The Executive Board of the International Monetary Fund (IMF) today completed the first review of Ukraine's Extended Arrangement under the Extended Fund Facility (EFF). The completion of this review enables the disbursement of SDR 1,182.1 million (about US$1.7 billion), which would bring total disbursements under the arrangement to SDR 4.72 billion (about US$6.68 billion).
Ukraine's four-year SDR 12.348 billion (about US$17.5 billion) EFF was approved on March 11, 2015 to support the government's economic program, which aims to put the economy on the path to recovery, restore external sustainability, strengthen public finances, maintain financial stability, and support economic growth by advancing structural and governance reforms, while protecting the most vulnerable. Following the Executive Board's discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said the Ukrainian economy remains fragile, but encouraging signs are emerging. In recent months, the exchange rate has stabilized, domestic-currency retail deposits have been increasing, and the pace of economic decline is moderating. Continued prudent policies and further reforms should allow the economy to turn the corner and growth to resume in the period ahead.
"Since the approval of a financial arrangement under the IMF's Extended Fund Facility, the authorities have made a strong start in implementing their economic program. The momentum needs to be sustained, as significant structural and institutional reforms are still needed to address economic imbalances that held Ukraine back in the past.
"Maintaining an appropriately tight monetary policy and building up official foreign exchange reserves will be critical to entrench external stability and anchor inflation expectations. As disinflation takes root, monetary policy can be carefully eased to support economic activity. Removal of administrative measures on foreign exchange operations should proceed in a gradual and sequenced manner, once the enabling conditions are in place.
"Restoring a sound banking system is key for economic recovery. To this end, the strategy to strengthen banks through recapitalization, reduction of related-party lending, and resolution of impaired assets should be implemented decisively.
"The authorities recognize that continued fiscal discipline is needed to reduce risks and strengthen public finances. Strong political support should be mobilized to sustain budgetary consolidation and energy sector reforms going forward, while ensuring an adequate social safety net. At the same time, restoring debt sustainability will require the completion of a debt operation consistent with program objectives. The authorities and the holders of their sovereign debt should continue their efforts to reach an agreement ahead of the next program review. In the event that talks with private creditors stall, and Ukraine determines that it cannot service this debt, the Fund could continue to lend to Ukraine consistent with its Lending-intoArrears Policy.
"Further substantial progress with structural reforms is essential to enable strong recovery of private activity. In this regard, efforts to fight corruption, improve the business climate, and reform state-owned enterprises should be stepped up."