1 Jul 2024 10:50

IMF board approves release of $2.2 bln to Ukraine under EFF program

MOSCOW. July 1 (Interfax) - The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of the Extended Fund Facility for Ukraine on June 28 and approved the release of the fifth tranche in the amount of about $2.2 billion (SDR 1.66 billion), which will be used for budget support.

"Ukraine's performance remains strong under the EFF despite challenging conditions. All quantitative performance criteria for end-March were met, and all structural benchmarks through end-June were implemented on time or with a short delay," Ukrainian media reported citing the IMF as saying in a press release.

The Ukrainian economy remains resilient although the outlook is still subject to exceptionally high uncertainty, the IMF said. Timely provision external support is necessary "to safeguard macroeconomic stability, restore fiscal and debt sustainability, and enhance institutional reforms to lay the path to European Union accession," it said.

The Fund said Ukraine's economy was more resilient than expected in the first quarter of 2024, with strong growth, continued disinflation and maintenance of adequate reserves. However, the outlook for the rest of the year and 2025 has worsened since the third review, largely due to the destruction of energy infrastructure and uncertainty about the length of the conflict in the country.

IMF Managing Director Kristalina Georgieva said in the press release that Ukraine needs timely and predictable external disbursements combined with strong mobilization of domestic resources and careful liquidity management to meet its financing needs.

"Fiscal policies for the remainder of 2024, together with preparation for the 2025 budget, should be underpinned by steadfast revenue mobilization efforts aligned with the National Revenue Strategy. In this regard, measures that erode the tax base should be avoided and tax and customs administration together with the Economic Security Bureau of Ukraine (ESBU) strengthened. Further strengthening medium-term budgeting, fiscal risks and transparency, and public investment management should advance in support of these goals," Georgieva said.

"An external commercial debt treatment in line with the debt sustainability objectives under the program will be necessary to create the needed space for critical spending and restore debt sustainability in line with the authorities' strategy," she said.

She also said that maintaining exchange rate flexibility will help increase the resilience of the economy to external shocks, while "well-anchored inflation expectations and FX cash market stability suggest scope for further monetary policy easing." A "gradual approach to easing FX controls remains essential to safeguard FX reserves," and the authorities should continue "efforts to avoid monetary financing," she added.

"The financial sector remains stable, and efforts should continue to strengthen bank resolution and supervision, governance, and contingency planning," Georgieva said.

"Steadfast reforms to enhance anti-corruption and governance frameworks, including ensuring the effectiveness of anticorruption institutions, remain essential to contain fiscal risks, secure donor confidence, enhance growth, and support the path to EU accession," she said.

As reported, the four-year EFF Arrangement program of around $15.6 billion was approved on March 31, 2023, and is part of a $122 billion package of international support for Ukraine. The first tranche of $2.7 billion was allocated in early April last year, the second and third tranches of SDR 664 million (about $881 million-$890 million at the then exchange rate) were allocated in early July and mid-December 2023. The board of directors in late March this year approved allocating the fourth tranche of SDR 664 million, approximately $880 million, following the third review.

Two more tranches of SDR 835 million each are planned for 2024, in September and December, and two tranches of SDR 684 million are planned for 2025, at the beginning of March and at the end of August, after which three final tranches of SDR 966 million are planned.