Press Release No. 23/185

IMF and Ukrainian Authorities Reach Staff-Level Agreement on the First Review Under the Extended Fund Facility (EFF) Arrangement

May 30, 2023

• The International Monetary Fund (IMF) staff and the Ukrainian authorities have reached staff-level agreement on an updated set of economic and financial policies for the first review under the 4-year Extended Fund Facility (EFF) Arrangement. The staff-level agreement is subject to approval by the IMF Executive Board.
• All quantitative performance criteria for end-April and structural benchmarks through end-May were met, paving the way for the Executive Board’s consideration, which would enable disbursement of about US$900 million (SDR 663.9 million).
• The Ukraine economy is showing remarkable resilience and recent economic developments point to a gradual economic recovery in 2023, although the outlook remains highly uncertain as exceptionally high war-related uncertainty persists.

Vienna, Austria: An International Monetary Fund (IMF) team led by Mr. Gavin Gray held discussions in Vienna with Ukrainian officials, during May 23-30, 2023, on the country’s 4-year EFF Arrangement . At the conclusion of the discussions, Mr. Gray issued the following statement:

“I am pleased to announce that IMF staff and the Ukrainian authorities have reached staff-level agreement on the first review of the EFF. The agreement is subject to approval by the IMF Executive Board, with Board consideration expected in the coming weeks.

“Ukraine’s four-year EFF Arrangement, with access of about US$15.6 billion (SDR 11.6 billion) was approved on March 31, and forms part of a US$115 billion international support package for Ukraine. The EFF continues to provide a solid anchor for the authorities’ economic program, and the performance has been strong. All quantitative performance criteria for end-April and structural benchmarks through end-May were met.

“Overall, macroeconomic and financial stability have been maintained, thanks to prudent policymaking as well as continuous and timely external support. Nevertheless, major challenges persist: the fiscal deficit remains very high, entailing continued large financing needs covered by external grants and highly concessional loans. Protecting core functions of the state under existing financing constraints will continue to require the authorities to navigate difficult policy tradeoffs. Repealing amendments to revenue mobilization legislation under the Martial law, as appropriate, while avoiding new measures that might erode tax revenues will be crucial.

“In addition to the horrific humanitarian toll, Russia’s invasion of Ukraine continues to have a devastating impact on the economy. Through the winter, Ukraine faced devastating attacks on its critical infrastructure, and missile strikes continue countrywide. Despite this, the Ukrainian economy has shown remarkable resilience – economic activity in the first quarter rebounded strongly, as the energy system rapidly recovered from attacks on critical infrastructure, foreign exchange markets stabilized, and inflation started to decline decisively. A stronger recovery is expected as the economy progressively adapts to war conditions. IMF staff have therefore upgraded real GDP growth for 2023 to a range of 1 to 3 percent (from the previous range of -3 to +1 percent when the EFF was approved), although the outlook remains highly uncertain as the war continues.

“The overarching goals of the authorities’ EFF-supported program remain to sustain economic and financial stability in circumstances of exceptionally high uncertainty, restore debt sustainability, and support Ukraine’s recovery on the path toward European Union (EU) accession. In line with the objectives set out for the first phase of the program, the authorities are taking important steps to strengthen fiscal, external, and financial stability, including adopting revenue enhancing legislation under the National Revenue Strategy, preparing a conditions-based strategy to move to a more flexible exchange rate and loosen FX controls, preparing a deeper assessment of the health of the banking sector, and continuing reforms to strengthen governance and anti-corruption frameworks, including through legislative changes.

“Steady implementation of structural reforms under the program, including in governance, anti-corruption and public investment management, will strengthen institutions and lay the foundations for strong and sustained growth. They will, in particular, enhance the environment enabling recovery and reconstruction efforts, which the authorities are now initiating, and thus help foster much-needed private-sector investment. Such reforms will also help facilitate EU accession.

“The mission met with Finance Minister Marchenko, National Bank of Ukraine (NBU) Governor Pyshnyy, and other senior public officials, and would like to thank them for the open and constructive discussions and the close collaboration that have brought us to today’s staff-level agreement. “