Ukraine ‘Breaks the Spell’ Completing Fourth IMF Review - Forecast Worsened

The Board of the International Monetary Fund completed the Fourth Review of the extended agreement under the Extended Fund Facility (EFF) Arrangement for Ukraine, allowing it to withdraw $2.2 billion in budget support. 

“All quantitative performance criteria and all but one indicative targets for end-March were met; the one indicative target was missed by a small margin”, the IMF stated in its press release. 

Previously, Ukraine's Minister of Finance and central bank's head told Kyiv Post the successful fourth review “broke the spell” since the country has never gone so far in the IMF program. 

The IMF stated that Ukraine's economy “was more resilient than expected in the first quarter of 2024, with robust growth outturns, continued disinflation, and the maintenance of adequate reserves.”

“This resilience is showcased by the better-than-expected growth outturn in 2023 and sustained activity in 2024 Q1, as disinflation has continued, and foreign exchange reserves remain adequate. However, as the war continues, downside risks are high and rising”, the IMF Mission Chief for Ukraine Gavin Gray stated during a press briefing following the completed fourth review. 

IMF worsened the outlook for the rest of 2024 and 2025, due to “devastating attacks on Ukrainian energy infrastructure and uncertainty about the length of Russia’s war against Ukraine.” 

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After the update, Ukraine’s actual GDP is forecasted at 2.5-3.5 percent, slightly lower than the fund’s Third Review 2024 forecast of 3-4 percent. 

Meanwhile, average consumer prices have slightly decreased in the Fourth Review compared to the Third Review. Average inflation for 2024 decreased from the previous 6.4 percent to 5.2 percent. End-of-year inflation also decreased from 8.5 to 8.0 percent in 2024. 

As for 2025, the IMF forecasted 8.3 average inflation – the previous Third Review forecasted 7.6 percent. However, the 2025 end-to-year inflation remained unchanged in both reviews, remaining at 7.0 percent.

Average nominal wages are forecasted to increase by 14.9 percent in 2024 and 15.7 percent in 2025. The IMF assumes that average real wages will increase by 8.6 percent in 2024, 6.8 percent in 2025. 

Investment in the Fourth Review has been decreased and is forecasted by 16.7 percent of GDP in 2024, 16.1 percent of GDP in 2025. The change here is noticeable compared to the previous forecast of 17.6 percent of GDP for 2024, and 19.0 percent for 2025. 

Prolonged war has worsened business sentiment, according to the fund. 

The IMF also emphasized it is vital for Ukraine to reach a debt restructuring deal to remain debt sustainable in line with the IMF forecasts and program restrictions. 

“The authorities are making progress toward a commercial external debt restructuring on terms consistent with the program, which is essential to create space for high-priority expenditures and to help bring debt back to sustainable levels,” Gray said during the briefing. 

Now that the Fourth Review is completed, a near-term to-do list for Ukraine includes:

• Protect personal taxpayer information.• Strengthen tax and customs administration, including theaddressing of compliance issues.• Anti-corruption reform: strengthen the criminal procedural code, create a new high administrative court, and completethe first ever external audit of the National Anti-corruption Bureau.• Strengthen the Economic Security Bureau’s ability to effectively address major economic crimes after the new law has been adopted.• Adopt amendments to the Customs Code in line with international best practice.• Strengthen the assessment of fiscal risks in the state-owned enterprises (SOEs) and energy sector.

Ukraine and the IMF approved a 48-month Extended Fund Facility (EFF) Arrangement on March 31, 2023. That enabled access to $15.6 billion or about 577 percent of the quota and forms part of a US$122 billion support package for Ukraine.

“The program remains fully financed with an external financing envelope of US$122 billion in the baseline and US$141 billion in the downside over the 4-year program period,” the Managing Director of the IMF Kristalina Georgieva wrote in an issued statement following the Executive Board discussion on Ukraine.