Experts from the International Monetary Fund (IMF) proposed that the National Bank of Ukraine consider greater loosening of the national currency’s real effective exchange rate to reduce the current account deficit, according to materials from the first review of the Extended Fund Facility (EFF) program published on the Fund’s website, confirming media reports about such a discussion.
"The NBU acknowledged staff’s external sector assessment but viewed the estimated REER misalignment as overstated, noting that standard current account models are ill-suited to wartime conditions," the IMF document states.
"The NBU emphasized that, given the structural FX deficit in the private sector and the large external inflows to the public sector, its role in intermediating FX flows to the market remains critical for orderly market functioning," the Fund explained regarding the positions of the National Bank and the government.
The IMF noted that normalizing Ukraine’s current account over the medium term requires fiscal consolidation, including targeted tax measures to limit the import of certain goods, particularly small parcels. According to the Fund, such policies, together with the gradual easing of foreign exchange restrictions and increased exchange rate flexibility, will help reduce external imbalances, enhance Ukraine’s productivity and competitiveness, and ensure external sustainability.
In the updated Memorandum on Economic and Financial Policies, the Ukrainian side noted that the realization of risks associated with the war in the Middle East, specifically rising global energy prices and increased uncertainty, necessitated a temporary increase in foreign exchange intervention volumes to maintain stable market conditions. This, in turn, led to the expected non-fulfillment of the quantitative performance criterion on net international reserves for the end of June by $2.88 – 3.08 billion.
"Despite challenging conditions, exchange rate flexibility has increased since late 2025. The NBU remains committed to carefully calibrating further FX liberalization, which will proceed gradually and remain conditions-based," the memorandum states.
The National Bank promises to continue applying an approach to foreign exchange interventions aimed at strengthening the role of the exchange rate as a shock absorber while preventing excessive volatility.
"The NBU emphasized that, given the structural FX deficit in the private sector and the large external inflows to the public sector, its role in intermediating FX flows to the market remains critical for orderly market functioning," the Fund said.
According to the updated memorandum, the Ukrainian side commits to conducting a comprehensive analysis of foreign exchange measures implemented to date by the end of August and continuing work on transitional mechanisms, specifically evaluating potential amendments to the laws on currency and on the NBU to ensure the gradual and phased lifting of foreign exchange regulation specifics and other measures introduced during martial law.
In turn, the IMF believes that foreign exchange liberalization should depend on meeting key prerequisites, including deeper foreign exchange markets, well-anchored inflation expectations, and sustained financial stability, while balancing them against economic needs.
