IMF, Ukraine reach staff-level agreement on funding program, inching toward $880 million tranche

Ukraine and the International Monetary Fund (IMF) reached a staff-level agreement on the third revision of the four-year Extended Fund Facility (EFF) program, paving the way for the disbursement of $880 million to Ukraine, the IMF announced on Feb. 22.

This would be the first of four disbursements Kyiv expects this year, totaling $5.4 billion. The IMF approved an agreement with Ukraine for four-year financing aid worth about $15.6 billion in late March 2023. It was the first time the IMF lent to a country during a war.

The payment could become the second-largest financial lifeline for Ukraine after EU grants and loans if the U.S. does not approve more aid.

The IMF team assessed "the program to be broadly on track" as all but one quantitative criterion has been met, opening a way for the IMF's Executive Board to greenlight the new tranche.

The one missing performance criterion was "a small miss on tax revenues owing to border blockades," the international organization said. Polish carriers and farmers have intermittently blocked traffic at the border with Ukraine since November 2023.

"I am pleased to announce that IMF staff and the Ukrainian authorities have reached staff-level agreement on the third review of the EFF," said Gavin Gray, the chief of the IMF's team that held discussions with Ukrainian officials in Warsaw between Feb. 17-22.

"The agreement is subject to approval by the IMF Executive Board, with Board consideration expected in the coming weeks."

The IMF's team said that Ukraine's economy experienced a positive dynamic of strong growth, declining inflation, and strengthening reserves in 2023, but the outlook for 2024 remains highly uncertain as the war continues.

"Fiscal financing needs remain very high in 2024, reflecting war-related spending pressures. The 2024 budget remains the appropriate short-term anchor for fiscal policies, and in this context, efforts should focus on ensuring adequate revenues, prioritizing expenditures, and tapping domestic market liquidity," Gray commented.

"The authorities stand ready to swiftly respond to shocks and have already taken measures to address liquidity strains that emerged at the start of the year due to external financing delays."

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