- International Monetary Fund (IMF) staff and the Ukrainian authorities have reached staff level agreement (SLA) on the Eighth Review of the 4-year, $15.5 billion Extended Fund Facility (EFF) Arrangement. Subject to approval by the IMF Executive Board, Ukraine would have access to about US$0.5 billion (SDR 0.37 billion), bringing total disbursements under the program to US$10.65 billion.
- All end-March quantitative performance criteria (QPCs) and indicative targets (IT) have been met and understandings were reached on a set of policies and reforms to sustain macroeconomic stability. The structural reform agenda continues to make progress with two structural benchmarks met, another to be completed in the coming weeks, and strong commitments to advance other key reforms.
- The outlook remains exceptionally uncertain as the war continues to take a heavy toll on the population, economy, and infrastructure. Despite the challenging environment, the program remains on track and fully financed on the back of large-scale external commitments.
Kyiv, Ukraine: An International Monetary Fund (IMF) team led by Mr. Gavin Gray held discussions with the Ukrainian authorities in Kyiv, Ukraine during May 20-27 on the Eighth Review of the country's 4-year Extended Fund Facility (EFF) Arrangement. Upon the conclusion of the discussions, Mr. Gray issued the following statement:
"IMF staff and the Ukrainian authorities have reached staff-level agreement on the Eighth Review of the EFF, subject to approval by the IMF Executive Board, with Board consideration expected in coming weeks.
" Ukraine's four-year EFF Arrangement with the IMF continues to provide a strong anchor for the authorities' economic program in times of exceptionally high uncertainty. All quantitative performance criteria and indicative targets for end-March have been met, and progress continues on the structural agenda due for this review.
"The economy remains resilient despite the challenges arising from more than three years of war. As Russia's war in Ukraine continues, real GDP growth is expected to remain modest, at 2-3 percent for 2025, reflecting headwinds from labor constraints and damage to energy infrastructure. Inflation has continued to rise, reaching 15.1 percent y/y in April mainly due to rising food and labor costs; inflation expectations remain anchored. The National Bank of Ukraine (NBU) has raised the policy rate by a cumulative 250 bps since December in response. Gross international reserves reached US$46.7 billion as of end-April, reflecting continued large external official support. Risks remain exceptionally high given uncertainty on the war and the prospects for peace and recovery.
"The 2025 fiscal deficit is large as the level of critical expenditures remains elevated as the war continues. Financing the deficit requires significant external support, notably from the G7's ERA Initiative, whose full disbursement during the program period is critical to support macroeconomic stability and ensure the program remains financed. Risks of additional critical expenditure requirements in 2025 are high and thus the authorities need to prepare offsetting measures should expenditure shocks materialize. Beyond 2025, expenditures are expected to remain high for the foreseeable future. Consequently, it is imperative and unavoidable that the authorities sustain efforts to mobilize domestic revenues over the medium-term since external support alone will not be sufficient to finance the deficit, restore fiscal sustainability, support critical spending, and finance reconstruction.
"Determined efforts are required to mobilize domestic revenues, tackle tax evasion and avoidance, and improve the investment climate. Broad-based, durable, and efficient revenue measures and robust implementation of Ukraine's National Revenue Strategy (NRS) is essential. Tax policy reforms need to be coupled with improvements in tax administration and continued reforms to the state customs service (SCS) and state tax service (STS). Restoring debt sustainability hinges on this revenue-based fiscal adjustment and continued implementation of the authorities' debt restructuring strategy, including a treatment of the GDP warrants. The upcoming 2026-2028 budget declaration is an important step to set out the strategic objectives of the authorities' medium-term fiscal framework and policies.
"With rising inflation, the increases by the National Bank of Ukraine's (NBU) to their key policy rate (KPR) have been appropriate. Additional action may be warranted if inflation accelerates further or inflation expectations deteriorate. The monetary stance should remain tight to help reduce inflation and bring it to the NBU's target over its three-year policy horizon. The exchange rate should play a greater role as a shock absorber, as per the preconditions outlined in the relevant NBU Strategy; this will help prevent external imbalances and preserve adequate reserves, particularly given heightened risks to the outlook. The judicious and staged approach to FX liberalization should continue, consistent with overall monetary and FX policy mix to maintain adequate reserves, and measures should continue to be closely monitored.
"Governance reforms remain essential to bolster the rule of law and increase the independence, competence, and credibility of anti-corruption and judicial institutions. Reforming the state customs service (SCS) is essential to tackle corruption and reduce tax evasion. Progress in this area requires finalizing a comprehensive reform plan—a requirement for the completion of the review—coupled with the swift appointment of a permanent head of the SCS. The recently published NABU external audit, a structural benchmark, provides an opportunity to implement additional reforms to strengthen the institution and increase public trust. Similarly, the government's commitment to amend the criminal procedure code, also a structural benchmark, is a signal of their willingness to strengthen the anti-corruption system and meet international obligations. On SOE corporate governance, the selection of new CEOs for GTSO and Ukrenergo should proceed promptly based on a merit-based process.
"Effective public investment management (PIM) is critical for post-war recovery, reconstruction, and growth against a backdrop of limited fiscal space. To tackle these challenges, the government of Ukraine has made important progress in strengthening PIM frameworks, and we encourage the authorities to build on this success. A strategic, holistic, and transparent approach is essential to overcome absorption capacity constraints and allocate scarce resources efficiently.
"The financial sector remains stable, but continued vigilance is warranted given elevated risks. Swift action to address critical institutional challenges of the NSSMC is a priority to enhance its effectiveness, and fit and proper tests need to proceed without further delay. Developing financial markets infrastructure and associated reforms will be indispensable to attracting private sector and foreign capital to support reconstruction and recovery. Comprehensive consultation with financial market participants is essential to facilitate a prioritized reform agenda.
"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 thanks them and their technical staff for the excellent collaboration and constructive discussions."
