provide the results of any foreign exchange auctions.
- Paragraph 25: The NBU will provide the IMF on a daily basis with information on balances held in the analytical accounts 2900 “Accounts payable per transactions for the foreign exchange, banking and precious metals purchase and sale on behalf of banks’ clients.”
- Paragraph 32: On a daily basis, the NBU will continue to provide the IMF with the operational monetary survey of the NBU, including any additional information that is needed for the IMF staff to monitor monetary policy and developments in the banking sector.
- Paragraph 34: The NBU will continue to provide to the IMF the daily operational balance sheets of the NBU and commercial banks on a daily basis according to standard reporting forms, including detailed information on loans of the banking sector provided to the general government, with detailed breakdown by indebtedness of the central (state) government and local budgets, including in national and foreign currency, by loan and by security, as well as information on the balances of the funds of the government held at the NBU, in particular, the balances of the Single Treasury Account denominated in the national currency (account 3240 A) and the funds of the Treasury denominated in foreign currency (account 3513 A).
- Paragraph 37: The NBU will provide to the IMF, on a daily basis, data on foreign exchange export proceeds and obligatory foreign exchange sales; data on import transactions for goods and services; data on amounts of foreign exchange transferred from abroad to the benefit of 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 Ukrposta); data summarizing the implementation of T+3 verification system, namely, the total number and volume of transactions screened and the total number and volume of transactions blocked, with separate information on imports. The NBU will provide to the IMF weekly data on the volumes of noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons (form N 538).
- Paragraph 38: The NBU will provide to the IMF, on a daily basis, data on foreign assets and liabilities of the overall banking system (excl. the NBU); data on banks’ open foreign exchange positions by main groups of banks; data on deposits on the aggregated basis for the overall banking system (excl. the NBU) broken down by households and legal entities, maturity, as well as by national and foreign currency; data on loans on the aggregated basis for the overall banking system (excl. the NBU) broken down by households and legal entities as well as by national and foreign currency. In addition, the NBU will provide to the IMF, on a daily basis, data on deposits and credits on the aggregated basis for the overall banking system (excl. the NBU) without deposits and credits of banks in liquidation starting from the beginning of 2014 and broken down by households and legal entities, as well as by national and foreign currency.
- Paragraph 39: The NBU will provide, on a daily basis, bank-by-bank data for the largest 35 banks and aggregate data for the Group III and IV banks separately on the liquidity ratio and amounts of cash and cash equivalents, available funds in NBU accounts (excl. reserve requirements), correspondent accounts with well-known international banks (excl. encumbered accounts), and deposits from customers; total assets and liabilities; loans and claims (by households, legal entities, and banks); and foreign exchange net open position. The data will be reported by domestic and foreign currency. The deposits data will be reported by households and legal entities and by maturity (current accounts, saving accounts, and time deposits). In addition, for the aggregate of the banking sector as well as Group III and IV banks, the NBU will provide data excluding those banks in liquidation since 2014.
- Paragraph 40: 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 currency breakdown of interbank market operations. The NBU will continue to provide daily information on exchange market transactions including the exchange rate.
- Paragraph 41: The NBU will provide to the IMF reports N 381.25; 381.26 with information on reserve requirements.
- Paragraph 42: The NBU will provide the IMF, on a two-weekly basis, with daily data on the total financing (including refinancing) issued by the NBU to commercial banks, broken down by types of instrument, maturity (average weighted), interest rate as well as transactions to absorb liquidity from the banking system.

### Weekly, bi-weekly, and two-weekly reporting — banks, interest rates, liquidity, and capital
- Paragraph 30: The NBU will continue to provide to the IMF, on a monthly basis, general information on the NBU financing (as well as the refinancing) of the banks of Ukraine, and on the operations of mopping up (absorption) of the liquidity from the banking system (including through the CDs issuance) in the format agreed with the IMF staff. It will also provide, on a weekly basis, bank-by-bank information on the outstanding amount and weighted-average interest rates of loans from the NBU, reported by type of lending. On a monthly basis, the NBU will provide information on the collateral that has been pledged to the NBU for loans (by bank and loan type as well as by collateral type, haircut and currency). The weekly reporting of NBU loans and collateral will separately identify which banks are under temporary administration or liquidation.
- Paragraph 43: The NBU will provide the IMF, on a weekly basis, bank-by-bank for Group I and Group II banks the average interest rate on deposits to customers (by domestic and foreign currency, and legal entities and households); and the average interest rate on interbank borrowings (by domestic and foreign currency).
- Paragraph 44: The NBU will provide the IMF, on a two-weekly basis, in an agreed format, data for the entire banking sector—aggregate for Group III and IV and on a bank-by-bank basis for Group I and Group II banks—risk weighted assets and other risk exposures (for ratio H2 calculation), including for the excess of long-term asset to funding and foreign exchange open position; total regulatory (Tier 1 and Tier 2) and core (Tier 1) capital; capital adequacy ratio for total regulatory (H2) capital; loans and claims by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; deposits by maturity buckets for households, legal entities, and banks in domestic and foreign currencies; and foreign exchange net open position, split between total foreign exchange assets (long position) and foreign exchange liabilities (short position), and between on- and off- balance sheet.
- Paragraph 49: The NBU will provide to the IMF the two-week projections of cash flows for the Group I and II banks.
- Paragraph 50: The NBU will report to the IMF on a bi-weekly basis and bank-by-bank the amount by which the Group I and II banks' regulatory capital has been increased. The report will disclose the instrument or transactions by which the regulatory capital has been increased (e.g., capital injection, conversion of subordinated debt to equity etc.).

### Monthly reporting — banking sector detail, FSIs, external payments, and NBU finances
- Paragraph 26: The NBU will continue to provide on its web site the daily holdings of treasury bills at primary market prices, at current exchange rates. The NBU will provide information on daily holdings of treasury bills broken down by type of holders (including state-owned banks and private banks) at primary market prices at the rate fixed on the day of auction information on t-bills sales, including in the foreign exchange, from the beginning of the year at the official rate as of the date of placement, as well as the t-bills in circulation, by principal debt outstanding at the official exchange rate as of the date of placement (OP-2); reports on each treasury bill auction; and provide to the IMF the monthly report on treasury bills, in the format agreed with the IMF staff.
- Paragraph 27: The NBU will provide information on daily transactions (volumes and yields) on the secondary market treasury bills (including over the counter transactions).
- Paragraph 28: The NBU will provide to the IMF, on a daily basis, the information on the claims on banks provided and liabilities in the format agreed with the IMF staff.
- Paragraph 31: The NBU will provide to the IMF, on a monthly basis but not later than 30 days after the expiration of the reporting month, the report on the banking sector financial stability indicators (FSIs) in the format agreed with the IMF staff. The NBU will also provide core FSIs, as defined in the IMF Compilation Guide, for the individual banks in Group I and Group II on a monthly basis.
- Paragraph 33: The NBU will provide to the IMF, on a monthly basis, the net domestic assets data based on the monthly balance sheets within three weeks following the end of the month.
- Paragraph 35: The NBU will provide to the IMF, on a monthly basis, projections for external payments falling due in the next 12 months. The data on actual settlement of external obligations, reflecting separately principal and interest payments as well as actual outturns for both the public and private sectors, shall be provided on a quarterly basis, within 80 days following the end of the quarter.
- Paragraph 36: The NBU will provide to the IMF, on a quarterly basis, the stock of short- and long-term external debt (including arrears) for both public and private sectors.
- Paragraph 45: The NBU will provide the IMF, on a monthly basis, in an agreed format, data for the entire banking sector (and aggregates for Group III and IV) as well as on a bank-by-bank basis for Group I and Group II 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 loan classification categories I, II, III, IV, and V); 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 loan classification categories I, II, III, IV, and V); 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 loan classification categories I, II, III, IV, and V); large exposures (loans equal to or greater than 10 percent of equity), refinanced loans, and restructured loans (by households, legal entities, and banks); the average interest rate on the outstanding stock of loans to customers (by legal entities and households; accrued interest on loans (by domestic and foreign currency); securities held for trading and available for sale, with government securities reported separately (by domestic and foreign currency); securities held to maturity and as investment, with government securities reported separately (by domestic and foreign currency).
- Paragraph 46: The NBU will provide the IMF, on a monthly basis, in an agreed format, bank-by-bank for the Group I and Group II 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 loan classification categories I, II, III, IV, and V); provisions on loans and claims on related parties (by households, legal entities, and banks in domestic and foreign currencies, as well as by loan classification categories I, II, III, IV, and V).
- Paragraph 47: The NBU will provide to the IMF, on a monthly basis, data bank-by-bank and by region loans and provisions (by households and legal entities, domestic and foreign currencies, and by loan classification categories I, II, III, IV, and V); deposits (by households and legal entities, and domestic and foreign currencies); due from banks (by domestic and foreign currencies).
- Paragraph 48: The NBU will report to the IMF, on a monthly basis, data for the entire banking sector (and aggregates for Group III and IV) as well as on a bank-by-bank basis for Group I and Group II banks on cumulative income statements, including total revenues; interest revenues (from loans to households, loans to legal entities, interbank loans, placements with the NBU, securities); revenues from fees and commissions; total expenses; interest expenses (on deposits to legal entities, deposits to households, interbank borrowing, borrowing from NBU, securities issued); fees and commissions paid; salaries and other staff compensation; other operational expenses; net earnings before loan loss provisions; loan loss provisions; net earnings after loan loss provisions; taxes paid; net earnings.
- Paragraph 52: The NBU will continue to provide on a monthly basis, no later than 25 days after the end of the month, banking system monitoring indicators in an agreed format. This includes inter alia data on nonperforming loans (III, IV, and V category).
- Paragraph 54: The NBU will provide data on credit to nongovernment units that are guaranteed by the NBU on a monthly basis no later than 25 days after the end of the month.
- Paragraph 60: The NBU will provide the Fund with data relative to the interest income received from January 1, 2015 on the portfolio of government bonds on a quarterly basis but no later than 15 days from the end of the reporting period.

### Reporting on liquidity, risk metrics, and supervisory actions
- Paragraph 44 (continued): Risk weighted assets and other risk exposures (for ratio H2 calculation); total regulatory (Tier 1 and Tier 2) and core (Tier 1) capital; capital adequacy ratio for total regulatory (H2) capital; and foreign exchange net open position split between long and short positions and on-/off-balance sheet.
- Paragraph 51: The NBU will, once a month, inform the IMF any regulatory and supervisory measures against banks violating the NBU regulations on capital adequacy, liquidity ration, large exposures, and connected lending, as well as about decisions on declaring a bank as problem or insolvent.
- Paragraph 58: 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.
- Paragraph 59: The NBU will continue to provide the Fund with a copy of the annual management letter from the external auditor within six weeks of completion of each audit. As required under the Fund's safeguard policy, this will remain in effect for the duration of the arrangement and for as long as credit remains outstanding.

### Balance of payments, external debt, and settlement reporting
- Paragraph 53: The NBU will continue to provide detailed quarterly balance of payments data in electronic format within 80 days after the end of the quarter.
- Paragraph 35 (restated): The NBU will provide to the IMF, on a monthly basis, projections for external payments falling due in the next 12 months. The data on actual settlement of external obligations, reflecting separately principal and interest payments as well as actual outturns for both the public and private sectors, shall be provided on a quarterly basis, within 80 days following the end of the quarter.
- Paragraph 36 (restated): The NBU will provide to the IMF, on a quarterly basis, the stock of short- and long-term external debt (including arrears) for both public and private sectors.

### Deposit Guarantee Fund (DGF) reporting obligations
- Paragraph 61: The DGF will provide, on a monthly basis, data on the total number and volume of household deposits broken down in groups by deposit size. The data will be reported bank-by-bank for the largest 35 banks and on aggregate for the remaining banks.
- Paragraph 62: The DGF will report to the IMF on a monthly basis and bank-by-bank for all banks in the banking system the amount of insured deposits and total household deposits. The data will be reported according to an agreed format, by domestic and foreign currency.
- Paragraph 63: The DGF will report to the IMF on a monthly basis and bank-by-bank the total insured deposits and remaining insured deposits to be paid by the DGF for the banks under liquidation and under provisional administration. The data will be reported according to an agreed format, by domestic and foreign currency.
- Paragraph 64: The DGF will report to the IMF on a monthly basis the financial position of the DGF, including information about the cash balance, bond holdings, credit lines, and loans. The data will be reported according to an agreed format.
- Paragraph 65: The DGF will report to the IMF on a monthly basis the financing arrangements of the DGF, including information about contracted financing from MoF. The data will be reported according to an agreed format.
- Paragraph 66: The DGF will report to the IMF on a monthly basis a one-year forecast of the amount and type of financial resources that the DGF expects to receive from MoF, NBU and other entities, the amount that DGF expects to pay out to insured depositors in banks in liquidation, and the amount of asset recoveries expected by DGF. The data will be reported according to an agreed format.

### Ministry of Finance and Treasury reporting
- Paragraph 67: 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.
- Paragraph 68: 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), weekly balances of Treasury cash flow (outturn and forecast), including data on government foreign exchange deposits, in a format agreed with IMF staff, 10-day 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, 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.

### Other operational reporting items and notifications
- Paragraph 29: The NBU will provide to the IMF its financial statements (income and expenses) for the current and, if available, for the following year, as approved by the NBU’s Council. The IMF is to be notified immediately of any update.
- Paragraph 55: The NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic government bonds due to the NBU, deposit money banks, or nonbank entities and individuals. In such case, the NBU will provide information on outstanding interest and principal payments.
- Paragraph 56: The NBU will inform IMF staff of any changes to reserve requirements for deposit money banks.
- Paragraph 57: 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.

*Source: IMF document _cr15218 (excerpts 24–68) provided in the source content.*

### 69.      The Ministry of Finance will continue to provide to the IMF in electronic form monthly and

### _cr15218 - 69.      The Ministry of Finance will continue to provide to the IMF in electronic form monthly and

### Ministry of Finance: reporting requirements and timing
- Monthly and quarterly treasury reports to IMF in electronic form:
  - Quarterly reports: no later than 35 days after the end of the period.
  - Monthly reports: no later than 25 days after the end of the period.
  - Final fiscal accounts at the end of each fiscal year: no later than March of the following year.
  - Reports to provide expenditure data by programs and key spending units, and based on standard functional and economic classifications.
  - Quarterly reports to contain standard information on budget expenses to cover called government guarantees.
- Public wage bill and specific borrowing reports:
  - Monthly data on the public wage bill (excluding SOEs) in line with the template agreed with IMF staff.
  - Monthly reports on borrowing (disbursements, interests, and amortization) of UrkAvtoDor in the format agreed with IMF staff.
  - Monthly information on municipal borrowing and amortization of debt in format agreed with IMF staff.
- Monthly cash-deficit and budget-execution reporting:
  - Monthly, no later than 15 days after the end of the month, report the cash deficit of the general government with details on:
    - privatization receipts of the state and local governments;
    - disbursements of external credits (including budget support and project loans for on-lending) to the consolidated budget;
    - 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.
- Arrears and accounts payable:
  - Monthly data on the stock of all budgetary arrears: no later than on the 1st day of the second subsequent month.
    - Separate line items required for wages, pensions, social benefits, energy, communal services, and all other arrears on goods and services.
  - Treasury to report monthly data on accounts payable for state and local budgets (economic classification of expenditures).
  - Pension Fund to provide monthly reports on net unpaid pensions to individuals who resided or continue to reside in the territories temporarily outside government control.
- External debt and debt service reporting:
  - Monthly information, no later than 25 days after the end of each month, on amounts and terms of all external debt contracted or guaranteed by the central government.
  - Monthly, no later than 25 days after month end, provide in electronic form:
    - (a) outstanding stock of domestic and external debt of the state and local budgets (including general and special funds);
    - (b) standard files planned and actual external debt disbursement, amortization, and interest payments (including general and special funds), broken down by creditor categories as agreed with Fund staff;
    - (c) report on external debt amortization and interest payments by days and currencies.
  - Report accumulation of any budgetary arrears on external and domestic debt service.
  - Provide monthly debt (domestic and external) amortization schedules updated on a weekly basis.
- Sovereign guarantees and guaranteed credit:
  - Monthly data on external and domestic credit to key budgetary spending units and nongovernment units guaranteed by the government (including Naftogaz, State Mortgage Institution, Deposit Guarantee Fund, and Agrarian Fund) no later than 25 days after the end of the month.
    - Include amount of sovereign guarantees extended by executive resolutions and actually effectuated; total amount of outstanding guarantees and list of their recipients.
- Extra-budgetary funds and social funds:
  - Monthly or quarterly data on approved budgets and operational data for Pension Fund, Fund for Social Insurance, Employment Fund, and other extra-budgetary state-level funds:
    - Pension Fund: daily operational data (monthly reporting) on revenue, expenditures, arrears, and balance sheets; detailed breakdown of revenues and expenditures by main categories expected.
    - Other funds: quarterly operational data, no later than 50 days after the end of each quarter.
    - Within-year amendments to budgets of these funds reported within a week after approval.
    - Annual financial statements including final fiscal accounts of those funds at end of each fiscal year: no later than April of the following year.
- Public sector employment and wage-impact reporting:
  - Semi-annual data on the number of employees of budgetary institutions financed from the central (state) and local budgets, starting from January 2010.
  - After any public sector wage increase, provide an estimate of its costs for the current and two subsequent fiscal years, for the state and local government budgets.
- Recapitalization and SOE cost reporting:
  - Monthly, no later than 15 days after the end of each month, monthly data on budgetary costs associated with recapitalization of banks and SOEs, including:
    - upfront impact on the cash deficit of the general government of the recapitalization of banks and SOEs;
    - costs associated with payment of interests, including respective changes as a result of supplementary budgets.
  - Monthly data on expenditure plans (ROSPIS) for state budget.

### State Fiscal Service (SFS): tax and refund reporting
- Tax arrears reporting:
  - SFS to provide monthly data, no later than 25 days after the end of the month, on tax arrears, inclusive of deferred payments, interest and penalties outstanding, in the specified format including columns:
    - Beginning Stock (Total, Principal, Interest, Penalties)
    - Netting out during month
    - Deferrals during month
    - Write-offs (arrears written off during month)
    - Collections of outstanding debt at beginning of month
    - New Arrears (tax liabilities becoming overdue during month)
    - Ending Stock
- Tax exemptions:
  - Quarterly listing of all tax exemptions granted, no later than two months after the end of the quarter, specifying beneficiary, exemption provided, duration, and estimated subsequent revenue loss for the current fiscal year.
- VAT refunds:
  - Monthly information, no later than 25 days after the end of the month, on VAT refunds in the following format:
    - (i) beginning stock of refund requests;
    - (ii) refund requests paid in cash;
    - (iii) refunds netted out against obligations of the taxpayer;
    - (iv) denied requests;
    - (v) new refund requests;
    - (vi) end-of-period stock of requests;
    - (vii) stock of VAT refund arrears according to the definition in paragraph 11 (unsettled VAT refund claims submitted to the SFS more than 74 days before the end of period).
- Standard monthly reports:
  - Monthly reports 1.P0 on actual tax revenue and 1.P6 on tax arrears, no later than 25 days after the end of each month.
- Tax appeals:
  - Quarterly information, no later than 25 days after the end of each quarter, on the number of tax appeals and associated disputed amounts received by the SFS; include number internally resolved with breakdown: resolved in favor of controlling body, in favor of taxpayer, and partial satisfaction.

### Ministries and sectoral agencies: energy, housing, Naftogaz, SOEs, and tariffs
- Tariffs and cost recovery:
  - Ministry of Economy: quarterly information on actual levels of communal service tariffs in all regions for major services (heating, water supply, sewage and rent) and their level of cost recovery.
  - Ministry of Economy, Ministry of Housing and Municipal Economy, and NCSREU: provide methodology underlying tariff calculations for full cost recovery, including heating and gas.
- Gas and heating sector financial and operational data:
  - Monthly (for each month, no later than the 25th of the following month), consolidated electronic information in agreed format (“Ukraine: The Financial Position of Gas Sector”) on financial indicators in gas and heating sectors, including:
    - prices and volumes of domestically produced (by production entity) and imported (by sources of imports) gas;
    - sales, tariffs, arrears, payments to the budget, subsidies, and debt.
  - Naftogaz to provide monthly updated information on the company’s financial liabilities, with schedule of loan-by-loan interest and principal payments.
  - Ministry of Energy and Coal Industry (based on Naftogaz information) monthly to IMF in agreed format on:
    - cash flows and deficit of the company, breaking down total cash outlays for gas imports from Gazprom by month in a separate mutually agreed table.
    - domestic gas used by Naftogaz for sales to households, heating utilities, budget institutions, and industries, including gas produced by SC “Ukrgasvydobuvannya,” and OJSC “Ukrnafta.”
  - Ministry of Energy and Coal Industry (based on Naftogaz information) to report on a weekly basis data on Naftogaz daily market purchases of foreign exchange.
- Heat metering and tariff decisions:
  - Quarterly (no later than the 25th of the following month) Ministry of Housing and Municipal Economy to provide information on the quantity of heating energy meters installed at a building level and ratio to applicable buildings.
  - National Commission for State Energy and Public Utilities Regulation to provide tariff level information with breakdown by licensees for heat energy and centralized heating/hot water supply to households (average tariff levels net of VAT and VAT included) in the event of their changes.
  - NCSREU to inform in advance (10 days before the meeting) about any amendments planned to Commission decisions regulating distribution accounts for natural gas sector licensees.
  - NCSREU to inform the day following adoption of the Resolution on approval of Register of norms and changes to the Register of norms in electronic format.

### SOEs: consolidated financial statements and SOE reporting
- Quarterly, no later than 80 days after the end of each quarter, Ministry of Economy to provide consolidated information from the financial statements of 50 largest SOEs (excluding Naftogaz) 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;
  - (h) other payment arrears.
  - Report to include number of SOEs making profits, making loss, or balanced with aggregated financial results for each group.

### State Statistics Service
- In case of any revisions of gross domestic product, State Statistics Service to provide to the IMF revised quarterly data on GDP (nominal, real, deflator) and their components (economic activities, expenditure, income), no later than 10 days after any revisions have been made.

### Ministry of Social Policy: household support and privileges data
- Monthly data on HUS and privileges for energy consumption to IMF and World Bank staff in an agreed excel format, showing for each program:
  - (a) number of households which applied for HUS;
  - (b) number of approvals extended to such HUS applications;
  - (c) number of households-recipients of HUS and privileges in the reporting month;
  - (d) total value of transfers;
  - (e) number of refusals extended to such applications;
  - (f) income per capita of participants, both for HUS and privileges;
  - (g) number of household members;
  - (h) main reasons for refusal for HUS application (e.g., lack of residency information).
  - Data to be presented overall, by region and for rural/urban areas.

### Supplementary information, program developments, and selected high-frequency updates
- Administrative and legal developments:
  - All prior actions have been completed and all end-June PCs have been met.
  - On July 25, Law 2956 became effective after its official publication; the Law lifted the 2001 moratorium on enforcement proceedings for companies with at least 25 percent state ownership that are debtors to Naftogaz and its subsidiary companies.
- Financial assistance and disbursements:
  - The first disbursement under the EC’s Macro-Financial Assistance (MFA) operation took place on July 23 in the amount of €600 million, the first installment under the third MFA plan which totals €1.8 billion.
- National Bank of Ukraine (NBU) operational changes and rates:
  - NBU amended operational framework by aligning interest rates on certificates of deposits (CDs) with their effective maturity and introduced quantitative tenders for CDs at longer maturities (30 and 89 days) where the NBU acts as a price taker.
  - NBU reduced the effective fixed interest rates on shorter-maturity CDs by 200–400 basis points to 18–20 percent.
  - Successfully conducted quantitative long-term CD tenders at 22–23 percent.
  - NBU’s discount rate and all rates on liquidity-providing instruments remained unchanged at 30–33 percent.
  - CD rates remain positive in real terms on a forward-looking basis as inflation expectations have fallen rapidly.
- High-frequency economic signals through June:
  - After severe contraction in Q1, indicators through June point to stabilization of economic activity at a low level.
  - Industrial production experienced mild growth m-o-m (seasonally adjusted) in both May and June; construction and retail trade picked up.
  - Agricultural output remained weak due to weather-related shift in timing of the harvest.
  - Consumer and investor confidence bounced back significantly in Q2.
- Program exchange rate:
  - Program exchange rate, Hryvnia per U.S. dollar: 15.7686.

*Italic: Extracted from _cr15218 - 69.      The Ministry of Finance will continue to provide to the IMF in electronic form monthly and*

### 2014. For 2016, cumulative flows from January 1, 2016.

### _cr15218 - 2014. For 2016, cumulative flows from January 1, 2016.

### Statement context and program implementation
- Statement by Menno Snel, Executive Director for Ukraine and Oleksandr Petryk, Alternate Executive Director, July 31, 2015.
- With the unresolved conflict in the East, the situation in Ukraine remains extremely difficult; the economy substantially contracted in the first quarter of 2015 and the Hryvnia sharply depreciated.
- Authorities focused on restoring stability, strengthening fundamentals, and bringing back sustainable growth through policies ensuring price and financial stability under the flexible exchange rate, a sound and prudent banking system, sustainable public finance and deep and comprehensive structural reforms, including anti-corruption measures.
- Due to steadfast implementation of the program, signs of stabilization are emerging.
- All performance criteria (PC) for end-March were met, as well as the PC and structural benchmarks for end-June 2015. The prior actions were fulfilled.
- Remaining prior actions that will trigger disbursement of the two Development Policy Loans (DPLs) from the World Bank were adopted.
- Authorities regret a misunderstanding that led to misreporting on the prior action regarding retail heating prices and reassure the Board mistakes like this will not be repeated.
- Debt operation progress slower than expected; consensual reprofiling of Ukreximbank’s US$1.5 billion Eurobonds completed on July 8 and Oschadbank launched a consent solicitation for reprofiling of its US$1.2 billion Eurobonds.
- Authorities confirm objective to reach agreement on broader sovereign debt restructuring as soon as possible and in line with program objectives.

### Macroeconomic outlook and external sector
- GDP contracted faster than expected in Q1 2015 and is now estimated to be around -9 percent for 2015, mainly due to high uncertainty and reduced demand as a result of the conflict.
- Hryvnia sharply depreciated in January and February leading to a significant increase in headline inflation in March and April due to high pass-through effects and increases in regulated energy prices; after the EFF was put in place the Hryvnia started to stabilize and inflation is coming down.
- Depreciation, additional import duties, and weak domestic demand led to current account improvements turning into surplus in March 2015 (US$0.3 billion, 1.3 percent of GDP).
- Export performance remains weak because of the conflict, low commodity prices and trade restrictions imposed by Russia.
- Financial account remained in deficit (US$1.8 billion, 7.5 percent of estimated GDP over January–April) as recovery of foreign investment and capital inflows were hindered by high risks and uncertainty.
- Overall balance of payments remains in line with the program.
- Gross reserves increased to US$10.3 billion at the end of June 2015, compared to US$5.6 billion before the start of the EFF end-February 2015.
  - Increase driven by disbursement of the first tranche under the EFF, support from other official creditors, and foreign currency purchases by the NBU from the market (US$726 million in the first quarter and US$556 million in the second quarter).
  - Agreed swap line is very helpful to increase reserves and confidence; authorities thankful to the People’s Bank of China and welcome ongoing talks with other central banks.
  - Reserves are expected to further increase to over US$18 billion by year-end or 3.7 months of future imports.

### Fiscal policy and public finance
- End-March general government deficit target was met with a large margin, resulting in a budget surplus of UAH 3.1 billion or 0.8 percent of GDP in the first quarter.
- Revenues overperformed because of higher-than-projected inflation, exchange rate depreciation, widening of the tax base and changes in tax legislation.
- Spending was lower than planned because of liquidity constraints early in the year.
- Additional fiscal space will be used to:
  - finance national security needs,
  - allocate funds for pensions and social assistance for displaced persons,
  - clear VAT refund arrears,
  - support ongoing judicial and civil service reforms.
- Authorities determined to further reduce the fiscal deficit to ensure debt sustainability; adjustment will be expenditure-led consolidation with a smaller and more efficient government.
- Tax system will be reformed to be more growth-friendly, efficient, and fair.
- Restructuring of Naftogaz to make it financially sustainable and independent from government support by 2017.
- Revenue administration overhaul expected to increase tax revenues by at least 0.3 percent of GDP in 2016.
- Amendments to the tax code presented to Parliament aim to reduce tax rates on royalties for gas and petroleum extracting companies and increase taxes on profits to preserve revenues while encouraging investments.
- In September (coming September), government will submit amendments to the tax code to Parliament to introduce a general VAT regime for the agriculture sector.
- Reforms to the pension, health and education systems will contribute to the fiscal adjustment path.

### Monetary and exchange rate policy; financial stability
- In early June 2015, the NBU took initial steps to liberalize the monetary and currency markets by easing some administrative restrictions and simplifying control over individual transactions of residents.
- Authorities and the Fund developed a road map for further gradual and controlled removal of administrative measures; process will start after completion of the debt operation, full implementation of bank recapitalization, net international reserves reaching the established target, and transition of Naftogaz to the interbank market.
- Parliament adopted amendments to the NBU law in June 2015 to substantially increase NBU effectiveness by strengthening institutional and financial independence:
  - NBU no longer transfers advanced profits to the state budget.
  - Role of the NBU’s Executive Board is strengthened and its autonomy enhanced.
  - NBU has the right to base monetary policy on its own macroeconomic forecast.
  - Clear division of responsibilities of the NBU Council and the Executive Board.
  - Accountability enhanced by making the NBU Council responsible for the audit.
- Objective: a well supervised, sound, and solid banking system.
  - Liquidity in the banking sector was high in the first half of 2015, so the NBU eased liquidity support to banks.
  - NBU’s supervision strengthened with Fund technical assistance.
  - Comprehensive bank recapitalization and resolution plan launched.
  - Since early 2014, around 54 out of the 180 banks were transferred to the Deposit Guarantee Fund (DGF).
  - Capital requirements increased and closing of “pocket banks” accelerated.
  - Measures being taken to combat related party lending and ensure transparent ownership structure.

### Structural reforms and anti-corruption program
- Energy sector reforms in initial stage but already having noticeable impact:
  - All contracts now exclude intermediaries.
  - Gas market liberalized and aligned with the European Third Energy Package.
  - Over 60 percent of gas imports now coming from European reverse flow contracts, a significant change from earlier exclusive reliance on a single supplier.
  - Reduction in subsidies and more than tripling of gas prices, with well-targeted compensation for vulnerable families.
  - Naftogaz deficit reduced from US$10 billion to less than US$2 billion; expected to be completely eliminated by end-2017.
- Anti-corruption measures:
  - Government approved a national anti-corruption program for 2015–17 in April 2015 to implement late 2014 package of anti-corruption legislation.
  - Introduces electronic declaration system for public officials, monitoring of transactions of state employees and related persons, measures to prevent conflict of interest and protection of whistleblowers.
  - Management of the independent National Anti-Corruption Bureau appointed in April 2015 using open procedures.
  - Many public services and institutions underwent thorough clean-up; road patrol service in Kiev replaced by a new traffic police service.
- Deregulation program:
  - Ambitious program containing more than 70 initiatives.
  - Ministry of Economic Affairs estimated US$2.5–3 billion in savings for the business community.
  - Could lead to further improvement in Ukraine’s ranking in the World Bank’s Doing Business indicators; Ukraine already advanced by 56 positions since 2012.

### Final remarks and commitments
- Despite a challenging environment and a divided political landscape, authorities have demonstrated ability to deliver crucial reforms and remain strongly committed to continue.
- Authorities are grateful for continued support from the Fund, other IFIs and the international community in this difficult period.

*Source: Statement by Menno Snel and Oleksandr Petryk, July 31, 2015.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15218.pdf_