Ukraine has reached a staff-level agreement with the International Monetary Fund (IMF) regarding the first review of its Extended Fund Facility (EFF) program, which could unlock approximately $690 million in funding.
The IMF’s communication department announced that the agreement pertains to the initial assessment of a four-year EFF program valued at $8.1 billion. Following approval from the IMF Executive Board, Ukraine’s total disbursements under this program would rise to $2.2 billion.
The IMF noted that Ukraine met all quantitative performance criteria and indicative targets as of the end of March. However, some structural benchmarks were implemented with delays, and one indicator was not met. The parties have agreed on revised timelines for reforms and additional measures to address these delays.
Despite the ongoing conflict, the IMF emphasized that macro-financial stability in Ukraine has been largely maintained, thanks to government policies and support from international partners. The National Bank of Ukraine continues to uphold reserves and ensure the stability of the financial system.
According to the IMF’s forecasts, Ukraine’s GDP growth is expected to slow to between 1.0% and 1.6% by 2026 due to the war’s repercussions, with risks remaining elevated.
The program places significant emphasis on tax system reforms, combatting the shadow economy, changes in the energy sector, and enhancing anti-corruption infrastructure. Specifically, the IMF has highlighted the need to broaden the tax base, improve administrative efficiency, and gradually liberalize the energy market while protecting vulnerable households.
Additionally, the IMF underscored the importance of maintaining the independence of the National Bank and continuing a prudent monetary policy to curb inflation expectations and support currency stability.
In late May, an IMF mission visited Kyiv for the first review of the $8.1 billion funding program. The mission is currently assessing the provision of the next tranche, which exceeds $600 million.
To meet the IMF’s requirements, Ukraine was expected to fulfill specific benchmarks outlined in the program documentation. These included appointing a head of customs, extending the military tax for post-war periods, taxing digital platforms and imports, as well as imposing VAT on individual entrepreneurs.
As of now, Ukraine has completed three conditions, while a fourth, which involves the adoption of tax legislation, has been partially fulfilled. Four benchmarks remain unaddressed.
Among the tax initiatives, Ukraine has fully approved the extension of the military tax. A draft law regarding the taxation of digital platforms, often referred to as the OLX tax, has passed its first reading. However, a proposal to tax packages from marketplaces such as Temu and AliExpress was rejected by lawmakers. Furthermore, a measure to implement VAT for individual entrepreneurs with annual incomes exceeding 4 million UAH has not been submitted to parliament.
Consequently, it has been reported that the IMF mission may not recommend the continuation of funding for Ukraine in its conclusions.
The IMF and Ukraine have reached a staff-level agreement on the first review of a funding program, potentially unlocking $690 million. However, Ukraine faces challenges in meeting certain benchmarks, which may impact future funding recommendations.