KYIV, May 29 – International Monetary Fund (IMF) staff and the Ukrainian authorities have reached staff level agreement (SLA) on the Eighth Review of the four-year, $15.5 billion Extended Fund Facility (EFF) Arrangement. Subject to approval by the IMF Executive Board, Ukraine would have access to about $0.5 billion (SDR 0.37 billion), bringing total disbursements under the program to $10.65 billion.

"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," this statement by Head of the Fund's mission to Ukraine Gavin Gray was published on the IMF website based on the results of the mission's work in Kyiv from May 20 to May 27.

It is noted that 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 statement reads.

At the same time it is noted that the outlook remains exceptionally uncertain as the war continues to take a heavy toll on the population, economy, and infrastructure.

According to him, the economy remains resilient, despite the challenges arising from more than three years of war. The IMF, according to the results of the eighth review, maintained its forecast for real GDP growth in 2025 at a moderate level of 2-3%, reflecting the negative impact of labor market restrictions and damage to energy infrastructure.

Gray said the budget deficit for 2025 is significant, as the level of critical expenditures remains high due to the continuation of the war, and financing the deficit requires significant external support, in particular from the proceeds from frozen Russian assets under the G7-developed $50 billion ERA mechanism. Full allocation of funds under the ERA during the program implementation period is critical to maintaining macroeconomic stability and ensuring financing of the program, the release said.

"Risks of additional critical expenditure requirements in 2025 are high and thus the authorities need to prepare offsetting measures should expenditure shocks materialize," the head of the mission also said.

Expenditures are expected to remain high for the foreseeable future after 2025. "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," Gray said.

He believes that the increase in the National Bank of Ukraine (NBU) in early March from 14.5% to 15.5% per annum is justified, given the rising inflation rate to 15.1%.

"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 head of the mission said.

He added that 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," Gray said.

He also said governance reforms remain important to strengthen the rule of law and enhance the independence, competence and authority 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 head of mission said.

In his view, the recently published external audit of the National Anti-Corruption Bureau (NABU), which is a structural benchmark, provides an opportunity to implement additional reforms to strengthen the institution and increase public trust. (om/ez)