IMF and Ukrainian Authorities Reach Staff Level Agreement on the Fifth Review of the Extended Fund Facility (EFF) Arrangement– Ukraine

IMF News, September 11, 2024

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IMF staff and the Ukrainian authorities reached staff-level agreement (SLA) on the Fifth Review of the 4-year Extended Fund Facility (EFF) Arrangement.
Subject to approval by the IMF Executive Board, Ukraine would have access to about US$ 1.1 billion (SDR 834.8 million).
Agreement is subject to IMF Executive Board approval, with Board consideration expected in the coming weeks.

Program performance remains strong: the authorities met all end-June quantitative performance criteria (QPCs) and the structural benchmark for the review.
Key macroeconomic indicators cited:
- Real GDP grew by 6.5 percent y/y in the first quarter of 2024.
- Inflation was 5.4 percent y/y in July.
- Gross international reserves were US$42.3 billion as of September 1.

The economy remained resilient in the first half of 2024, but headwinds are intensifying and the outlook remains exceptionally uncertain.
Growth and inflation projections:
- An economic slowdown is expected in 2024H2 due to repeated attacks on energy infrastructure and the impact of the war on labor markets and confidence.
- Growth is expected at 3 percent for 2024.
- With the war expected to continue through 2025, real GDP growth is projected to be between 2.5-3.5 percent.
- Inflation is expected to rise to around 9 percent by end-2024.
Risks to the outlook are described as exceptionally high.
The continuing war will entail fresh financing needs, requiring determined policy efforts by the authorities and large-scale support from donors.
Addressing the energy deficit ahead of the winter is critical, requiring coordinated efforts, including with international partners.

The 2025 Budget needs to respect financing constraints and debt sustainability objectives.
Determined domestic revenue mobilization efforts are critical:
- Tax revenues need to increase in 2025 and beyond to create space for critical spending, to preserve essential buffers and restore fiscal sustainability.
- Achieving this will require implementation of permanent tax policy measures and relentless efforts to close existing opportunities for tax evasion, improve compliance, and combat the shadow economy, in line with the National Revenue Strategy (NRS).
Customs and administration reforms:
- Legislation to reform the Customs code should confirm the central role of the Finance Ministry in overseeing customs.
- Robust processes should be established for selecting a permanent head of customs as well as other key leadership roles.
Debt restructuring:
- The successful treatment of Ukraine’s Eurobonds will deliver substantial debt relief, freeing up resources for priority spending areas.
- Attention is now shifting to the remaining external commercial claims in the restructuring perimeter, including the GDP warrants, which should be treated in line with the program’s strategy to restore debt sustainability.
Timely and predictable external financial support, on terms consistent with debt sustainability, remains indispensable for maintaining economic stability.

Upside risks to inflation have reduced the scope for further easing through the end of the year; the monetary policy stance remains appropriate and consistent with achieving the inflation target over the medium term.
The exchange rate should continue to act as a shock absorber and adjust to market fundamentals, helping to safeguard external stability.
Appropriate monetary policy combined with managed exchange rate flexibility should help prevent excessive exchange rate volatility and the de-anchoring of FX and inflation expectations.
A judicious and staged approach to FX liberalization should continue in line with the National Bank of Ukraine’s (NBU) strategy, and consistent with the overall policy mix.

Effective governance frameworks are critical for durable growth, levelling the playing field, and pursuing the path to EU accession.
Priority institutional and governance reforms include:
- Enhancing the independence, competence, and credibility of anti-corruption and judicial institutions.
- Strengthening the criminal procedural code.
- Establishing a new high administrative court.
- Reforming the Accounting Chamber of Ukraine.
- Conducting the inaugural external audit of the National Anti-corruption Bureau as a short-term priority.
- Re-establishing the full supervisory board of Ukrenergo by end-December.

The financial sector is described as stable and liquid, with reforms continuing apace despite challenges under Martial Law.
Priorities to preserve financial stability and enhance preparedness for potential shocks include:
- Strengthening the bank rehabilitation framework.
- Contingency planning.
- Improving bank governance.

An IMF team led by Mr. Gavin Gray held discussions in Kyiv with the Ukrainian authorities during September 4-10, 2024, on the Fifth Review of the EFF Arrangement.
The mission met with Finance Minister Marchenko, National Bank of Ukraine Governor Pyshnyy, other government ministers, public officials and civil society.
The mission thanked them and their technical staff for their close collaboration and constructive discussions.

Press Release No. 24/326 — IMF Communications Department, September 10, 2024.