Ukraine, IMF reach staff-level agreement on 8th EFF review - fund

MOSCOW. May 30 (Interfax) - The International Monetary Fund (IMF) and the Ukrainian authorities have reached a staff-level agreement (SLA) on the Eighth Review of the 4-year, $15.5 billion Extended Fund Facility (EFF) Arrangement, Ukrainian media said, citing the IMF website.

Subject to approval by the IMF Executive Board, Ukraine would have access to about $0.5 billion (SDR 0.37 billion), bringing total disbursements under the program to $10.65 billion.

IMF staff and the Ukrainian authorities have reached staff-level agreement on the Eighth Review of the EFF, subject to approval by the IMF Executive Board, with Board consideration expected in coming weeks," media outlets quoted IMF mission head Gavin Gray as saying in a statement published on the IMF website upon completion of the May 20-27 mission's work in Kiev.

All end-March quantitative performance criteria (QPCs) and indicative targets (IT) have been met and understandings were reached on a set of policies and reforms to sustain macroeconomic stability.

"The structural reform agenda continues to make progress with two structural benchmarks met, another to be completed in the coming weeks, and strong commitments to advance other key reforms," the statement said.

However, the outlook remains exceptionally uncertain as the crisis continues, it said.

According to Gray, the IMF expects Ukraine's real GDP growth to remain modest, at 2%-3% for 2025, reflecting headwinds from labor constraints and damage to energy infrastructure.

The 2025 fiscal deficit is large as the level of critical expenditures remains elevated as the crisis continues, while financing the deficit requires significant external support, he said.

"Risks of additional critical expenditure requirements in 2025 are high and thus the authorities need to prepare offsetting measures should expenditure shocks materialize," he said.

Beyond 2025, expenditures are expected to remain high for the foreseeable future.

"Consequently, it is imperative and unavoidable that the authorities sustain efforts to mobilize domestic revenues over the medium-term since external support alone will not be sufficient to finance the deficit, restore fiscal sustainability, support critical spending, and finance reconstruction," Gray said.

At the same time, Gray said he sees the hike by the National Bank of Ukraine (NBU) of its key policy rate from 14.5% to 15.5% in early March amid inflation rising at up to 15.1% as appropriate.

"Additional action may be warranted if inflation accelerates further or inflation expectations deteriorate. The monetary stance should remain tight to help reduce inflation and bring it to the NBU's target over its three-year policy horizon," he said.

The exchange rate should play a greater role as a shock absorber, as per the preconditions outlined in the relevant NBU Strategy, as this will help prevent external imbalances and preserve adequate reserves, particularly given heightened risks to the outlook," Gray said.

"The judicious and staged approach to FX liberalization should continue, consistent with overall monetary and FX policy mix to maintain adequate reserves, and measures should continue to be closely monitored," he said.

Governance reforms remain essential to bolster the rule of law and increase the independence, competence, and credibility of anti-corruption and judicial institutions," he said.

"Reforming the state customs service (SCS) is essential to tackle corruption and reduce tax evasion. Progress in this area requires finalizing a comprehensive reform plan-a requirement for the completion of the review-coupled with the swift appointment of a permanent head of the SCS," he said.

The recently published National Anti-Corruption Bureau external audit, a structural benchmark, provides an opportunity to implement additional reforms to strengthen the institution and increase public trust, Gray said.

Similarly, the government's commitment to amend the criminal procedure code, also a structural benchmark, is a signal of their willingness to strengthen the anti-corruption system and meet international obligations, according to the statement.

On SOE corporate governance, the selection of new CEOs for Gas Transmission System Operator of Ukraine and Ukrenergo should proceed promptly based on a merit-based process, Gray said.

Though the financial sector remains stable, swift action to address critical institutional challenges of the National Securities and Stock Market Commission is a priority to enhance its effectiveness, and fit and proper tests need to proceed without further delay, he said.

"Developing financial markets infrastructure and associated reforms will be indispensable to attracting private sector and foreign capital to support reconstruction and recovery. Comprehensive consultation with financial market participants is essential to facilitate a prioritized reform agenda," Gray said.

As reported, the IMF completed its 7th EFF review in late March 2025, disbursing the eighth tranche of $400 million to Ukraine.

The IMF adjusted the payment structure at Ukraine's request, reducing the 9th tranche due in June from SDR0.60 billion to SDR0.37 billion, the 10th tranche in late August from SDR0.40 billion to SDR0.33 billion, increasing the 11th tranche in early December from SDR0.33 billion to SDR0.79 billion, the 12th tranche in early March 2026 from SDR0.70 billion to SDR0.93 billion, but keeping the 13th tranche due in late August 2026 and the 14th tranche in March 2027 unchanged at SDR0.75 billion and SDR0.79 billion, respectively.