Ukraine has secured a staff-level agreement with the International Monetary Fund (IMF) for a 48-month Extended Fund Facility (EFF) arrangement, the government said on March 22.

The program will provide Ukraine with $15.6bn (SDR11.6bn) to aid its economic recovery, and help mobilise financing from its international partners. The IMF Executive Board is expected to approve the programme in the coming weeks.

The EFF programme consists of two phases. The first phase, lasting 12-18 months, aims to strengthen fiscal, external, price and financial stability by bolstering revenue mobilisation, avoiding monetary financing, and promoting central bank independence.

The second phase includes extensive reforms for recovery and reconstruction, measures to support Ukraine's EU accession goals, and enhancements to financial resilience and long-term growth.

"Interesting to see the programme broke into two time stints: 12-18 months, then the next four years. Guess under the first the Fund gives time for the war to end – it also takes Ukraine to the period to the end of the current debt service moratorium, which ends in August 2024,” Timothy Ash, the senior sovereign strategist at BlueBay Asset Management in London, said in a note. “There has been talk of further debt treatment before then but I cannot see bondholders engaging until much closer to the end of the moratorium. They already gave two years debt relief and will likely just say, 'we are happy to wait. Let’s talk further when we know more about the length of the conflict/wars end'.”

During the second phase, Ukraine plans to return to the policy frameworks that were in place prior to the Russian war against Ukraine, including a flexible exchange rate and inflation targeting regime. Structural reforms in fiscal policies will stabilise medium-term revenues by introducing a national revenue strategy, public finance management, and public investment management reforms that aid in the post-war reconstruction process.

“During the second phase it is anticipated that Ukraine will return to the policy frameworks that were in place prior to the Russian war against Ukraine, which includes a flexible exchange rate and inflation targeting regime,” Ukraine’s Ministry of Finance (MinFin) said in a press release. “Moreover, there will be a focus on implementing essential structural reforms in fiscal policies to stabilise medium-term revenues by introducing a national revenue strategy, and also launching public finance management and introducing public investment management reforms that will aid in the post-war reconstruction process. To help the post-war reform endeavours, it is necessary to improve competition in the crucial energy sector, while reducing quasi-fiscal liabilities.”

Finance Minister Sergii Marchenko welcomed the agreement, stating that it will significantly support the Ukrainian economy, financial system and ensure mobilisation of additional donor's financial resources. He expressed his gratitude to the IMF team for standing with Ukraine.

“The teams of the IMF, the Government of Ukraine, and the National Bank of Ukraine did a tremendous job to ensure that an agreement is reached. I am grateful to the IMF experts for their decisiveness during the mission,” Marchenko said.

“After the Board consideration, the EFF programme will significantly support the Ukrainian economy, financial system and will ensure mobilisation of additional donor’s financial resources, which is necessary for our successful struggle against the aggressor. We are grateful to the IMF team for standing with Ukraine,” Marchenko added.

The staff-level agreement between the Ukrainian authorities and IMF will provide significant financial support to aid the country's economic recovery and reconstruction efforts. The programme will help to maintain macro financial stability and mobilise additional financing from Ukraine's international partners. The next step is for the IMF Executive Board to approve the programme, which is expected to happen soon.