Ukraine receives first $2.7bn tranche of IMF’s $15.6bn EEF programme

By bne IntelliNews April 4, 2023

The International Monetary Fund (IMF) sent the first tranche of $2.7bn (SDR2bn) to Ukraine on April 3. The funds were received as part of the recently agreed four-year $15.6bn Extended Fund Facility (EFF) Programme for Ukraine, that was signed on March 22.

Minister of Finance of Ukraine Sergii Marchenko expressed gratitude for the funds, which will unlock a total of $115bn of other grants and loans over the next five years. The money will also plug a $39bn hole in this year’s budget that will be funded almost entirely by international donors. Marchenko said that the IMF tranche would help “maintain economic stability in Ukraine and support priority expenditures of the state budget.”

On March 31, the IMF Board approved the new four-year EFF programme for Ukraine with financing amounting to $15.6bn (SDR11.6bn). The programme is divided into two phases.

The first phase, which is planned for 2023-24, will focus on implementing a robust budget for 2023 and increasing revenue mobilisation, while avoiding new measures that might erode tax revenues. The first phase will also aim to reduce inflation, maintain exchange rate stability, and promote long-term financial stability, including by assessing the health of the banking sector and promoting central bank independence.

In the second phase of the programme, the focus will shift towards reforms that support post-war recovery and reconstruction efficiently. These reforms will help Ukraine implement necessary measures on the way to European integration, with a priority being on achieving long-term economic growth.

The IMF's EFF programme is designed to provide financial assistance to countries facing balance of payments difficulties. The programme provides financial support to help countries implement economic reforms and achieve macroeconomic stability, while also promoting growth and poverty reduction. The funds received by Ukraine will provide significant assistance towards achieving these goals.

The new $15.6bn IMF programme, the first time the fund has approved a package to a country at war, contains ten fiscal and four anti-corruption structural benchmarks. More than half of the required tasks are related to taxation, and others are devoted to the fight against corruption, UBN reports.

  • The nearest fiscal beacon is a law taking effect by May to increase state budget expenditures by UAH537bn ($14.6bn).
  • By June, two draft laws strengthening the Budget Code must be submitted to the Council and in order to adopt amendments to the code regarding donations accumulated in special National Bank accounts.
  • The cancellation of the 2% single tax and other benefits for entrepreneurs on July 1.
  • The Mid-Term Debt Management Strategy must be updated and published by October and enacted by the end of the year
  • To adopt the National Revenue Strategy and review current state investment management procedures.
  • Legislation on financial monitoring and the fight against money laundering must be changed by October.
  • Also, five beacons concern the NBU and the financial and banking system. By July, it is planned to have prepared a transition strategy to a more flexible currency exchange rate, simplification of currency control, and inflation targeting depending on economic conditions, etc.

Ukraine will have access to a total of $115bn thanks to its new EEF programme with the IMF that will unlock access to new grants and loans.

The four-year EFF programme also provides the country with receiving $80bn during this period from multilateral and bilateral donors, of which $20bn will be in the form of grants and $60bn in soft loans, as well as another $20bn in the form of relief from debt operations, IMF mission chief for Ukraine Gavin Gray said.

The basic scenario of the four-year EFF programme of the International Monetary Fund (IMF) for Ukraine assumes the winding down of the war in the middle of 2024, while the negative one has the war ending by the end of 2025, IMF mission chief for Ukraine Gavin Gray said.

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