The International Monetary Fund (IMF) and Ukrainian authorities have reached staff level agreement on the Seventh Review of the four-year, $15.5 billion Extended Fund Facility (EFF) Arrangement.
This is the penultimate step before the IMF’s Executive Board decides to disburse another $0.4 billion (Special Drawing Rights, SDR 0.3 billion), bringing total disbursements under the program to $10.1 billion, the IMF wrote in its press release.
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The news emerged during the same hour as a heated press conference between President Volodymyr Zelensky, US President Donald Trump and Vice President J.D. Vance in the White House on Friday.
The IMF reported that program performance remains strong as Ukraine has met all criteria needed for another tranche disbursement.
“IMF staff and the Ukrainian authorities have reached staff-level agreement on the Seventh Review of the EFF, subject to approval by the IMF Executive Board, with Board consideration expected in coming weeks,” the IMF wrote in its press release.
IMF perspective on Ukraine’s economic performance
The IMF wrote hat Ukraine’s economy “has continued to show resilience despite the challenges arising from three years of war in Ukraine.”
It estimated Ukraine’s real GDP at 3.5% for 2024, with an expectation that this will “moderate” to 2-3% in 2025. The key reasons for a growth decrease are headwinds from labor constraints, damage to energy infrastructure, and the persistence of Russia’s war in Ukraine.
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After electricity prices for Ukraine’s business increased by 60%, the war-torn economy experienced additional pressure on prices, caused by drought in 2024.
The National Bank of Ukraine (NBU) expected that the drought would cause additional price pressure but underestimated the extent of its impact on prices. “These factors turned out to be stronger than we had expected,” NBU spokesperson and Ukraine Deputy Governor Sergiy Nikolaychuk previously told Kyiv Post in an exclusive interview.
To curb inflation, the NBU increased the key rate by 1.5 percentage points over two monetary briefings to 14.5% in response. It aims to lower inflation to 5% – Ukraine’s central bank inflation target.
The IMF positively nodded to Ukraine’s central bank move. “Given the risks from rising inflation, the recent increases in the policy rate by the NBU are appropriate. Further action would be warranted if inflation accelerates further or inflation expectations deteriorate,” the press release said.
Just like Ukraine’s central bank, the IMF sees Russia’s war against Ukraine as the key risk to economic stability.
“Risks remain exceptionally high given uncertainty on the war and the prospects for peace and recovery,” the IMF wrote in its press release.
Despite Russia’s war in Ukraine and a resulting GDP deficit of 19.6%, Ukraine mobilized additional revenue from tobacco excise taxes.
Key reforms for Ukraine before the next IMF review
Ukraine should further implement reforms to mobilize domestic revenues, tackle tax evasion and avoidance, and improve the investment climate, the IMF wrote.
“Tax policy reforms need also to be coupled with improvements in tax administration, with continued reforms to the state customs service (SCS) and state tax service (STS),” the press release said.
Other expectations include the following:
- Ukraine should complete the restructuring of the GDP warrants – one of the last steps after Ukraine agreed a successful restructuring of most of its sovereign debt in summer 2024.
- To return to stable mid-term state budget planning, Ukraine should also submit the 2026-2028 budget declaration to Ukraine’s parliament in June.
- Among anti-corruption reforms, Ukraine should adopt the law establishing the High Administrative Court, a benchmark under the program.
The IMF team was led by Mr. Gavin Gray in discussions with the Ukrainian authorities in Kyiv, Ukraine and Warsaw, Poland during Feb. 20-28.
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