IMF and Ukrainian Authorities Reach Staff Level Agreement on the Sixth Review of the Extended Fund Facility (EFF) Arrangement
IMF News, November 19, 2024
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- Published: November 19, 2024
Staff-Level Agreement and Disbursement
- IMF staff and the Ukrainian authorities have reached staff level agreement (SLA) on the Sixth 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 834.9 million), bringing total disbursements under the program to US$9.8 billion.
- Board consideration is expected in the coming weeks.
Program Performance and Macroeconomic Outlook
- Program performance remains strong; the authorities met all end-September quantitative performance criteria (QPCs) and the structural benchmarks for the review.
- The outlook is exceptionally uncertain due to Russia's war in Ukraine and continued attacks on energy infrastructure.
- Key macroeconomic projections and indicators:
- Real GDP growth is expected at 4 percent in 2024.
- Slowdown to 2.5-3.5 percent is forecast for 2025.
- Inflation reached 9.7 percent y/y in October.
- Gross international reserves amounted to US$36.6 billion at end-October 2024.
- External support noted:
- Continued large external official support.
- The G7's ERA Initiative is expected to provide US$50 billion in financing to Ukraine.
Fiscal Policy, Budgets, and Debt Sustainability
- The 2024 supplementary and 2025 budgets are in line with program parameters.
- The 2025 budget deficit is expected to reach 19 percent of GDP, reflecting continued spending needs due to the ongoing war.
- The 2025 budget incorporates the package of tax measures approved by the Rada, with an expected yield on the order of 1.6 percent of GDP in 2025.
- Enactment of the tax package is a requirement for the review.
- Financing the 2025 deficit will require significant external support, notably finalization of the G7 ERA Initiative.
- Policy recommendations to preserve fiscal stability and restore sustainability:
- Be ready to respond to fiscal shocks with offsetting measures, particularly broad-based, durable, and efficient revenue measures, such as an increase in the main VAT rate.
- Mobilize domestic revenues through implementation of the National Revenue Strategy (NRS), including reducing tax evasion and increasing compliance.
- Debt sustainability depends on:
- Revenue-based fiscal adjustment under the program.
- External financing on concessional terms.
- Implementation of the authorities’ debt restructuring strategy.
- Completing treatment of remaining external commercial claims, including the GDP warrants, in line with the program’s debt sustainability objectives.
Structural Reforms and Governance
- Priority reforms and institutional actions:
- Accelerate reforms to the state customs service and the Economic Security Bureau (ESBU), including appointment of new heads as planned.
- Enhance independence, competence, and credibility of anti-corruption and judicial institutions.
- Recent parliamentary adoption of the law reforming the Accounting Chamber of Ukraine noted as a welcome step.
- Strengthen the criminal procedural code and establish a new high administrative court as key near-term priorities.
- Timely completion and publication of the inaugural external audit report of the National Anti-corruption Bureau of Ukraine (NABU).
- The full supervisory board of Ukrenergo is expected to be restored in early December.
- Independent evaluations of the supervisory boards of key energy SOEs to be undertaken in the first quarter of 2025.
Monetary Policy and Exchange Rate Framework
- Monetary policy stance:
- Given upside risks to inflation, the pause in the easing cycle remains appropriate.
- Further action could be warranted should inflation accelerate or inflation expectations deteriorate.
- The scope for easing could resume as inflationary pressures unwind.
- Exchange rate and FX policy:
- The exchange rate should continue to act as a shock absorber and adjust to market fundamentals while ensuring adequate reserves are maintained.
- A judicious and staged approach to FX liberalization should continue in line with the National Bank of Ukraine’s strategy, supported by continued close monitoring.
Financial Sector and Stability
- The financial sector is described as stable and liquid, with reforms continuing despite challenges under Martial Law.
- Priorities to preserve financial stability and enhance preparedness:
- Strengthen the bank rehabilitation framework.
- Advance contingency planning.
- Enhance risk-based supervision.
Mission, Process, and Stakeholder Engagement
- An IMF team led by Mr. Gavin Gray held discussions in Kyiv during November 11-18, 2024.
- The mission met with Prime Minister Shmyhal, 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 excellent collaboration and constructive discussions.
- Context note: Russia’s war in Ukraine has lasted 1,000 days as referenced in the statement.
Press Release No. PR24/425, November 19, 2024, IMF Communications Department.