The Executive Board of the International Monetary Fund (IMF) approved a disbursement of US$1.3 billion (SDR 1,005.9 million) under the food shock window of the Rapid Financing Instrument (RFI) to help meet Ukraine’s urgent balance of payments needs.
The scale and intensity of Russia’s war against Ukraine that started more than seven months ago have caused tremendous human suffering and economic pain. Amid massive population displacement and destruction of housing and key infrastructure, real GDP is projected to contract by 35 percent in 2022 relative to 2021 and financing needs remain very large. This disbursement under the RFI (equivalent to 50 percent of Ukraine’s quota in the IMF) will help meet urgent balance of payment needs, including due to a large cereal export shortfall, while playing a catalytic role for further financial support from Ukraine’s creditors and donors.
The authorities deserve considerable credit for having maintained an important degree of macro-financial stability in these extremely challenging circumstances and have requested program monitoring with board involvement to strengthen their policy commitment and further catalyze donor support.
The Executive Board reiterated its strong support for the Ukrainian people.
Following the Executive Board discussion, Ms. Kristalina Georgieva, Managing Director and Chair, made the following statement:
"Russia’s invasion of Ukraine that started over seven months ago has caused large loss of life, massive population displacement, and significant destruction of infrastructure and housing. The impact on economic activity has been enormous: real GDP has severely contracted, inflation has risen sharply, trade has been significantly disrupted, and the fiscal deficit has increased to unprecedented levels.
"The Ukrainian authorities deserve considerable credit for having maintained an important degree of macro-financial stability in these extremely challenging circumstances. As the economy adapts to the now prolonged war, key macroeconomic policies have been geared toward safeguarding priority expenditures, easing pressure on the hryvnia and international reserves, and preserving financial stability.
"Against this backdrop, and in light of the persistent urgent balance of payments needs, including due to a large shortfall in cereal exports, the IMF has approved new emergency financing for Ukraine totaling SDR 1,005.9 billion (about US$1.3 billion) under the new Food Shock Window.
"Ukraine faces risks and uncertainties related to the hazardous security situation, policy implementation capacity, and external developments. Unique to the extreme circumstances now prevailing in Ukraine, very high uncertainty makes it difficult, at present, to assess with sufficient precision what would be required to ensure sustainability of Ukraine’s debt, but the balance of probabilities suggests that there are higher risks of debt being unsustainable.
"In conjunction with Ukraine’s continued commitment to economic, fiscal and governance reforms as well as strong engagement of all other stakeholders, including International Financial Institutions and the private sector, the bulk of Ukraine's official bilateral creditors and donors— through the relevant Executive Directors at the Fund—have signaled that they intend to continue financially supporting Ukraine to help achieve a balanced growth path and medium-term external viability.
"In order to allay the risks to the Fund from lending to Ukraine under these circumstances, these bilateral creditors and donors have reaffirmed their recognition of the Fund's preferred creditor status in respect of the amounts outstanding to Ukraine, including the requested drawing by Ukraine under the new RFI Food Shock Window. They undertake—given Ukraine's continuing cooperation with the Fund—to provide financial support on appropriate terms to secure Ukraine’s ability to service to the Fund its existing obligations that have already been approved by the Executive Board and the amounts provided under the new Food Shock Window, in accordance with the Fund's preferred creditor status. They have also confirmed that during this initial period of support by the Fund a deferral by the Group of Creditors of Ukraine will be in place as announced on July 20, 2022, with respect to those obligations of Ukraine that are falling due to them.
The Fund will remain closely engaged with the Ukrainian authorities, with whom staff discussions will start soon on Program Monitoring with Board involvement (PMB). The PMB will aim to provide a strong anchor for macroeconomic policies, further catalyze donor support, and help to pave the way towards the upper credit tranche arrangement."