Ukraine to Receive Over $1 Billion in 6th Aid Package from IMF

The International Monetary Fund (IMF) and Ukrainian authorities have reached a staff-level agreement to allocate another $1.1 billion to rebuild the country, thanks to Kyiv’s successful completion of the necessary requirements. 

This is the Sixth Review of the EFF program, which has already brought Ukraine a total of $9.8 billion under the program, according to an IMF press release shared Tuesday.  

The IMF team was led by Gavin Gray and held discussions in Kyiv with the Ukrainian authorities during the week of Nov. 11-18. The mission met with Prime Minister Shmyhal, Finance Minister Marchenko, and National Bank of Ukraine Governor Pyshnyy, along with other government ministers, public officials, and civil society.

“Ukraine’s four-year EFF Arrangement with the IMF continues to provide a strong anchor for the authorities’ economic program in times of exceptionally high uncertainty. Program performance remains strong thanks to the authorities’ prudent policies, with all quantitative performance criteria for end-September met, as well as the structural benchmarks due for this review,” Gray said in the statement.

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The IMF forecasted Ukraine’s real GDP growth for 2024 at 4%, with a slowdown to 2.5-3.5% for 2025 as a result of energy infrastructure damage caused by Russia’s missile strikes on energy production and labor shortages caused by Ukrainians fleeing the war abroad. 

Rising labor costs and weakening of cheap raw food prices increased inflation by 9.7% year-over-year in October, “but inflation expectations remain well anchored.” Gross international reserves amounted to $36.6 billion at the end of October 2024, according to the fund. 

“However, risks remain exceptionally high given uncertainty on the intensity and duration of the war, including from the continued attacks on energy infrastructure,” the press release stated. 

The IMF also complimented Ukraine’s outlines for the 2024 supplementary and 2025 budgets that are in line with the IMF program parameters. That includes maintaining a budget deficit at 19% of GDP and the package of tax measures approved by the parliament, the Verkhovna Rada of Ukraine. 

The budget deficit is also to be financed from the G7 Extraordinary Revenue Acceleration for Ukraine (ERA). Kyiv Post previously covered that out of the $50 billion Ukraine is expecting, the US will provide $20 billion, the EU’s contribution is up to $35 billion, and the UK $3 billion.

“Risks to the budget remain high and the authorities should continue to stand ready to respond to fiscal shocks with offsetting measures, in particular broad-based, durable, and efficient revenue measures, such as an increase in the main VAT rate,” IMF press release said. 

Increased war expenditures may not happen, but if it does, Ukraine will have to increase the VAT tax. It may also spike inflation, but it may also drag taxes from the shadow economy through taxation on final consumption, Kyiv Post wrote earlier.