The staff of the International Monetary Fund (IMF) and the Ukrainian authorities have reached a staff-level agreement (SLA) on the first and final review under the Program Monitoring with Board Involvement (PMB).

"This agreement, which is subject to IMF Management approval, paves the way to initiate discussions on a full-fledged Fund-supported program," the IMF said in a Friday night post-mission statement.

As reported, Ukraine, in the context of the IMF's unwillingness to immediately allocate significant funding in the autumn 2022, requested the Fund's four-month PMB, which the Fund approved on December 20. Kyiv hopes this non-financing program will be replaced by the Extended Fund Facility (EFF) at the beginning of the second quarter of 2023, which can partially cover the gap in covering the $38 billion deficit of the 2023 national budget, which now stands at about $10 billion.

The IMF mission for the first review of the program worked in Warsaw on February 13 to 17.

Within the framework of it, medium-term macroeconomic indicators, fiscal policy, financing structure, financial sector and management policies were discussed.

"Due to the joint efforts of the Government of Ukraine and the National bank of Ukraine, all end-December quantitative and indicative targets have been met, as have all five end-January structural benchmarks. These included the Government submitting to Parliament a package of draft tax laws aimed to increase revenues, taking steps by the Ministry of Finance to address arrears, developing a concept note for a social safety net, establishing Naftogaz's supervisory Board, and agreeing on the key elements of banking sector diagnostics," Head of the IMF mission Gavin Gray said.

Timely disbursement of sizable external support has been critical for macroeconomic stability, and large-scale disbursements will remain essential in 2023 and beyond to cover financing needs and help ensure stability.

Gray also noted that efforts to expand issuance in the domestic bond market should continue to help ensure a stable financing mix and eliminate reliance on monetary financing.

The IMF expects the public sector to play an important role in the recovery process, and measures to improve the efficiency and transparency of public finance and governance will be critical.