Additional financial aid from IMF to Ukraine: implications for the country's economic state
In a recent review of Ukraine's Extended Fund Facility (EFF) program for 2025, the International Monetary Fund (IMF) has outlined a series of comprehensive reforms aimed at promoting fiscal stability, supporting economic recovery, and enhancing governance in the war-torn country.
The IMF's focus areas include modernising tax and customs services to reduce tax evasion and harmonise legislation with European Union standards, implementing the National Revenue Strategy for domestic revenue mobilisation, introducing tax reporting requirements for digital platform operators, improving public investment management, enhancing medium-term budget planning and fiscal risk management, strengthening governance and institutional capacity, and completing the debt restructuring strategy.
These reforms are crucial for restoring fiscal sustainability, covering priority expenditures in the medium term, increasing government revenues, improving fiscal stability, ensuring efficient use of funds, supporting economic growth, and improving anti-corruption measures and institutional effectiveness.
The IMF's review also implies an additional $500 million in the next tranche for Ukraine, which will be used to cover priority budget needs. This comes as Ukraine's economy is forecasted to grow by 2-3% in 2025, according to new IMF forecasts.
However, the review also highlights a potential challenge: international reserves could fall to $53.4 billion in 2025, instead of the previously expected $56.8 billion. This requires the adoption of additional measures to ensure the stability of Ukraine's financial system.
Global economic instability poses another significant challenge for the stability of Ukraine's financial system. Inflation in Ukraine is expected to reach 9% in 2025, and the budget deficit could reach 21.3% of GDP in the same year, worse than previously expected. Unemployment is expected to remain at 11.6% in 2025.
Despite these challenges, the IMF emphasises that these improvements, along with timely external support, are indispensable for macroeconomic stability and long-term growth. The reforms collectively aim to promote fiscal stability, support Ukraine's economic recovery, enhance governance, and attract investment despite the ongoing full-scale war.
In total, Ukraine has already received $10.6 billion under the EFF program. However, it's worth noting that there is no new information provided about the additional $500 million in the next tranche for Ukraine, or the changes in the deadlines for some structural benchmarks in the Review of the EFF Program for Ukraine.
The main outcomes of the Review of the EFF Program for Ukraine include four new criteria that Ukraine must meet by the next stage. These include updating the unified portfolio of public investment projects, developing legislative initiatives that promote market integration of securitization, and preparing a roadmap for the development of financial market infrastructure.
The review by the IMF confirms Ukraine's fulfillment of all quantitative criteria, providing a positive outlook for Ukraine's economic future. The additional funds are expected to help stabilise Ukraine's economic situation amidst current financial pressure.
The International Monetary Fund (IMF) is focusing on implementing reforms in finance and business, such as modernizing tax and customs services, harmonizing legislation with EU standards, and digitizing tax reporting, to strengthen Ukraine's financial system and support economic recovery. The IMF's review also includes an additional $500 million in financing for Ukraine, which will help cover budget needs in 2025 as the country anticipates economic growth.
