The mission of the International Monetary Fund (IMF) and the Ukrainian authorities have reached staff-level agreement on economic policies for a Program Monitoring with Board Involvement (PMB), the head of the IMF mission, Gavin Gray, said summing up the mission's work on November 11-22.

"The agreement is subject to approval by IMF Management and an IMF Executive Board discussion is expected in the coming weeks. The PMB will help provide an anchor for macroeconomic policies and catalyze donor support," he said.

Strong policy implementation would help pave the way towards a full-fledged IMF-supported program, the head of the mission said.

The Ukrainian authorities have requested the four-month PMB to support their economic program, anchor macroeconomic policies, and pave the way to a fully-fledged IMF program. The IMF mission held virtual discussions with the Ukrainian authorities to discuss the key elements of their program.

"Economic activity is expected to stabilize in 2023, with growth at 1% under the baseline scenario, following a 33% contraction this year. Inflation is projected to remain elevated at around 25% on average," Gray said.

With the war ongoing, Ukraine will continue to require substantial external financing to ensure adequate resources for the core functions of the state while preserving economic stability

"The authorities' budget for 2023 features a very tight expenditure envelope in view of the significant financing constraints. To help create fiscal space, the authorities intend to take measures to boost tax revenues including through restoring pre-war tax administration practices. New measures that might erode tax revenues will be avoided," the head of the mission said.

According to him, the availability of timely external financing will support the authorities' efforts to preserve the core functions of the state, while maintaining economic and financial stability.

"Achieving these goal will also require concerted efforts to mobilize domestic financing through higher rollover rates on the domestic market against a backdrop of ample liquidity," Gray said.

As regards monetary and exchange rate policies, the authorities continue to carefully monitor developments, manage liquidity, and balance the FX market with the overall aim of safeguarding price and exchange rate stability while sustaining adequate international reserves.

"They are fully committed to upholding the independence and institutional effectiveness of the National Bank of Ukraine (NBU)," he said.

The authorities have skillfully maintained financial stability during the war through emergency prudential and capital flow measures applied to banks and are now appropriately preparing to gradually unwind these measures and restore international norms.

"To help co-ordinate these efforts, the NBU's financial sector strategy will be updated and expanded to cover targeted bank diagnostics, recapitalization and non-performing asset resolution frameworks, and further development of contingency plans," Gray said.

Renewed efforts are needed toward cementing good corporate governance practices in state-owned enterprises and banks and ensuring the independence of their supervisory boards. The preservation of independent, competent, and trustworthy anti-corruption institutions is essential.