IMF Executive Board Completes the First Review under the Extended Fund Facility (EFF) Arrangement for Ukraine
IMF News, June 29, 2023
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- Published: June 29, 2023
Review completion and immediate disbursement
- The Executive Board completed the First Review of the EFF for Ukraine.
- Completion enables the authorities to immediately draw SDR 663.9 million (33 percent of quota, or about US$890 million).
- The EFF was approved on March 31, 2023, and forms part of a US$115 billion total support package for Ukraine.
- Ukraine’s 48-month EFF arrangement has access of SDR 11.6 billion (equivalent to US$15.6 billion, or about 577 percent of quota).
Program objectives and design
- Program aims:
- Anchor policies to sustain fiscal, external, price and financial stability amid exceptionally high uncertainty.
- Support economic recovery and enhance governance and institutions to promote long-term growth in the context of reconstruction and EU accession.
- Two-phased approach:
- Phase 1: Secure macroeconomic stabilization and undertake critical structural reforms while the war is ongoing.
- Phase 2: Once active combat has subsided sufficiently, entrench macroeconomic policies and embark on a more expansive set of structural reforms to restore medium-term external viability and support sustained growth.
Recent macroeconomic performance and outlook
- Despite the war, the economy has shown more resilience than expected after a sharp contraction in 2022.
- GDP growth upgraded to 1–3 percent in 2023 as domestic demand recovers.
- Inflation is decelerating, FX reserves are strong, and the FX market is stable.
- Continued risks: developments in the war, need for timely concessional external financing, and possible policy slippages.
Key performance outcomes under the First Review:
- Met all continuous and end-April quantitative performance criteria.
- Met all structural benchmarks through end-June (including enactment of the second Supplementary Budget, strengthening the Budget Code, and completing inputs toward the National Revenue Strategy).
- Indicative targets on the overall budget balance and social spending were missed due to higher defense spending and methodology changes for social payments.
- Program external financing gap estimates remain broadly unchanged.
Fiscal policy and public finances
- Near-term fiscal focus:
- Ensure adequate resources for priority spending.
- Maintain a strong tax revenue base (including by refraining from measures that would erode the tax base).
- Preserve fiscal and debt sustainability.
- Priorities:
- Develop the National Revenue Strategy (NRS) to mobilize revenues for reconstruction and social spending.
- Restore legal framework for medium-term budget preparation, budget credibility, and debt management.
- Improve fiscal transparency and strengthen public investment management.
- Financing strategy:
- External budget support to continue to constitute the bulk of fiscal financing.
- Mobilization of domestic financing and elimination of monetary financing remain important.
- Group of Creditors for Ukraine (GCU) committed to a 2-step process: extend the current debt standstill through the program period and a final debt treatment before the final review.
- Credible process in place for treatment of external commercial debt; highly concessional financing will remain critical.
Monetary, exchange rate, and financial sector policies
- Monetary/exchange rate strategy:
- Support steady disinflation and exchange rate stability while maintaining adequate FX reserves and prudently managing wartime liquidity surplus.
- Conditions-based strategy appropriate for moving toward normalization.
- Once conditions permit: transition from current exchange rate peg toward a flexible exchange rate, cautiously ease emergency FX measures, and return to an inflation targeting framework.
- Continued evidence of sustained disinflation and FX cash market stability provides scope for earlier easing in monetary policy.
- Financial sector:
- Financial system remains stable and liquid due to extensive emergency measures, but risks remain elevated and the true health of banks is partly opaque.
- Priorities: bank diagnostics, reforms to banking oversight, governance of state-owned banks (SOBs), contingency planning.
- NBU and other regulators finalizing the next iteration of the financial sector strategy.
Governance, anti-corruption, and structural reforms
- Urgent reforms to strengthen governance, transparency, and tackle corruption are required to:
- Convince foreign investors of a level playing field.
- Assure donors that resources will be well spent.
- Support progress toward EU accession.
- Key legislative measures highlighted:
- Restoration of asset declarations.
- Strengthening AML/CFT standards.
- Strengthening the Specialized Anti-Corruption Prosecutor’s Office (SAPO).
- Integrated strategy needed for critical spending during recovery and reconstruction, including on energy and procurement.
Debt treatment and financing assurances
- Extended arrangement satisfies Fund policies governing financing assurances for UCT-financing under exceptionally high uncertainty.
- Program designed to achieve objectives across a range of assumptions about the large-scale war and under two scenarios.
- Credible process for external commercial claims treatment is underway.
- Adequate financing assurances on debt relief and concessional financing have been received from official bilateral creditors and donors to support debt sustainability in both baseline and downside scenarios.
- Assurance from a significant group of Fund shareholders about Ukraine’s capacity to repay supports needed safeguards.
Annex: Selected economic and social indicators (2021–27)
- Nominal GDP (billions of Ukrainian hryvnias) 1/: 2021: 5,451; 2022: 5,191; 2023: 6,500; 2024: 7,711; 2025: 9,027; 2026: 10,095; 2027: 11,023
- Real GDP (percent change) 1/: 2021: 3.4; 2022: -29.1; 2023: [ 1 to 3 ]; 2024: 3.2; 2025: 6.5; 2026: 5.0; 2027: 4.0
- Contributions to Real GDP (selected):
- Domestic demand: 2021: 12.9; 2022: -23.7; 2023: 6.1; 2024: 2.9; 2025: 5.1; 2026: 3.7; 2027: 2.6
- Private consumption: 2021: 4.7; 2022: -16.6; 2023: 2.7; 2024: 2.2; 2025: 2.8; 2026: 2.5; 2027: 2.6
- Public consumption: 2021: 0.1; 2022: 6.9; 2023: 0.7; 2024: -0.5; 2025: -1.8; 2026: -0.6; 2027: -0.2
- Investment: 2021: 8.1; 2022: -13.9; 2023: 1.2; 2024: 4.2; 2025: 1.4; 2026: 0.3
- Net exports: 2021: -9.5; 2022: -5.4; 2023: -4.1; 2024: 1.3
- GDP deflator (percent change): 2021: 24.8; 2022: 34.3; 2023: 22.8; 2024: 15.0; 2025: 9.9
- Unemployment rate (ILO; period average, percent): 2021: 9.8; 2022: 24.5; 2023: 19.4; 2024: 10.6; 2025: 9.2; 2026: 8.7; 2027: 8.4
- Consumer prices (period average): 2021: 9.4; 2022: 20.2; 2023: 17.7; 2024: 13.0; 2025: 8.6; 2026: 6.7; 2027: 5.5
- Consumer prices (end of period): 2021: 10.0; 2022: 26.6; 2023: 15.5; 2024: 7.5; 2025: 6.0
- Nominal wages (average): 2021: 20.8; 2022: 1.0; 2023: 18.8; 2024: 15.7; 2025: 13.8; 2026: 12.0; 2027: 9.7
- Real wages (average): 2021: 10.5; 2022: -16.0; 2023: 2.4; 2024: 4.8
- Savings (percent of GDP): 2021: 12.8; 2022: 17.6; 2023: 9.5; 2024: 11.3; 2025: 13.7; 2026: 17.4
- Private: 2021: 30.8; 2022: 25.6; 2023: 23.7; 2024: 16.4; 2025: 14.5; 2026: 16.3
- Public: 2021: -13.2; 2022: -16.1; 2023: -5.1; 2024: -0.8; 2025: 1.1
- Investment (percent of GDP): 2021: 12.6; 2022: 15.2; 2023: 16.9; 2024: 18.4; 2025: 19.8; 2026: 10.7; 2027: 10.1
- General Government fiscal balance (percent of GDP) 2/: 2021: -4.0; 2022: -15.7; 2023: -19.1; 2024: -17.8; 2025: -9.6; 2026: -5.3; 2027: -3.8
- Fiscal balance, excl. grants (percent of GDP) 2/: 2021: -25.0; 2022: -25.8; 2023: -21.1; 2024: -11.6; 2025: -6.4; 2026: -4.9
- External financing (net, percent of GDP): 2021: 10.8; 2022: 17.1; 2023: 8.2
- Public and publicly-guaranteed debt (percent of GDP): 2021: 50.5; 2022: 78.5; 2023: 88.1; 2024: 98.6; 2025: 100.7; 2026: 99.5; 2027: 98.4
- Money and credit (end of period, percent change):
- Base money: 2021: 11.2; 2022: 19.6; 2023: 30.6; 2024: 9.0; 2025: 7.7
- Broad money: 2021: 29.7; 2022: 14.2; 2023: 15.1; 2024: 12.1
- Credit to nongovernment: 2021: -3.1; 2022: 13.3; 2023: 18.1
- Balance of payments (percent of GDP): Current account balance: 2021: -1.6; 2022: -5.7; 2023: -7.2; 2024: -7.1; 2025: -6.1; 2026: -3.4
- Gross reserves (end of period, billions of U.S. dollars): 2021: 30.9; 2022: 28.5; 2023: 30.5; 2024: 33.2; 2025: 36.1; 2026: 39.4; 2027: 45.7
- Months of next year's imports of goods and services: 2021: 4.1; 2022: 4.4; 2023: 5.2
- Percent of short-term debt (remaining maturity): 2021: 67.5; 2022: 65.2; 2023: 63.2; 2024: 74.5; 2025: 74.9; 2026: 82.3; 2027: 90.5
- Percent of the IMF composite metric (float): 2021: 98.8; 2022: 91.3; 2023: 78.3; 2024: 80.0; 2025: 81.4; 2026: 91.2
- Goods terms of trade (percent change): 2021: -8.4; 2022: 0.5; 2023: 1.7
- Exchange rate:
- Hryvnia per U.S. dollar (end of period): 2021: 27.3; 2022: 36.6
- Hryvnia per U.S. dollar (period average): 2021: 32.3
- Real effective rate (deflator-based, percent change): 2021: 28.2
- Memorandum items:
- Per capita GDP / Population (2017): US$2,640 / 44.8 million
- Literacy / Poverty rate (2022 est 3/): 100 percent / 25 percent
Italic: IMF press release, June 29, 2023.
