## Press Release: IMF Executive Board Approves 4-Year US$17.5 Billion Extended Fund Facility for Ukraine, US$5 Billion for Immediate Disbursement

_IMF News, March 11, 2015_

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## Bibliographic details
- Published: March 11, 2015

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### Executive decision and program scope
- Executive Board approved a four-year extended arrangement under the Extended Fund Facility (EFF) for Ukraine amounting to SDR 12.348 billion (about US$17.5 billion, 900 percent of quota), approved under the Fund's exceptional access policy.
- The Board took note of Ukraine’s decision to cancel the Stand-By Arrangement (SBA) for Ukraine that was approved on April 30, 2014 (Press Release No. 14/189).
- Immediate disbursement enabled: SDR 3.546 billion (about US$5 billion), with SDR 1.915 billion (about US$2.7 billion) allocated to budget support.
- Further disbursements to be based on standard quarterly reviews and performance criteria.

### Policy objectives and program design
- Program aims:
  - Put the economy on the path to recovery.
  - Restore external sustainability.
  - Strengthen public finances.
  - Support economic growth by advancing structural and governance reforms while protecting the most vulnerable.
- Emphasis on building and deepening reforms launched under the SBA.
- Prior actions and measures adopted to mitigate implementation risks and to secure broad political support for program objectives and policies.

### Financial sector stability measures
- Priority: stabilize financial system, maintain confidence in banks, and strengthen financial regulation and supervision.
- Measures include:
  - Recapitalizing systemic banks.
  - Resolving weak non-systemic banks.
  - Reducing related party lending.
  - Resolving impaired assets.
- Decisive implementation of the banking strategy deemed crucial to regain public confidence.

### Fiscal strategy and public finances
- Fiscal approach: expenditure-led adjustment and frontloaded energy price increases to reduce quasi-fiscal losses and set debt on a downward path.
- Specific policy components:
  - Improving pension system sustainability.
  - Reforming public employment.
  - Reforming healthcare and education systems.
  - Announced debt operation intended to help secure program financing and restore debt sustainability with high probability; a successful debt operation with high participation is a key consideration for the first program review.
- Target: eliminate large quasi-fiscal losses of Naftogaz by 2017 via increased tariffs, improved collection rates, and fundamental restructuring of the company.
- Social protection: funding to protect the most vulnerable from energy price increases will be raised to alleviate social costs and build support for reforms.

### Structural and governance reforms
- Reforms to revive the business climate and attract investment:
  - Governance reforms, including anti-corruption and judicial measures.
  - Deregulation and tax administration reforms.
  - Comprehensive reform of state-owned enterprises to improve corporate governance and reduce fiscal risks.
  - Broader energy sector reforms to increase energy efficiency and foster energy independence.

### Risk assessment and political economy
- Program subject to exceptional risks, especially from the conflict in the East, which may affect the country’s ability to sustain stabilization and deliver structural overhaul.
- Crisis also presents an opportunity to implement reform-oriented and sustainable policies with strong ownership.
- Mitigating factors: prior actions, broad political support, and potential to unlock sizable international official assistance and private capital inflows.

### Recent economic developments (Annex)
- 2014 outcomes and shocks:
  - Deep recession in 2014 despite policy efforts.
  - Conflict in Eastern Ukraine disrupted trade and industrial production, led to loss of confidence, capital outflows, and sharp exchange rate depreciation.
  - Banks came under increasing stress, public debt increased, and international reserves fell to low levels.
- Under the SBA, authorities began difficult reforms: fiscal adjustment, greater exchange rate flexibility, energy price increases, regulatory simplification, and governance measures. New shocks made SBA objectives difficult to meet, prompting cancellation and replacement by the EFF arrangement.

### Macroeconomic outlook and key numerical projections
- 2015 (near term, difficult environment):
  - Real GDP expected to contract by about 5½ percent in 2015.
  - Inflation expected to spike temporarily and then subside to about 27 percent at end-2015.
  - Current account deficit should fall to about 1½ percent of GDP.
  - Gross international reserves expected to reach around 3.3 month of imports coverage at end-2015 with sizable international assistance.
  - Public sector debt expected to rise to 94 percent of GDP in 2015.
  - External debt expected to rise to 158 percent of GDP in 2015.
- Medium term:
  - Real GDP growth expected to rebound to 2 percent in 2016 and rise to 4 percent in the medium term.
  - Current account deficit projected to stabilize at around 1¼ percent of GDP in 2016–18.
  - By end-2018, inflation expected to fall to mid-single digits and the NBU will build international reserves to cover nearly 83 percent of short term debt.
  - Following the debt operation and sustained fiscal adjustment, public debt expected to decline to around 71 percent of GDP by 2020.

*IMF Press Release No. 15/107, March 11, 2015*

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## References

- [Ukraine and the IMF](http://www.imf.org/external/country/UKR/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Press Release No. 14/189](https://www.imf.org/external/np/sec/pr/2014/pr14189.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr15107_