IMF approves $1.1 bln in EFF's 6th tranche for Ukraine, raises cumulative external financing envelope to $151 bln

MOSCOW. Oct 21 (Interfax) - The International Monetary Fund's Board last Friday completed the Fifth Review of the extended arrangement under the Extended Fund Facility (EFF) for Ukraine, opening the way for the disbursement of about $1.1 billion (SDR 834.9 million) to Ukraine to support its budget.

"Ukraine's economy remains resilient, and performance remains strong under the EFF despite challenging conditions. The authorities met all end-June quantitative performance criteria and completed four structural benchmarks," Ukrainian media quoted the IMF's statement available on its website.

Following the discussions, IMF Managing Director Kristalina Georgieva said the cumulative external financing envelope under the four-year program was increased to $151 billion from $122 billion in the baseline and to $187 billion from $144 billion in the downside scenario.

The IMF listed sustained reform momentum, domestic revenue mobilization, and timely disbursement of external support as essential to safeguard Ukraine's macroeconomic stability, restore its fiscal and debt sustainability, and enhance its institutional reforms.

The Ukrainian authorities have completed structural benchmarks relating to tax privileges, public companies affected by the crisis, customs reform, and public investment management, while resetting two other structural benchmarks to allow more time for completing the reform, it said.

The Ukrainian economy was more resilient in the first half of 2024 than previously expected, with continued growth, moderate inflation, and adequate reserves bolstered by continued sizeable external support, the IMF said. However, the outlook for the rest of 2024 and 2025 has worsened since the Fourth Review, largely due to damage caused to the Ukrainian energy infrastructure and uncertainty about the crisis, it said.

"Overall, the outlook remains subject to exceptionally high uncertainty," it said.

Georgieva said in her remarks that all quantitative performance criteria for end-September were expected to have been met. All but one structural benchmark through end-September were completed, while the missed structural benchmark has been reset to accommodate delays in the appointment process partly beyond the control of the authorities, she said.

Moreover, Ukraine has met two structural benchmarks due later in the year and implemented the prior action for the review, she said.

However, while risks to the outlook remain exceptionally high, the Ukrainian authorities should be prepared to enable appropriate policy action should risks materialize, she said.

"Decisive domestic revenue mobilization is critical for Ukraine to meet elevated spending needs, respond to shocks, and restore fiscal sustainability, which will require further tax policy measures as well as efforts to improve compliance and combat evasion, as envisioned under the National Revenue Strategy," Georgieva said.

Further strengthening medium-term budgeting, fiscal risk frameworks and transparency, and public investment management should advance in support of these goals, she said.

Georgieva described the Eurobond exchange in August as an important milestone in the Ukrainian authorities' strategy to restore debt sustainability. "Efforts to conclude the remaining steps in line with the authorities' strategy and the program's debt sustainability objectives should continue," she said.

Georgieva urged the Ukrainian government to preserve exchange rate flexibility under the managed exchange rate regime to help strengthen the national economy's resilience to external shocks.

"The recent uptick in inflation suggests limited room for further [monetary] easing in the near term, though inflation remains well-anchored, and the FX cash market continues to show stability. A state-dependent and gradual approach to the easing of FX controls remains essential to safeguard FX reserves. The authorities' efforts to avoid monetary financing should continue," Georgieva said.

While mentioning that Ukraine's financial sector remained stable, she called for continuing efforts to strengthen bank resolution and supervision, governance, and contingency planning in view of risks to the outlook.

"Continuing the reform momentum in anticorruption and governance, including ensuring the effectiveness of anticorruption institutions and strengthening governance in the energy sector, remain essential to help contain fiscal risks, secure donor confidence and enhance growth, which would also support Ukraine's path to EU accession," Georgieva said.

As reported, the Ukrainian government and an IMF mission reached staff-level agreement (SLA) on the fifth review of the EFF on September 10.

The four-year EFF totaling around $15.6 billion was approved on March 31, 2023. As was announced at the time, it was part of an international support package for Ukraine totaling $115 billion; however, the amount was later increased to $122 billion as per a baseline scenario, which has now been further increased to $151.4 billion.

A first tranche of $2.7 billion was disbursed in early April, and second, third and fourth tranches of SDR664 million each, or about $880 million-$890 million at the then exchange rate, in early July and mid-December 2023 and at the end of March 2024. Ukraine received the fifth tranche of SDR1.66 billion ($2.2 billion) in early July following the program's fourth review. Hence, the total amount of financing under the arrangement will be $8.7 billion.

The IMF mission for the fifth review of the EFF worked from September 4 to 10.