As part of a global $115 billion package to help the country’s economy as it fights Russia’s 13-month invasion.
The International Monetary Fund said on Friday that its executive board has authorised a four-year, $15.6 billion credit programme for Ukraine.
The Fund said in a statement that the decision allows for an immediate release of approximately $2.7 billion to Kiev. And mandates that Ukraine implement substantial reforms, particularly in the energy sector.
The Extended Fund Facility (EFF) loan is the first significant conventional finance programme. That the IMF has sanctioned for a nation fighting a significant conflict.
When the IMF offered $1.4 billion in emergency finance with few terms in March 2022, the previous $5 billion long-term IMF deal for Ukraine was abandoned.
In October of last year, it supplied a further $1.3 billion under a “food shock window” programme.
The new $115 billion plan, according to an IMF official, consists of a loan from the IMF, $80 billion in grants and concessional loans. From multilateral organisations and other nations, and $20 billion in debt relief promises.
During the next two years, Ukraine must adhere to a set of requirements, which include actions to increase tax revenue. To uphold exchange rate stability, protect central bank independence, and bolster anti-corruption initiatives.
The IMF stated that deeper changes will be needed in the program’s second phase to improve stability and speed up post-war reconstruction. Revert to pre-war fiscal and monetary policy frameworks, increase competitiveness, and address vulnerabilities in the energy sector.
According to a senior official with the U.S. Treasury Department, the programme was “really solid” and contained promises. From the Ukrainian government to meet 19 structural benchmarks just in the upcoming year.
The programme faced “exceptionally high” risks, according to IMF First Deputy Managing Director Gita Gopinath. Its success depended on the volume, make-up, and timeliness of external financing to assist address fiscal.
Furthermore, external financing gaps and restore Ukraine’s debt sustainability.
She praised Ukrainian authorities for maintaining “overall macroeconomic and financial stability” despite the stresses of the conflict. Saying that “Russia’s invasion of Ukraine continues to have a terrible economic and social impact.”
The decision formalises a staff-level agreement between the IMF and Ukraine that was reached on March 21 and takes into account Ukraine’s future path towards EU membership.
Volodymyr Zelenskiy, the president of Ukraine, welcomed the additional cash.
He wrote on Twitter, “It is a crucial tool in our struggle against Russian aggression.” “We assist the Ukrainian economy collectively. And we’re making progress towards victory!”
The IMF funding package will help secure the nation’s economic and financial stability and lay the groundwork for long-term reconstruction.
According to U.S. Treasury Secretary Janet Yellen, who worked tirelessly over the past year to secure it and paid a surprise visit to Ukraine in February.
She issued a statement in which she urged “all other official and private creditors to join our endeavour to assist Ukraine as it protects itself from Russia’s unwarranted assault.”
“For as long as it takes, the United States will support Ukraine and its people.”
According to the IMF, the majority of Ukraine’s official bilateral creditors and donors, private sector companies. And international financial institutions support a two-step debt treatment process for Ukraine.
That includes adequate financing assurances on debt relief and concessional financing during and after the programme.
According to IMF official Gavin Gray, the baseline scenario for the fund anticipated the war would end in the middle of 2024. Leaving a projected $115 billion funding shortfall that would be filled by creditors and multilateral and bilateral donors.
According to the fund’s “downside scenario,” the battle would last until the end of 2025, creating a significantly larger $140 billion funding gap that would necessitate donors going further.
According to Gray, the programme was made to work even if economic conditions were “considerably worse” than the norm.
He claimed that the nations offering financial guarantees had pledged to cooperate with the IMF to ensure that Ukraine could pay its debt to the IMF, should bigger sums be required.
