Business news from Ukraine

Ukraine awaits meeting of IMF board on 3-rd revision of EFF on march 21

Ukraine has fulfilled all obligations for the third revision of the EFF extended financing program and expects a positive decision by the Executive Board of the International Monetary Fund (IMF) on the allocation of the fourth tranche of about $900 million in the near future, Finance Minister Serhiy Marchenko said.
“We are expecting a meeting of the board of the International Monetary Fund in the near future. It seems to me that the date of such a meeting is planned for March 21, at which a decision on Ukraine will be made,” he said on the national telethon.
According to Marchenko, these funds will be received immediately after a successful discussion at the Executive Board.
“So far we are fulfilling all our obligations. And I don’t see any particular problems for us to continue to fulfill these obligations in 2024,” the Minister of Finance emphasized, predicting further cooperation with the IMF under the EFF program.
He also noted that Ukraine still considers the basic option of receiving direct budget support from the United States this year, about which it receives constant assurances from the American side.
“We hope that a solution will be found in the lower house (of the U.S. Congress). There is now every reason for this. We hope that direct budget support will continue, this is important for cooperation with the IMF, for forming a pool of partners,” Marchenko said.

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Ukraine, IMF close to agreement on $900 mln disbursement

Ukraine is close to reaching a deal with the International Monetary Fund to receive the next $900 million disbursement of its $15.6 billion loan, a boost to the war-torn country’s budget and a vote of confidence as U.S. aid remains fragile, Bloomberg reported Wednesday.

According to the agency, Ukraine expects to reach an agreement with IMF staff as early as Thursday, according to officials with knowledge of the talks who asked not to be identified because the deal is not yet finalized. The agreement must be ratified by the IMF’s executive board, which is almost always done without problems.

A team of IMF staff led by IMF Chief of Mission Gavin Gray, which has been assessing whether Ukraine has met the conditions for the loan, is to complete its work and make a statement Thursday in Washington, officials said. According to one of the officials, it may take several more days to finalize the agreement at the staff level, Bloomberg reports.

As reported earlier, the IMF mission and Ukrainian authorities held talks in Warsaw and online on the third revision of the EFF Extended Fund Facility program. The four-year EFF program was approved on March 31, 2023. The first tranche of USD 2.7 billion was disbursed in early April, the second and third tranches of SDR 664 million (approximately USD 881-890 million at the then exchange rate) in early July and mid-December.

The program’s planned schedule provides for the disbursement of another tranche to Ukraine at the end of February 2024 based on the results of the third review, when the fulfillment of obligations as of the end of December 2023 is assessed. Three more tranches are envisaged for 2024: SDR1.670 billion ($2.226 billion) in mid-June, followed by SDR835 million ($1,113 million) in early September and December. Two tranches are planned for 2025: SDR684 million ($912 million) in early March and late August, followed by the last three tranches of SDR966 million ($1.288 billion).

IMF supports abandonment of fixed hryvnia exchange rate

The International Monetary Fund (IMF) supports the decision of the National Bank of Ukraine to switch from a fixed exchange rate regime to a managed flexibility regime starting October 3, and believes that this will further support the stability of the economy and the foreign exchange market, said Natan Epstein, Deputy Head of the IMF Mission to Ukraine.
“The ability to manage the exchange rate in a way that minimizes fluctuations seemed to us to be an important step forward,” he said at a briefing in Kyiv on Wednesday.
Epstein reminded that as part of the program, the NBU in late June approved a strategy supported by the Fund to normalize its monetary and exchange rate policies, which includes a relaxation of exchange controls, as well as a gradual increase in exchange rate flexibility and, ultimately, a return to the inflation targeting system.
According to the deputy head of the mission, the conditions necessary for abandoning the fixed exchange rate have been met, primarily a decline in inflation, a stronger position of international reserves, and stability in the foreign exchange market.
In general, Epstein noted the trust that the NBU managed to gain in managing monetary and foreign exchange policy during the war.
The IMF representatives also expressed satisfaction with the existing dialog between the NBU and the Ministry of Finance and its results, which do not call into question the independence of the central bank.

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Ukraine adopted amendments to Budget Code on program with IMF

The Verkhovna Rada on Thursday supported in the second reading and in general the bill No. 9346-1 with amendments to the Budget Code of Ukraine on ensuring predictability of budget policy and strengthening debt sustainability, the head of the budget committee of the parliament Roksolana Pidlasa said.

According to her, the adoption of the law ahead of schedule means the implementation of a new structural beacon (#10) under the EFF Extended Fund Facility Program with the International Monetary Fund, as well as the launch of the implementation of beacon #12 – revision of the Medium-Term Debt Management Strategy with a deadline for its publication by the end of September this year.

Pidlasa specified that the adopted law prescribes to submit to each draft law on amendments to the state budget an expert opinion of the Ministry of Finance and to consider such draft laws in the Rada if there are conclusions of the Ministry of Finance on their support.

In addition, it restores more stringent conditions for amending the law on the state budget, as defined by Article 52 of the Budget Code, leaving the exception in the conditions of martial law revision of expenditures of the security and defense sector, the MP said.

Another norm of the adopted law is the restoration of the medium-term budget planning by drawing up the Budget Declaration from January 1, 2024, which was stopped last March due to the full-scale invasion of the Russian Federation, Pidlasa pointed out.

She added that the law limits in 2023-2028 the volume of state guarantees provided by decisions of the Cabinet of Ministers to 3% of the planned revenues of the general fund of the state budget, while the limit of state guarantees provided on the basis of international treaties will be determined by the law on the state budget.

Finally, the document instructs to resume this year the development of the Strategy of State Debt Management for 2024-2026, also halted due to the full-scale invasion, providing for its submission by the Ministry of Finance to the Government for consideration by October 25, 2023 and approval by the Government within a month from the date of adoption of the law on the state budget for 2024.

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IMF approves $890 mln 2nd tranche for Ukraine

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.

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Сomponents of $115 bln support for Ukraine over 4 years – $15 bln IMF, $60 bln in concessional loans and $20 bln in creditor grants and $20 bln debt deferral

The International Monetary Fund’s four-year extended EFF financing program for Ukraine also envisions the country receiving $80 billion from multilateral and bilateral donors during this period, including $20 billion in grants and $60 billion in concessional loans, as well as another $20 billion in debt flow relief, said Gavin Gray, head of the Fund mission.
At a press conference on Friday, after announcing the decision to approve the $15.6 billion EFF program, he recalled two announcements made last week: from a group of official Ukrainian creditors about their willingness to defer the country’s debt payments for the program period and about Ukraine’s intention to agree the same with the holders of Eurobonds and other external commercial debts.

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