IMF Completes 7th Review of Ukraine Fund Facility

• 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 US$0.4 billion (SDR 0.3 billion) to Ukraine, which will be channeled for budget support.
• 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.
• 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.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) today completed the Seventh Review of the EFF, enabling the authorities to draw US$0.4 billion (SDR 0.3 billion, which will be channeled by the authorities for budget support. This will bring the total disbursements under the IMF-supported program to US$10.1 billion.

Ukraine's 48-month EFF, with access of SDR 11.6 billion (equivalent to about US$15.5 billion, or 577 percent of quota), was approved on March 31, 2023, and forms part of an international support package totaling US$148.8 billion in the baseline. Ukraine's IMF-supported program helps anchor policies that sustain fiscal, external, and macro-financial stability at a time of exceptionally high uncertainty. The EFF aims to support Ukraine's economic recovery, enhance governance, and strengthen institutions with the aim of promoting long-term growth in the context of reconstruction and Ukraine's path to EU accession.

Ukraine's performance under the program remains strong. All end-December and continuous quantitative performance criteria were met as well as the majority of structural benchmarks. The prior action on enacting an increase in tobacco excise taxes was also 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 authorities also requested a rephasing of IMF disbursements to better align them with Ukraine's updated balance of payments needs. The overall size of the program remains unchanged.

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 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. Overall, the outlook remains subject to exceptionally high uncertainty.

Following the Executive Board discussion on Ukraine, Ms. Kristalina Georgieva, Managing Director of the IMF, issued the following statement ^[1] :

"Russia's war in Ukraine continues to take a devastating social and economic toll on Ukraine. In spite of this, macroeconomic stability is being preserved through skillful policymaking as well as substantial external support. The economy has remained resilient, but the recent growth slowdown is expected to persist in 2025 due to headwinds from energy needs and a tight labor market. Contingency planning is key to enable appropriate policy action should risks materialize.

"The program remains fully financed, with a cumulative external financing envelope of US$148.8 billion in the baseline scenario and US$162.9 billion in the downside scenario, over the 4-year program period, including the full utilization of the approximately US$50 billion from the G7's Extraordinary Revenue Acceleration Loans for Ukraine (ERA) initiative. Full, timely, and predictable disbursement of external support—on terms consistent with debt sustainability—remains essential so that the program remains fully financed.

"The 2025 Budget remains the fiscal anchor. The enactment of the tobacco excise tax law is welcomed, as it supports the authorities' commitment to implementing the National Revenue Strategy. 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. This, combined with improvements in public investment management frameworks, medium-term budget preparation, and fiscal risk management, will support growth, investment, and fiscal sustainability.

"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.

"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.

"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."

[1] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .