IMF completes 7th review of EFF for Ukraine, disburses 8th tranche of $0.4 bln
The IMF Board today completed the Seventh Review of the Extended Arrangement under the Extended Fund Facility (EFF) for Ukraine, enabling a disbursement of about $0.4 billion (SDR 0.3 billion) to Ukraine, which will be channeled for budget support, the IMF said on its website.
"Ukraine's economy remains resilient, and performance remains strong under the EFF despite challenging conditions. The authorities met all end-December and continuous quantitative performance criteria, the prior action for this review, and the majority of structural benchmarks," the IMF said.
As after the sixth review in December, the Fund emphasized that sustained reform momentum, progress at domestic revenue mobilization, as well as full and timely disbursement of external support during the program period are necessary to safeguard macroeconomic stability, restore fiscal and debt sustainability, and improve governance.
The total disbursements under the IMF-supported program will reach $10.1 billion. Ukraine's 48-month EFF, with access of SDR 11.6 billion (equivalent to about $15.5 billion, or 577 percent of quota), was approved on March 31, 2023.
The IMF said that the prior action on enacting an increase in tobacco excise taxes was met while, the structural benchmark on the enactment of the law establishing a High Administrative Court was implemented with a delay.
"New benchmarks, including measures to improve public investment management, were established while the timelines of other benchmarks have been adjusted to accommodate capacity constraints," the IMF added.
The Fund said that economic growth in 2024 remained resilient but slowed in the second half of the year. The slowdown is expected to continue in 2025 due to an increasingly tight labor market, the impact of attacks on energy infrastructure, and continued uncertainty about the evolution of the war. The updated program forecasts GDP growth of 2-3% this year, 4.5% next year, and 4.8% in 2027.
The National Bank of Ukraine (NBU) has tightened monetary policy to respond to the rise in inflation, which remains mainly driven by food prices, while inflation expectations remain well anchored. Reserves remain adequate, sustained by continued sizeable external support. This year reserves will grow from $43.8 billion to $56.8 billion, and next year they will decrease to $50.4 billion.
"Overall, the outlook remains subject to exceptionally high uncertainty," the IMF said.
Following the Executive Board discussion on Ukraine, Ms. Kristalina Georgieva, Managing Director of the IMF, said that contingency planning is key to enable appropriate policy action should risks materialize.
"The program remains fully financed, with a cumulative external financing envelope of $148.8 billion in the baseline scenario and $162.9 billion in the downside scenario, over the 4-year program period, including the full utilization of the approximately $50 billion from the G7's Extraordinary Revenue Acceleration Loans for Ukraine (ERA) initiative," Georgieva said.
She said that the 2025 Budget remains the fiscal anchor, and accelerated implementation of this strategy, including modernization of the tax and customs services, reduction in tax evasion, and harmonization of legislation with EU standards, is required to meet high priority spending needs.
"The authorities continue working to complete their debt restructuring strategy. They are currently focused on reaching agreement with the remaining holders of external commercial claims, including GDP warrants. Reaching agreement consistent with the program's debt sustainability objectives is essential to reduce fiscal risks and create space for critical spending," she said.
She said that the recent monetary policy tightening cycle is appropriate, and the NBU should stand ready for further action should inflation expectations deteriorate. Greater exchange rate flexibility will help strengthen economic resilience while safeguarding reserves.
"While the financial sector remains stable, vigilance is needed given heightened risks. Institutional weaknesses in the security markets regulator need to be tackled. Looking ahead, improving Ukraine's capital markets infrastructure will be one of the key steps to attracting foreign capital for reconstruction," Georgieva said.
The Managing Director of the IMF also said that sustained progress in anticorruption and governance reforms is needed.
"Additional efforts are required, including appointment of the new head of the Economic Security Bureau, completing the audit of the National Anti-Corruption Bureau, strengthening AML/CFT frameworks, and amending the criminal procedure code," she said.
As reported, changes were made to the program updated following the 5th review at the request of Ukraine: if it previously provided for only two reviews for 2025 – in early March and late August with the allocation of tranches of approximately $0.9 billion each based on their results, now the schedule for this year includes four quarterly reviews, as in 2024. During the 7th review, Ukraine asked the mission to change the payment structure – to reduce the 8th tranche to $0.4 billion and to transfer funding to future reviews. Prior to this, the size of the next three tranches in 2025 was $809.6 million, $539.8 million, and $445.3 million, respectively.