IMF, Ukraine reach agreement on $1.1b EFF review

The International Monetary Fund (IMF) and Ukrainian authorities have reached a staff-level agreement on the sixth review of Ukraine’s 4-year Extended Fund Facility (EFF). Subject to IMF Executive Board approval in the coming weeks, Ukraine will get access to $1.1 billion, raising total disbursements under the programme to $9.8 billion.

Despite the ongoing war with Russia, programme performance remains robust. All end-September quantitative performance criteria and structural benchmarks were met. Real GDP growth is projected at 4 per cent in 2024 but is expected to slow to 2.5-3.5 per cent in 2025 due to infrastructure damage and labour shortages.

Inflation rose to 9.7 per cent year-on-year (YoY) in October, driven by food and labour costs, but remains anchored. Gross international reserves stood at $36.6 billion at the end of October.

The 2025 budget deficit is forecast at 19 per cent of GDP, necessitating significant external support, including $50 billion under the G7 ERA Initiative. A tax reform package, expected to yield 1.6 per cent of GDP in 2025, is critical to maintaining fiscal stability. Risks remain high, prompting calls for broad-based revenue measures, such as increasing VAT rates.

Debt sustainability hinges on fiscal adjustments, external concessional financing, and successful debt restructuring, including GDP-linked warrants. The IMF highlighted the importance of reforms in customs, anti-corruption institutions, and state-owned enterprises.

The financial sector remains stable, but the IMF emphasised the need for enhanced preparedness for potential shocks. Further, inflation risks may warrant policy tightening, while a cautious approach to FX liberalisation continues.

The IMF praised Ukraine’s efforts amid extreme challenges, underscoring the need for continued reforms to ensure macroeconomic stability and EU accession progress.

Attribution: IMF

Subediting: M. S. Salama