Ukraine, IMF reach staff-level agreement to start talks on full-fledged program
MOSCOW. Feb 20 (Interfax) - The International Monetary Fund (IMF) and the Ukrainian authorities have reached a staff-level agreement on the first and final review under the Program Monitoring with Board Involvement (PMB).
"This agreement, which is subject to IMF Management approval, paves the way to initiate discussions on a fully-fledged Fund-supported program," Ukrainian media reported, citing an IMF statement issued upon the completion of a Fund mission's work.
Last fall, with the IMF unwilling to allocate substantial financing immediately, Ukraine requested a four-month PMB that the IMF approved on December 20. Ukraine hopes that this program, which does not entail financing, will be followed at the beginning of the second quarter of 2023 by an Extended Fund Facility that could partially cover the gap in coverage for its projected $38 billion budget deficit in 2023. This gap is now estimated at about $10 billion.
The IMF mission met with the Ukrainian authorities in Warsaw, Poland, during February 13-17 to assess Ukraine's performance under the PMB and to advance technical and policy discussions on medium-term macroeconomic and structural policies, including fiscal policy, financing structure, financial sector policy and governance.
"Due to the joint efforts of the Government of Ukraine and the National bank of Ukraine, all end-December quantitative and indicative targets have been met, as have all five end-January structural benchmarks. These included the Government submitting to Parliament a package of draft tax laws aimed to increase revenues, taking steps by the Ministry of Finance to address arrears, developing a concept note for a social safety net, establishing Naftogaz's supervisory Board, and agreeing on the key elements of banking sector diagnostics," IMF mission head Gavin Gray said.
He said timely disbursement of substantial external support has been critical for Ukraine's macroeconomic stability, and large-scale disbursements will remain essential in 2023 and beyond to cover financing needs and help ensure stability.
The IMF said Ukraine's economy contracted by 30% in 2022, which was less severe than previously expected, and inflation has begun to slow. At the same time, the near-term outlook has deteriorated since the PMB was approved in December, including in view of attacks on critical infrastructure. However, the economy is adjusting, and a gradual economic recovery is expected in the course of the year, the Fund said.
"A fully-fledged IMF program would be supportive of the Ukrainian government's efforts toward EU accession. In particular, reform initiatives to enhance productivity and competitiveness of the private sector need to be advanced to help lay the foundation for a robust post-war growth against a backdrop of progress toward EU accession," the IMF said.