The Ministry of Finance and the National Bank of Ukraine, after reaching a staff-level agreement (SLA) with the IMF on the fourth review of the Extended Fund Facility (EFF) program, expect it to be approved by the IMF Board of Directors and the disbursement of the fifth tranche of the $2.2 billion program in the coming weeks.
“Ukraine has never reached the fourth review in any IMF program before. Today’s agreements are evidence of our commitment to reforms and changes for our country (…),” Prime Minister Denys Shmyhal commented on the agreement.
Minister of Finance Sergii Marchenko said that the government continues to work on implementing reforms and prioritizes maintaining economic stability and restoring Ukraine’s path to EU membership. He also thanked the IMF team for their efficient and well-coordinated cooperation.
According to the Ministry of Finance, the IMF experts emphasized the importance of the National Revenue Strategy and the implementation of certain of its provisions.
“The National Revenue Strategy is one of the structural beacons of the EFF-IF-U Program, which provides for the gradual implementation of measures aimed at reforming fiscal authorities and mobilizing tax revenues, as well as measures aimed at strengthening public confidence in tax and customs authorities,” the Ministry reminded.
For its part, the NBU noted that the future priorities of cooperation with the Fund will include strengthening banking regulation, supervision, lending, and capital market infrastructure.
In addition, considerable attention will be paid to increasing the level of financial inclusion, especially in the de-occupied territories and in regions close to active hostilities.
“Its low level is a deterrent to economic activity, so the NBU will focus on diagnostic work involving IMF and World Bank experts to develop effective measures,” the regulator said on its website on Friday evening.
The NBU is ready to further ease monetary policy provided that inflation expectations remain stable and hryvnia instruments remain attractive, which will be supported by a flexible exchange rate, the regulator said.
“Further balanced and gradual easing of currency restrictions in accordance with the Strategy should support economic recovery without creating risks to macrofinancial stability,” the NBU said in a statement.
According to the NBU, IMF experts noted that budget financing needs in 2024 remain very high. Given this, budget implementation should take into account financial constraints and the need to restore fiscal and debt sustainability.
“To ensure fiscal sustainability, Ukraine needs to accelerate the implementation of tax reforms and revenue administration envisaged by the National Revenue Strategy,” the press release says.
Among the priorities of the Program implementation, the regulator noted the strengthening of tax and customs administration, as well as strengthening public confidence through anti-corruption reforms and measures to properly protect taxpayers’ personal data.
Ukraine has received the eighth tranche of macro-financial assistance in the amount of EUR 1.5 billion from the European Union, Prime Minister Denys Shmyhal said.
“Today, Ukraine has received the eighth tranche of macro-financial assistance in the amount of €1.5 billion from the European Union. In total, the EU’s budget support for Ukraine in 2023 already amounts to €13.5 billion,” Shmyhal wrote in X on Friday.
According to the prime minister, the EU’s total support for Ukraine has reached approximately €70 billion since Russia’s full-scale invasion.
The Board of Executive Directors of the International Monetary Fund (IMF) has completed the first review of the Extended Funding Facility (EFF) program for Ukraine and approved the immediate release of the second tranche of SDR 663.9 million (about $890 million) to be used for budget support.
“Officials have made significant progress in meeting their EFF commitments under difficult conditions, meeting all applicable quantitative performance criteria by the end of April and structural benchmarks by the end of June, and remain highly committed to the program,” the fund said in a release Thursday on its website.
At the same time, the fund noted that sustained accountability and momentum for reforms are needed to ensure macroeconomic and financial stability in the difficult period ahead.
“This includes maintaining a solid tax revenue base (including by refraining from measures that could undermine the tax base), supporting sustainable disinflation and exchange rate stability, maintaining a healthy banking sector, and advancing critical governance and anti-corruption reforms, including on asset declarations, financial monitoring and the Specialized Anti-Corruption Prosecution Service (SAP),” the release specified.
The IMF added that it is also crucial that external financing of the budget and reconstruction projects continue on concessional terms, compatible with financial and debt sustainability.
Fiscal policy efforts should also focus on developing a National Revenue Strategy (NRS) that will anchor much-needed revenue mobilization to support reconstruction and social spending, it was pointed out. “Restoring the legal framework for midterm budget preparation, budget credibility, and debt management is also critical, coupled with measures to increase fiscal transparency and strengthen public investment management,” the Fund noted.
Commenting on the financing strategy and debt sustainability, the IMF stated that external support for the budget will continue to make up the bulk of budget financing, although mobilizing domestic financing along with avoiding issuance is still important.
The Fund added that in addition to the March 2023 commitment by the Ukraine Creditors Group (CCG) to restructure part of the official debt, there is a credible process for resolving external commercial debt, according to Fund staff.
Speaking of monetary and exchange rate policy, the IMF stressed that the program aims to further support sustainable disinflation and exchange rate stability, including by maintaining an adequate level of foreign exchange reserves while prudently managing wartime excess liquidity.
“As soon as conditions permit, the program will support a transition to a more flexible exchange rate, a further loosening of exchange controls, and a return to an inflation-targeting system,” the Fund pointed out without any specification of timing.
In the financial sector, the IMF called for continued vigilance, given that the true state of the banking system remains unclear and risks of further shocks, including nationalization of banks, remain. She said bank diagnostics, banking supervision reform, state bank governance and contingency planning remain high priorities.
The fund also stressed the importance of governance and anti-corruption reforms needed to quickly restore living standards and pave the way for EU accession, as well as build public and donor confidence, including in the postwar period.
“It will also be important to pursue a comprehensive strategy for critical spending during recovery and reconstruction, including on energy and procurement,” the IMF added.
As reported, the IMF and Ukraine reached a staff-level agreement on an updated set of economic and financial policies as part of the first review of the four-year $15.6 billion EFF program on May 30.
It was noted that all the quantitative performance criteria at the end of April and structural benchmarks at the end of May had been met, paving the way for the IMF board of directors to consider granting Ukraine the second tranche of the EFF program of about $900 million (SDR663.9 million).
The program was approved on March 31 this year, and the first tranche of $2.7 billion was allocated in early April as well. The program’s schedule assumes that Ukraine will receive three tranches of SDR664 million (about $900 million) after the first tranche in mid-June and October of this year and in late February of the following year based on the first, second and third revisions, when the fulfillment of obligations is estimated for the end of April, June and December of this year, respectively.
Ukraine will receive the first EUR3 billion tranche in 2023 from the EU this week as part of a EUR18 billion macrofinancial assistance package, European Commission Vice President Valdis Dombrovskis said.
“I have the honor to sign a memorandum of understanding with the EU to provide Ukraine with financing in 2023, up to EUR18 billion in loans. The first payment of EUR3 billion will follow later this week. This will allow Ukraine to cover its most urgent needs with a steady flow of funds throughout the year,” he wrote on Twitter.
Ukraine welcomes the approval by the European Parliament of a new macro-financial assistance in the amount of EUR 18 billion for 2023 and is waiting for the Council of the European Union to make the final decision soon, implement all necessary procedures and prepare relevant documents, Finance Minister of Ukraine Serhiy Marchenko has said.
“We are expecting to receive the first tranche of EUR 3 billion in January,” he said on air of the national telethon on Wednesday.
The minister also said that it is about a long-term loan for a period of more than 20 years at an interest rate of around 3-4% within a level of risk of the European Commission.
Ukraine on Tuesday received another EUR2.5 billion tranche under the current EU macro-financial assistance (MFF) program, the Finance Ministry said on its website.
“We are sincerely grateful to the EU for the financial support provided to Ukraine. The funds received will significantly help to ensure urgent state budget expenditures and maintain economic stability in the state,” the ministry quoted Minister Serhiy Marchenko as saying.
The total amount of the EU macrofinancial assistance to Ukraine has reached EUR6.7 billion since February 24, the Ministry of Finance said.
It is assumed that Ukraine will receive the last tranche within the framework of the eighth program of macrofinancial assistance by the end of this year, the ministry noted.
As earlier reported, in late May-early June this year, the EU pre-approved a new emergency macrofinancial assistance to Ukraine for EUR 9 billion, of which EUR 1 billion was allocated in early August. The rest EUR 8 billion was expected to come in one tranche, but the final decision was delayed. One of the reasons for that was a discussion of whether to provide the money in the form of loans or grants.
As a result, only EUR2 billion arrived in the middle of October, and the vice-president of the European Commission Valdis Dombrovskis said that the third tranche of EUR3 billion was expected in early December. Later he specified that EUR2,5 billion will arrive in the end of November and EUR0,5 billion – in the beginning of December, while the remaining EUR3 billion of the initial EUR9 billion is included in the new program of financial aid to Ukraine in 2023 for the total amount of EUR18 billion.
In all cases, we are talking about credit funds, but allocated on concessional terms.
