IMF Staff Concludes Mission to Ukraine
IMF News, September 27, 2019
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Bibliographic details
- Published: September 27, 2019
Mission details
- Press Release No. 19/356
- Mission led by Ron van Rooden visited Kyiv during September 12-26 for the 2019 Article IV consultation and to initiate discussions on a potential IMF Extended Fund Facility (EFF) program.
- Statement date: September 27, 2019
Economic assessment and recent achievements
- Ukraine has restored macro-economic stability following the 2014–15 crisis and growth has resumed.
- Current growth pace: 2½–3½ percent.
- Overall fiscal deficit: limited to just above 2 percent of GDP in the last two years and expected to remain at the same level this year.
- Energy sector quasi-fiscal deficit: eliminated.
- Current account deficit: 3–3½ percent of GDP.
- International reserves: recovered to over US$20 billion.
- Banking sector: decisive efforts to restructure the banking system have been critical for stabilization and the resumption of growth.
Constraints to faster, inclusive growth
- Per capita GDP (in PPP terms) in Ukraine: just 20 percent of the EU average, the second lowest level of all Central and Eastern European countries.
- Labor productivity: amounts to less than 10 percent of average productivity in EU countries.
- Key structural impediments:
- Weak business environment with shortcomings in the legal framework.
- Pervasive corruption; progress in institution-building to fight corruption has not yet yielded tangible results.
- Large parts of the economy dominated by inefficient state-owned enterprises or by oligarchs, deterring competition and investment.
- Investment, notably foreign direct investment, has been much lower than in regional peers, limiting productivity growth, private sector job creation, and improvements in living standards.
- Resulting labor migration: many workers seek job opportunities abroad.
Policy priorities and recommendations
- Maintain macro-economic stability as a prerequisite for faster growth.
- Prudent fiscal policies to ensure debt sustainability.
- Improve spending efficiency and outcomes—including in health care and education.
- Support vulnerable households through a well-targeted social safety net.
- Cautious monetary policy to further reduce inflation and build reserves within a flexible exchange rate regime.
- Safeguard financial stability while strengthening financial intermediation and minimizing fiscal costs from bank resolutions.
- Ensure central bank independence.
- Accelerate structural reforms to lift growth:
- Firmly establish the rule of law, including through judicial reform.
- Decisively tackle corruption.
- Enhance competition and open up markets, particularly in the energy and agricultural sectors.
- Reduce the role of the state and oligarchs in the economy.
- Ensure wage growth is consistent with improvements in labor productivity to safeguard competitiveness.
- With sustained reform implementation, further integrate with the European economy and supply chains and take greater advantage of the Deep and Comprehensive Free Trade Agreement with the EU.
IMF program discussions
- Authorities have requested a new IMF-supported program to anchor policies and help cover financing needs in the coming years.
- Mission started discussions on a new 3-year arrangement that could be supported under the IMF’s Extended Fund Facility.
- Productive discussions occurred on fiscal and monetary policies and key reform measures; importance underscored of central bank independence, safeguarding financial stability, and minimizing fiscal costs of bank resolutions.
- Discussions on the new program will continue in the coming weeks.
Source: IMF Staff Concludes Mission to Ukraine (Press Release No. 19/356), September 27, 2019.