30 May 2023 18:59

IMF, Ukrainian authorities reach staff-level agreement on first review of EFF program

MOSCOW. May 30 (Interfax) - The International Monetary Fund and the Ukrainian authorities have reached a staff-level agreement on an updated set of economic and financial policies as part of the first review of the four-year Extended Fund Facility with Ukraine, the IMF said in a statement following the work of its mission in Vienna on May 23-30.

"IMF staff and the Ukrainian authorities have reached staff-level agreement on the first review of the EFF. The agreement is subject to approval by the IMF Executive Board, with Board consideration expected in the coming weeks," the IMF said in a press release, quoting the mission's leader, Gavin Gray.

All quantitative performance criteria for end-April and structural benchmarks through end-May were met, paving the way for the Executive Board's consideration, which would enable disbursement of about $900 million or SDR 663.9 million.

Ukraine's economy is showing resilience, and recent economic developments point to a gradual economic recovery in 2023, the IMF said.

IMF staff have therefore upgraded the real GDP growth outlook for 2023 to a range of 1% to 3%percent, from the previous range of -3% to +1% in March. The energy system has recovered rapidly, foreign exchange markets have stabilized and inflation has started to decline decisively, although the outlook remains highly uncertain.

"Overall, macroeconomic and financial stability have been maintained, thanks to prudent policymaking as well as continuous and timely external support. Nevertheless, major challenges persist: the fiscal deficit remains very high, entailing continued large financing needs covered by external grants and highly concessional loans," Gray said.

Protecting core functions of the state under existing financing constraints will continue to require the authorities to navigate difficult policy tradeoffs, he said. "Repealing amendments to revenue mobilization legislation under the martial law, as appropriate, while avoiding new measures that might erode tax revenues will be crucial," he said.

"The overarching goals of the authorities' EFF-supported program remain to sustain economic and financial stability in circumstances of exceptionally high uncertainty and restore debt sustainability," Gray said.

In line with these objectives the authorities, in addition to taking steps to strengthen fiscal, external, and financial stability, are preparing a conditions-based strategy to move to a more flexible exchange rate and loosen FX controls and a deeper assessment of the health of the banking sector, and are continuing reforms to strengthen governance and anti-corruption frameworks, Gray said.

The IMF Executive Board on March 31 approved a four-year EFF of SDR 11.6 billion or about $15.6 billion. After the disbursement of the first tranche, the program's schedule envisions providing three more tranches SDR 664 million or $893 million each, in mid-June and October of this year and in late February 2024 following the first, second and third reviews.