On Friday, the International Monetary Fund (IMF) announced that its executive board has approved a loan program worth $15.6 billion for Ukraine, as part of a $115 billion global package aimed at supporting the country’s economy amid the ongoing conflict with Russia that has been going on for 13 months.
Ukraine can now receive an instant payment of around $2.7 billion after the decision to approve the Extended Fund Facility (EFF) loan by the International Monetary Fund (IMF). However, Ukraine will need to carry out significant reforms, primarily in the energy sector, to qualify for the loan. The IMF revealed that the EFF loan is the first significant conventional financing program to be approved for a country engaged in a large-scale war.
In March 2022, the IMF canceled Ukraine’s previous $5 billion long-term program and provided $1.4 billion in emergency financing with minimal conditions. Last October, the fund also provided $1.3 billion under a “food shock window” program.
An International Monetary Fund (IMF) official has announced that a new financial package worth $115 billion has been approved for Ukraine. This package includes an IMF loan, $80 billion in grants and concessional loans from multilateral institutions and other countries, and $20 billion worth of debt relief commitments. The funds will be provided over a period of four years, subject to certain conditions, including significant reforms in the energy sector. This financing package is expected to support Ukraine’s economic recovery and provide stability amid the ongoing conflict with Russia.
Over the next two years, Ukraine will be required to fulfill certain requirements, such as increasing tax revenue, maintaining exchange rate stability, preserving central bank independence, and strengthening anti-corruption efforts.
The IMF noted that in the second phase of the program, deeper reforms would be necessary to enhance stability and assist with early post-war reconstruction. This would involve returning to pre-war fiscal and monetary policy frameworks, increasing competitiveness, and addressing energy sector vulnerabilities.
A senior U.S. Treasury official described the program as “really solid,” including commitments from Ukrainian authorities to achieve 19 structural benchmarks within the next year alone.
IMF First Deputy Managing Director Gita Gopinath acknowledged that the program faced “exceptionally high” risks, and its success would depend on the size, composition, and timing of external financing to close fiscal and external financing gaps and restore Ukraine’s debt sustainability.
Despite the challenges of the ongoing war with Russia, Ukrainian authorities have managed to maintain overall macroeconomic and financial stability, according to an IMF official. The impact of the invasion on Ukraine’s economy and society has been devastating, and the official praised the government for its efforts.
The IMF’s decision formalizes a staff-level agreement that was reached with Ukraine on March 21, taking into account the country’s path to joining the European Union after the conflict ends.
Ukrainian President Volodymyr Zelenskiy expressed his appreciation for the new funding, describing it as “an important help in our fight against Russian aggression.” He also emphasized that the funding would aid in the country’s economic development and move it towards a victory against the ongoing conflict.
U.S. Treasury Secretary Janet Yellen has been a strong advocate for securing the IMF funding package for Ukraine and paid a surprise visit to the country in February. She noted that the package would help to establish the foundation for long-term reconstruction and secure the country’s economic and financial stability.
Yellen also called on other official and private creditors to support Ukraine in its efforts to defend itself against Russia’s aggression, stating that the United States would stand by Ukraine.
The International Monetary Fund (IMF) acknowledged that a majority of Ukraine’s official bilateral donors and creditors, private sector companies, and international financial institutions supported a two-phase debt treatment process for the country. The program guarantees sufficient financing for debt relief and concessional financing during and after the program.
The broad support from various entities reassured the IMF, according to a senior Treasury official. They added that it was helpful for the IMF to see that the international community was committed to being there for the long haul.
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LONGER WAR SCENARIO
IMF official Gavin Gray has indicated that, based on the fund’s baseline scenario, the war in Ukraine is expected to conclude by mid-2024. This would result in a projected financing gap of $115 billion, which would be covered by multilateral and bilateral donors and creditors.
However, Gray noted that the IMF’s “downside scenario” assumes that the war will continue until the end of 2025, resulting in a much larger $140 billion financing gap. In this case, donors will need to provide additional support.
Gray stated that the program was designed to function even under considerably worse economic circumstances than the baseline scenario. He also noted that the countries providing financing assurances had agreed to work with the IMF to ensure Ukraine could service its debt to the IMF, even if larger sums were required.
Ukraine will face quarterly reviews beginning in June, Gray added.
According to Gavin Gray, an IMF official, the new IMF-supported program for Ukraine aims to establish a basis for economic policies that will maintain macroeconomic and financial stability and support economic recovery.
The approved IMF package for Ukraine amounts to $15.6 billion, with $2.7 billion immediately available to Ukraine and the rest to be disbursed over the next four years. The program also includes extra guarantees from some IMF members in case the conflict continues beyond mid-2024.
Gray stated that the program is designed to work even in worse economic situations than the current baseline scenario, and if the war persists through 2025, Ukraine’s financial needs would rise from $115 billion to $140 billion.
IMF approves $15.6 bln
The International Monetary Fund (IMF) has approved a $5 billion funding package for Ukraine to help stabilize its economy and support its recovery efforts after years of conflict with Russia. The program aims to provide an anchor for economic policies that will sustain macroeconomic and financial stability.
The IMF’s broad support reassured the senior Treasury official that most of Ukraine’s official bilateral creditors and donors backed a two-step debt treatment process for Ukraine that includes financing assurances on debt relief and concessional financing during and after the program. U.S. US Treasury Secretary Janet Yellen, who played a key role in securing the IMF funding package for Ukraine, said that the funds would be instrumental in stabilizing the country’s economy and finances, and laying the groundwork for long-term reconstruction efforts.
The recent funding package provided by the International Monetary Fund (IMF) to Ukraine has been welcomed by Ukrainian President Volodymyr Zelenskiy as an important aid in their fight against Russian aggression. The package includes an Extended Fund Facility (EFF) loan of $115 billion, along with $80 billion in pledges for grants and concessional loans from multilateral institutions and other countries, as well as $20 billion worth of debt relief commitments. The IMF has stated that this is the first major conventional financing program approved for a country embroiled in a large-scale war.
The IMF has also noted that international financial institutions, private-sector firms, and most of Ukraine’s official bilateral creditors and donors have supported a two-step debt treatment process for the country, which includes assurances of adequate financing for debt relief and concessional financing during and after the program.
US Treasury Secretary Janet Yellen, who pushed for the funding package, emphasized that the funds would help secure the country’s economic and financial stability and set the foundation for long-term reconstruction.
The IMF’s baseline scenario assumes the war will wind down in mid-2024, resulting in a projected financing gap of $115 billion, which will be covered by multilateral and bilateral donors and creditors. IMF official Gavin Gray has also noted that the program has been designed to function, even if economic circumstances were “considerably worse” than the baseline. However, the downside scenario would see the war continuing through the end of 2025, opening up a much larger financing gap of $140 billion.
The program will face quarterly reviews beginning as early as June. The IMF’s staff-level agreement with Ukraine, taking into account Ukraine’s path to accession to the European Union after the war, was reached on March 21.
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