IMF Concludes Third Review of Ukraine's Extended Fund Facility

• The IMF Board today completed the Third Review of the extended arrangement under the Extended Fund Facility (EFF) for Ukraine, allowing the authorities to draw the equivalent of about US$880 million (SDR 663.9 million), which will be channeled for budget support.
• The authorities continue to perform strongly under the EFF under challenging conditions, meeting all but one quantitative performance criteria for end-December, all structural benchmarks through end-February, and all indicative targets.
• The Ukrainian economy continued to show remarkable resilience in 2023, although war-related headwinds are re-emerging, and the outlook remains subject to exceptionally high uncertainty. Sustained reform momentum is necessary to safeguard macroeconomic stability, restore fiscal and debt sustainability, enhance institutional reforms, and lay the groundwork for reconstruction efforts and the path to European Union (EU) accession.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) today completed the third Review of the EFF arrangement for Ukraine. The completion of the third review enables the authorities to immediately draw US$880 million (SDR 663.9 million), which will be channeled for budget support.

Ukraine's 48-month EFF arrangement, with access of SDR 11.6 billion (equivalent to US$15.6 billion, or about 577 percent of quota), was approved on March 31, 2023, and forms part of a US$122 billion support package for Ukraine. The authorities' IMF-supported program aims to anchor policies that sustain fiscal, external, price and financial stability at a time of exceptionally high war-related uncertainty, support the economic recovery, as well as enhance governance and strengthen institutions to promote long-term growth in the context of reconstruction and Ukraine's path to EU accession.

The EFF continues to provide a strong anchor for the authorities' economic program, which has remained on track despite extremely challenging circumstances due to Russia's ongoing war in Ukraine. All but one quantitative performance criteria and all indicative targets for end-December were met. The authorities also met all structural benchmarks through end-February, underscoring their continuing commitment to an ambitious reform agenda. The Board approved the authorities' request for a waiver for non-observance of the December performance criterion on tax revenues, which was missed by a minor amount.

The economy was more resilient than expected in 2023, with robust growth outturns, continued sharp disinflation, and the maintenance of adequate reserves. However, headwinds are re-emerging in 2024, with growth expected to soften to 3-4 percent due to uncertainty about the ongoing war and as supply constraints become more binding. The outlook remains subject to exceptionally high downside risks arising from war-related factors, potential shortfalls in external financing and the socio-economic impact of policies that may be required if shocks materialize.

Following the Executive Board discussion on Ukraine, Ms. Kristalina Georgieva, Managing Director of the IMF, issued the following statement[1]:

"Russia's invasion of Ukraine continues to bring enormous social and economic costs to Ukraine. However, macroeconomic and financial stability has been preserved, reflecting skillful policymaking by the Ukrainian authorities as well as substantial external support. The economy has been resilient, with stronger-than-expected macroeconomic outturns in 2023. Ukraine's performance and commitment under the program has continued to be strong.

"Looking ahead, the recovery is expected to slow somewhat, given the exceedingly high risks to the outlook stemming mainly from the exceptionally high war-related uncertainty as well as potential delays in external financing. The authorities should be vigilant against these risks. It is also critical that the external financing committed to Ukraine by all donors is disbursed in a timely and predictable manner to safeguard Ukraine's hard-won macroeconomic stability.

"The ongoing war continues to strain Ukraine's public finances. External disbursements on appropriate concessional terms, together with strong domestic resource mobilization are necessary for Ukraine to meet its financing needs and secure fiscal and debt sustainability. Stronger revenue mobilization, underpinned by the recently approved National Revenue Strategy, while avoiding measures that erode the tax base, will be critical to secure fiscal sustainability. Reforms to further strengthen the frameworks for medium-term budget preparation, fiscal risks and transparency, and public investment management should advance in support of these goals. An external commercial debt treatment in line with program parameters will also help create the needed space for critical spending and restore debt sustainability.

"The recent shift to a managed exchange rate regime has been an important step toward normalizing monetary and exchange rate policies, and increased exchange rate flexibility will help strengthen the resilience of the economy to external shocks. Moreover, continued disinflation and well-anchored inflation expectations and FX cash market stability support further easing in monetary policy. A gradual approach to the easing of FX controls, consistent with the National Bank of Ukraine's strategy, will be essential to safeguard FX reserves. The authorities' efforts to avoid monetary financing should continue.

"The financial sector remains stable, and efforts should continue to enhance preparedness for strengthening financial safety nets, supervision, governance, and contingency planning.

"Steadfast reform momentum to enhance anti-corruption and governance frameworks, including ensuring the effectiveness of anticorruption institutions, will be essential to help contain fiscal risks, enhance growth and support the path to EU accession."

Table 1. Ukraine: Selected Economic and Social Indicators, 2021-27

[1] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.