Ukraine, IMF reach Staff Level Agreement on 7th review of EFF Arrangement
MOSCOW. March 3 (Interfax) - Ukraine and the International Monetary Fund (IMF) have reached a staff level agreement on the seventh review of the Extended Fund Facility (EFF) arrangement, which now nears $15.5 billion, Ukrainian Prime Minister Denis Shmygal said on Friday.
"Ukraine and the IMF have reached a staff level agreement on the seventh review of the EFF arrangement. It now nears $15.5 billion. We will be able to receive another tranche after the IMF Executive Board approves the review," Ukrainian media cited Shmygal's statement on a social network.
He thanked the teams of the Ukrainian government and the National Bank for "thorough work" and the IMF "for support and enduring partnership."
Shmygal said earlier that Ukraine was planning to draw $2.7 billion from the IMF in 2025.
"Program performance remains strong. All end-December quantitative performance criteria (QPCs) have been met and understandings were reached on a set of policies and reforms to sustain macroeconomic stability," Ukrainian media cited a press release published on the IMF website with regard to the work done by its mission in Kiev and Warsaw since February 20.
The structural reform agenda continues to make progress, with seven structural benchmarks met, another benchmark implemented with delay, and strong commitments to advance other key reforms, the press release said.
Earlier, Ukraine was expected to receive $917.5 million after the seventh review.
"Reflecting a revised profile of balance of payments needs in 2025, Ukraine has requested the mission to rephase access under its EFF program, shifting IMF financing to future reviews," National Bank of Ukraine head Andrei Pyshny said, explaining why the tranche to be received after the 7th review had been reduced. He said though that the overall arrangement would remain unchanged, $15.5 billion.
"The 2025 budget targets a deficit (excluding grants) of 19.6 percent of GDP and remains the anchor for fiscal policy this year. It incorporates the additional revenue derived from the increase in tobacco excise taxes and enactment of this tax policy change is a requirement for completion of the review," the IMF said.
Financing the large fiscal deficit will require significant and timely external support, notably from the G7's ERA initiative, to support macroeconomic stability, it said.
Responding to high budget risks will require preparedness with offsetting measures; in particular broad-based, durable, and efficient revenue measures and accelerated implementation of Ukraine's National Revenue Strategy (NRS), the IMF said.
According to IMF, restoring medium-term fiscal sustainability requires determined implementation of reforms to mobilize domestic revenues, tackle tax evasion and avoidance, and improve the investment climate.
"Tax policy reforms need also to be coupled with improvements in tax administration with continued reforms to the state customs service (SCS) and state tax service (STS)," the press release said.
Restoring debt sustainability hinges on this revenue-based fiscal adjustment and continued implementation of the authorities' debt restructuring strategy where completing the treatment of the GDP warrants remains important, the IMF said.
The upcoming 2026-2028 budget declaration that is to be submitted to Parliament in June will be an important opportunity to provide both the context and strategic objectives of the medium-term fiscal strategy, it said.
The Ukrainian National Bank's increase in the key rate by 1 percentage point to 14.5% is an appropriate step, given the risks of accelerating inflation, the IMF said, adding that further increase in the key rate would be appropriate if inflation continues to accelerate or inflation expectations worsen.
"The exchange rate should increasingly act as a shock absorber. Maintaining adequate reserves is a priority, particularly in view of risks to the outlook," the IMF said.
Parliamentary adoption of the law establishing the High Administrative Court instead of two specialized administrative courts is a landmark step towards raising confidence in anti-corruption and judicial institutions in Ukraine, it said.
Effective public investment management (PIM) is critical for post-crisis recovery, reconstruction, and growth against a backdrop of limited fiscal space and tough demographic realities. To tackle these challenges, the government of Ukraine is implementing a comprehensive PIM framework that is in line with best international practices, the IMF said.
The financial sector remains stable, but continued vigilance is warranted given elevated risks, the IMF said, noting the importance of developing financial market infrastructure to draw foreign capital for continuing Ukraine's restoration and reconstruction.
