The Executive Board of the International Monetary Fund (IMF) approved today a 48‑month extended arrangement under the Extended Fund Facility (EFF) with an amount of SDR 11.6 billion (577 percent of quota or about US$15.6 billion). This arrangement is part of a US$115 billion total support package for Ukraine.
The Executive Board’s decision allows the immediate disbursement of around SDR 2 billion (or US$2.7 billion).
The overarching goals of the authorities’ program are to sustain economic and financial stability at a time of exceptionally high uncertainty, restore debt sustainability on a forward-looking basis in both a baseline and downside scenario, and promote reforms that support Ukraine’s recovery on the path toward EU accession in the post-war period. The program, together with financing assurances from the G7, EU and other donors, is designed to solve Ukraine’s balance of payment problem and restore medium term external viability.
It is in line with the IMF’s policy requirements under the recently modified financing assurances policy on Upper Credit Tranche-quality financing for countries facing exceptionally high uncertainty, with adequate safeguards for IMF lending.
In view of the exceptionally high uncertainty faced by Ukraine, its IMF-supported program envisions a two-phased approach:
In the first phase of the program, envisaged during 2023-24, the focus will be on (i) implementing a robust budget for 2023 and bolstering revenue mobilization, including by avoiding new measures that might erode tax revenues, (ii) sustaining steady disinflation and exchange rate stability, including through maintaining adequate foreign exchange reserves, and (iii) contributing to long-term financial stability, including by preparing a deeper assessment of the banking sector health and further promoting central bank independence.
The authorities are also committed to safeguarding and continuing reforms to strengthen governance and anti-corruption frameworks, including through legislative changes. Social spending will be safeguarded under the program.
The second phase of the program will shift focus to more ambitious structural reforms to entrench macroeconomic stability, support the recovery and early post-war reconstruction, and enhance resilience and higher long-term growth, including in the context of Ukraine’s EU accession goals. Ukraine would be expected to revert to pre-war policy frameworks, principally a flexible exchange rate and inflation targeting, while boosting productivity and competitiveness, strengthening institutions, and tackling financial and energy sector vulnerabilities.
In addition, fiscal policies would focus on critical structural reforms to anchor medium-term revenues through the implementation of a national revenue strategy, together with strengthening public finance management and introducing public investment management reforms to support post-war reconstruction.
Following the Executive Board discussion on Ukraine, Ms. Gita Gopinath, First Deputy Managing Director, issued the following statement:
“Russia’s invasion of Ukraine continues to have a devastating economic and social impact. Activity contracted sharply last year, a large swathe of the country’s capital stock has been destroyed, and poverty is on the rise. The authorities have nevertheless managed to maintain overall macroeconomic and financial stability, thanks to skillful policymaking and substantial external support.
“The review of the 4-month Program Monitoring with Board Involvement (PMB) was successfully completed. The authorities met all quantitative and indicative targets and structural benchmarks. This established a strong track record of policymaking despite the challenging circumstances.
“The 48-month extended arrangement under the Extended Fund Facility (EFF) is built on a two-phased approach, starting with measures to anchor macroeconomic and financial stability as well as to undertake critical structural reforms as the war continues, followed by more ambitious structural reforms to restore medium-term external viability, support sustained growth and post-war reconstruction, and facilitate Ukraine’s path to EU accession.
“Building on the PMB, robust policymaking remains essential. Near-term priorities include (i) implementing a robust budget for 2023, while avoiding new measures that erode tax revenues (ii) supporting steady disinflation and exchange rate stability, including through maintaining adequate FX reserves, (iii) preserving financial sector stability, and (iv) carrying out essential governance and anti-corruption reforms. For the medium-term, as conditions permit, the authorities plan to revert to pre-war policy frameworks, principally a flexible exchange rate and inflation targeting, while boosting productivity and competitiveness and strengthening institutions.
“Risks to the EFF arrangement are exceptionally high. The success of the program depends on the size, composition, and timing of external financing on concessional terms to help close fiscal and external financing gaps and restore debt sustainability on a forward-looking basis under the baseline and downside scenarios. Moreover, the authorities’ track record of undertaking ambitious policies when warranted, their readiness to undertake contingency measures, and the frequent reviews in the first phase of the program are risk mitigating factors.
“The program has been appropriately designed to resolve Ukraine’s balance of payments problem and restore medium-term external viability in both a baseline and downside scenario and, thereby, together with other safeguards satisfies the Fund policy requirements on financing assurances for UCT-financing under exceptionally high uncertainty.
“In conjunction with Ukraine’s capacity and commitment to implement the program as well as strong engagement of multiple stakeholders, including International Financial Institutions and the private sector, the bulk of Ukraine’s official bilateral creditors and donors has announced, through the statements of the relevant Executive Directors at the Fund, a two-step debt treatment together with provision of adequate financing assurances on debt relief and concessional financing during and after the program to support debt sustainability both in a baseline and downside scenario.
“A significant group of Fund shareholders reaffirm their recognition of the Fund’s preferred creditor status in respect of the amounts currently outstanding to the Fund by Ukraine, plus any purchases under the extended arrangement. These shareholders comprise the G7 and the following countries: Belgium, Lithuania, the Netherlands, Poland, Slovak Republic, and Spain. They further undertake to provide adequate financial support to secure Ukraine’s ability to service all of its obligations to the Fund, in accordance with the Fund’s preferred creditor status and complementing the Fund’s multilayered risk management framework.’’
Russia’s invasion of Ukraine continues to have a devastating economic and social impact. Active combat is concentrated in eastern and southern Ukraine, while continued attacks on critical energy infrastructure had a severe social toll over the winter. Civilian casualties continue to rise, and over a third of the population has been displaced. The war has had a profound impact on the economy: activity contracted by around 30 percent in 2022, a large swathe of the country’s capital stock has been destroyed, and poverty is on the rise. The authorities have nevertheless managed to maintain overall macroeconomic and financial stability, thanks to skillful policymaking and substantial external support.
Following two purchases under the Rapid Financing Instrument (RFI) in March and October 2022 (the latter under the Food Shock Window)—that provided cumulative financing of 100 percent of quota (US$2.7 billion)—the authorities requested a 4-month Program Monitoring with Board Involvement in December 2022. The authorities have performed strongly under the PMB, achieving all quantitative targets and structural benchmarks.
In light of the significant Balance of Payment needs arising from the large exogenous shock of the war, the authorities have requested a 48-month extended arrangement under the Extended Fund Facility (EFF).
The authorities’ program for 2023-27, supported by the EFF, aims to help secure macroeconomic and financial stability, catalyze external financing, and provide a framework for structural policies that could lay the foundations for post-war recovery and reconstruction, including in the context of EU accession. The program will comprise a two-phased approach: the first phase focuses on securing macroeconomic stabilization and undertaking critical structural reforms while the war is still ongoing; the second phase once active combat has subsided sufficiently, will focus on further entrenching macroeconomic policies and embarking on a more expansive set of structural reforms to restore medium-term external viability, support sustained growth, and facilitate Ukraine’s path to EU accession. Ukraine is assessed to meet the five principal criteria for eligibility for Fund UCT-quality financing under the Fund’s policy on UCT lending under exceptionally high uncertainty.
In the near term, fiscal policies will focus on ensuring adequate resources for priority spending, maintaining a strong tax revenue base, and preserving fiscal and debt sustainability. Measures that erode tax revenue should be avoided. Over the medium term, to support early reconstruction and social spending needs, efforts will focus on anchoring revenue mobilization through a national revenue strategy and restoring the medium-term budget framework to enhance budget credibility. The authorities will also take steps to improve fiscal transparency and risk management and strengthen public investment management.
Financing strategy and debt sustainability. The authorities’ program would help restore debt sustainability on a forward-looking basis through treatments of both official and external commercial debt, coupled with continued external financing on concessional terms. On official debt, the Group of Creditors for Ukraine (GCU) has committed to a 2-step process involving a 3-year extension of the current debt standstill set to expire at end-December 2023, followed by a final debt treatment before the expiry of the proposed EFF arrangement.
These debt treatments, together with an increase in domestic financing and the elimination of monetary financing, will help the authorities meet their financing needs over the program period.
Monetary and exchange rate policies. A key priority is to support steady disinflation and exchange rate stability, including through maintaining an adequate level of FX reserves, while prudently managing the wartime liquidity surplus. Once conditions permit, the authorities should transition toward a more flexible exchange rate, ease emergency FX measures, and return to an inflation targeting framework.
Financial sector. Policies will need to preserve financial stability and prepare for the postwar recovery, including contingency planning, bank diagnostics, as well as tackling troubled banks and non-performing assets.
Governance and growth. Further improving governance is critical to Ukraine’s objectives of EU membership and achieving sustained growth. Independent and effective anti-corruption institutions will help mitigate corruption risks during Martial Law and promote public trust and donor confidence in future reconstruction . Ambitious reforms will be required in the energy sector to enhance competition, improve market mechanisms, and reduce large quasi-fiscal risks. Deepening integration with the EU single market and steadfastly implementing the EU accession requirements will be crucial to bring to fruition long sought institutional and structural reforms.
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