IMF and Ukrainian Authorities Reach Staff Level Agreement on Program Monitoring with Board Involvement

IMF News, November 23, 2022

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The Ukrainian authorities requested a four-month Program Monitoring with Board Involvement (PMB) to support their economic program, anchor macroeconomic policies, and pave the way to a fully-fledged IMF program.
An IMF mission led by Mr. Gavin Gray held virtual discussions with the Ukrainian authorities during November 11-22 to discuss key elements of their program.
The staff-level agreement on economic policies for a PMB is subject to approval by IMF Management and an IMF Executive Board discussion is expected in the coming weeks.
The PMB aims to provide an anchor for macroeconomic policies and catalyze donor support; strong policy implementation would help pave the way towards a full-fledged IMF-supported program.

The war has caused:
- substantial civilian deaths;
- the relocation of more than a third of the population through migration or internal displacement;
- colossal damage to infrastructure and productive capacity.
Economic projections and conditions:
- Economic activity is expected to stabilize in 2023, with growth at 1 percent under the baseline scenario, following a 33 percent contraction this year.
- Inflation is projected to remain elevated at around 25 percent on average.
Financing needs:
- With the war ongoing, Ukraine will continue to require substantial external financing to ensure adequate resources for the core functions of the state while preserving economic stability.

The authorities’ budget for 2023 features a very tight expenditure envelope in view of the significant financing constraints.
To help create fiscal space, the authorities intend to take measures to boost tax revenues including through restoring pre-war tax administration practices.
New measures that might erode tax revenues will be avoided.
The availability of timely external financing will support efforts to preserve core state functions while maintaining economic and financial stability.
Achieving goals will also require concerted efforts to mobilize domestic financing through higher rollover rates on the domestic market against a backdrop of ample liquidity.

The authorities will:
- continue to carefully monitor developments, manage liquidity, and balance the FX market;
- aim to safeguard price and exchange rate stability while sustaining adequate international reserves.
They are fully committed to upholding the independence and institutional effectiveness of the National Bank of Ukraine (NBU).

The authorities maintained financial stability during the war through emergency prudential and capital flow measures applied to banks.
They are now appropriately preparing to gradually unwind these measures and restore international norms.
The NBU’s financial sector strategy will be updated and expanded to cover:
- targeted bank diagnostics;
- recapitalization and non-performing asset resolution frameworks;
- further development of contingency plans.

Renewed efforts are needed to:
- cement good corporate governance practices in state-owned enterprises and banks;
- ensure the independence of their supervisory boards.
The preservation of independent, competent, and trustworthy anti-corruption institutions is essential.

Implement the PMB policies and measures to boost tax revenues and revive the domestic bond market.
Contain monetary financing and preserve NBU independence.
Support long-term financial sector stability through diagnostics, recapitalization, and non-performing asset resolution frameworks.
Enhance governance and transparency in state-owned enterprises and banks; preserve anti-corruption institutions.
IMF Management approval and an IMF Executive Board discussion are expected in the coming weeks to finalize the PMB.

Press Release No. 22/407 — November 23, 2022. IMF Communications Department.