Cr1903

© 2019 International Monetary Fund
IMF Country Report No. 19/3
UKRAINE
REQUEST FOR STAND-BY ARRANGEMENT AND
CANCELLATION OF ARRANGEMENT UNDER THE
EXTENDED FUND FACILITY—PRESS RELEASE; STAFF
REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR UKRAINE
In the context of the Request for Stand-By Arrangement and Cancellation of Arrangement
Under the Extended Fund Facility, the following documents have been released and are
included in this package:
• A Press Release including a statement by the Chair of the Executive Board following
consideration at the Staff Report by the Executive Board on December 18, 2018.
• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on December 18, 2018, following discussions that ended on
November 9, 2018, with the officials of Ukraine on economic developments and
policies underpinning the Stand-By Arrangement. Based on information available at
the time of these discussions, the staff report was completed on December 7, 2018.
• A Staff Supplement updating information on recent developments.
• A Statement by the Executive Director for Ukraine.
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
January 2019

Press Release No. 18/
FOR IMMEDIATE RELEASE
December 18, 2018
IMF Executive Board Approves 14-month US$3.9 Billion Stand-By Arrangement for
Ukraine, US$1.4 Billion for Immediate Disbursement
The Executive Board of the International Monetary Fund (IMF) today approved a 14-month
Stand-By Arrangement (SBA) for Ukraine. The arrangement amounts to the equivalent of SDR
2.8 billion (about US$3.9 billion, 139 percent of quota). The Board also took note of Ukraine’s
decision to cancel the arrangement under the Extended Fund Facility for Ukraine that was
approved on March 11, 2015 (see Press Release No. 15/107).
The authorities’ economic program supported by the SBA will build on the progress made under
the EFF arrangement. The SBA will provide an anchor for the authorities’ economic policies
during 2019 and focus on maintaining macro-economic and financial stability. The program will
focus on four priorities: (i) continuing the ongoing fiscal consolidation to keep public debt on a
downward path; (ii) further reducing inflation, while maintaining a flexible exchange rate regime;
(iii) strengthening the financial sector, promoting asset recovery, and reviving bank lending; and
(iv) advancing a focused set of structural reforms, particularly to improve tax administration,
privatization and governance.
The approval of the SBA enables the immediate disbursement of SDR 1 billion (about US$1.4
billion). The remainder will be available upon completion of semi-annual reviews.
Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director
and Acting Chair, said:
“The Ukrainian authorities have successfully restored macro-economic stability and growth, with
support from the international community. Prudent fiscal and monetary policies and a flexible
exchange rate regime have helped reduce fiscal and current account deficits. Reserves have been
partly rebuilt and confidence has improved.
“A new Stand-By Arrangement will provide an anchor for the authorities’ economic policies
during the coming year, preserving recent economic gains and paving the way for higher
sustainable growth. Together with support from the World Bank and the European Union, the
arrangement will help Ukraine meet its financing needs.
700 19th
Street, NW
Washington, D. C. 20431 USA

2
“The authorities’ program focuses on maintaining macro-economic stability, notably through
continued fiscal consolidation and inflation reduction. This will be accompanied by targeted
reforms to strengthen tax administration, governance, and the financial and energy sectors, while
continuing to provide social assistance for the most vulnerable.
“The authorities remain committed to fiscal discipline to place public debt firmly on a downward
path. It will be important to resist pressures to increase spending or lower taxes, while renewing
efforts to improve public financial management and revenue administration.
“Monetary policy aims to reduce inflation and rebuild international reserves within a flexible
exchange rate regime. Safeguarding central bank independence will be crucial in this regard.
Efforts are underway to address nonperforming loans, recover assets from failed banks, and
improve governance in state-owned banks.
“Further progress on anti-corruption reforms and privatization will help attract investment and
improve the business climate more broadly. Priorities include operationalizing the anti-
corruption court, privatizing large state-owned enterprises, streamlining regulations, and
advancing land reform.
“Program implementation is subject to significant risks, both domestic and external. The
authorities have taken important steps to mitigate these risks, including by adopting a sound
2019 budget, raising gas and heating tariffs, and adopting legislation to improve governance in
state-owned banks. The full and timely implementation of the program will be critical for its
success in light of the difficult challenges.”

3
2016 2017 2018 2019 2020
Proj. Proj. Proj.
Real economy (percent change, unless otherwise indicated)
Nominal GDP (billions of Ukrainian hryvnias) 2,385 2,983 3,447 3,916 4,433
Real GDP 1/ 2.4 2.5 3.3 2.7 3.0
Contributions to real GDP growth
Domestic demand 7.1 7.1 5.4 4.6 4.9
Net exports -4.6 -4.7 -2.2 -1.9 -1.9
GDP deflator 17.1 22.0 11.9 10.6 9.9
Consumer prices (period average) 13.9 14.4 11.0 9.2 5.9
Nominal monthly wages (average) 23.3 37.1 23.0 17.2 11.0
Unemployment rate (ILO definition; percent) 9.3 9.5 9.2 8.6 8.0
Public finance (percent of GDP)
General government balance 2/ -2.2 -2.2 -2.5 -2.3 -2.3
Public and publicly guaranteed debt 81.2 71.9 65.2 64.3 59.8
Money and credit (end of period, percent change)
Broad money 10.9 9.6 9.8 8.7 13.8
Credit to nongovernment -1.1 2.1 8.4 3.2 11.2
Interbank o/n rate (annual average, percent) 16.9 11.9 16.6 … …
Balance of payments (percent of GDP)
Current account balance -1.5 -2.2 -3.3 -2.9 -2.2
Foreign direct investment 3.5 2.3 1.7 1.6 1.7
Total external debt 122.5 104.1 95.5 92.3 86.7
Gross reserves (end of period, billions of US$) 15.8 18.8 18.8 19.5 20.9
Months of next year’s imports of goods and services 3.0 3.3 3.2 3.1 3.2
Percent of IMF composite metric (float) 55.5 65.0 66.3 66.5 69.6
Exchange Rate
Hryvnia per U.S. dollar (end of period) 27.2 28.1 … … …
Real effective rate (deflator-based, percent change) 0.5 11.6 … … …
Sources: Ukrainian authorities and IMF staff estimates.
1/ Data based on SNA 2008, exclude Crimea and Sevastopol.
2/ The general government includes the central and local governments and the social funds.

UKRAINE
CANCELLATION OF ARRANGEMENT UNDER THE EXTENDED
FUND FACILITY
EXECUTIVE SUMMARY
Context. The Ukrainian authorities have been able to restore macro-economic stability
and growth following the severe economic crisis of 2014–15. However, efforts to create a
more dynamic, open, and competitive economy have fallen short of expectations, and the
economy still faces important challenges. Investment, particularly foreign direct
investment, is held back by a difficult business environment, while large numbers of
worker seek job opportunities abroad as economic growth is too low for incomes to
noticeably close the gap with regional peers. Reserves have recovered, but remain
relatively low, while the economy is still vulnerable to shocks.
Request for a new Stand-By Arrangement (SBA). The authorities request a new 14-
month SBA in the amount of SDR 2.8 billion (about $3.9 billion, 139 percent of quota) to
help meet Ukraine’s balance of payments needs. The SBA will succeed the arrangement
under the Extended Fund Facility (EFF), which will be cancelled. The authorities believe that
a new program can play a crucial role in anchoring policies during the upcoming election
period (presidential and parliamentary elections are scheduled for March and October
2019, respectively) and until a new government is formed by end-2019. The program will
aim to preserve recent economic gains and maintain reserves against an unsettled
external environment, building on the progress made under the EFF arrangement.
Program design. Policies under the program will focus primarily on: (i) continuing the
ongoing fiscal consolidation to keep public debt on a downward path; (ii) further reducing
inflation, while maintaining a flexible exchange rate regime; (iii) strengthening the banking
system, promoting asset recovery, and reviving bank lending; and (iv) advancing a focused
set of structural reforms, particularly to improve tax administration and governance.
Risks. Risks to the new program are high, notably due to the unresolved conflict in the
eastern part of Ukraine and the unsettled external environment, as well as pressures for
populist policies or policy reversals ahead of the upcoming elections. These risks are
mitigated by strong frontloaded actions, including approval of the 2019 budget, and
significant external financing to support reforms. This includes new financing from the
World Bank and the European Union. Nonetheless, the authorities’ steadfast policy
implementation will be critical for the program to succeed.
December 7, 2018

UKRAINE
2 INTERNATIONAL MONETARY FUND
Approved By
Thanos Arvanitis
(EUR) and Mark
Flanagan (SPR)
Discussions were held in Kyiv during September 6–19, 2018. The
staff team comprised Ron van Rooden (head), Pamela Madrid,
Gabor Pula, Sergio Sola (all EUR); Luis Cortavarria-Checkley,
Ivan Oliveira Lima, Mesmin Koulet-Vickot, Tjoervi Olafsson (MCM);
Serhan Cevik (FAD); Belen Sbrancia (SPR); Emmanuel Mathias,
Maksym Markevych (LEG); and Gösta Ljungman, Wim Fonteyne,
Ihor Shpak, Mariia Sydorovych, Mariia Chebanova (Resident
Representative office). Thanos Arvanitis (Deputy Director EUR),
Ceda Ogada (Deputy Director LEG) and Vladyslav Rashkovan (OED)
participated in some of the discussions. A small team comprising
Ron van Rooden (head), Gabor Pula, and Sergio Sola (all EUR) visited
Kyiv during November 5–9, 2018 for follow-up discussions.
Chasta Piatakovas and Samuel Romero Martinez (EUR) provided
support from headquarters.
CONTENTS
INTRODUCTION__________________________________________________________________________________ 4
PROGRAM OBJECTIVES AND FINANCING______________________________________________________ 6
MACROECONOMIC OUTLOOK AND RISKS _____________________________________________________ 8
PROGRAM POLICIES ____________________________________________________________________________ 12
A. Fiscal Policies: Continuing Consolidation to Bring Public Debt Down _________________________ 12
B. Energy Sector Policies: Strengthening the Gas Sector _________________________________________ 16
C. Monetary and Exchange Rate Policies: Reducing Inflation and Building Reserves_____________ 17
D. Financial Sector Policies: Strengthening Banks’ Financial Health Further and Reviving Credit_ 18
E. Structural Reforms: Improving Governance and Encouraging Investment_____________________ 20
PROGRAM MODALTIES_________________________________________________________________________ 21
STAFF APPRAISAL ______________________________________________________________________________ 22
BOXES
1. Progress Under the EFF Arrangement ___________________________________________________________5
2. Pension Reform________________________________________________________________________________ 15
FIGURES
1. Real Sector Indicators, 2013–18__________________________________________________________________9
2. Inflation and Exchange Rate Developments, 2013–18 _________________________________________ 10

UKRAINE
INTERNATIONAL MONETARY FUND 3
3. Selected Economic Indicators, 2013–2023 _____________________________________________________ 11
4. Fiscal Sector Indicators, 2014–18 ______________________________________________________________ 14
TABLES
1. Selected Economic and Social Indicators, 2017–2023 _________________________________________ 25
2a. General Government Finances, 2017–2023 (Billions of Ukrainian hryvnia)____________________ 26
2b. General Government Finances, 2017–2023 (Percent of GDP)_________________________________ 27
3. Balance of Payments, 2017–2023 ______________________________________________________________ 28
4. Gross External Financing Requirements, 2017–2023___________________________________________ 29
5. Monetary Accounts, 2017–2023 _______________________________________________________________ 30
6. Structural and Financial Soundness Indicators for the Banking Sector, 2016–18 ______________ 31
7. Indicators of Fund Credit, 2017–2026__________________________________________________________ 32
8. Schedule of Reviews and Available Purchases _________________________________________________ 33
ANNEXES
I. External Sector Assessment ____________________________________________________________________ 34
II. Debt Sustainability Analysis____________________________________________________________________ 37
APPENDIX
I. Letter of Intent _________________________________________________________________________________ 48
Attachment I. Memorandum of Economic and Financial Policies ________________________ 51
Attachment II. Technical Memorandum of Understanding ______________________________ 70

UKRAINE
INTRODUCTION
1. The Ukrainian authorities have been able to restore macro-economic stability and
growth following the severe economic crisis of 2014-15, with strong support also from the
international community. The economy was hit hard by the conflict in the eastern part of the
country and the ensuing disruption in trade and production and loss of confidence. In the midst of a
deep recession and a sharp exchange rate depreciation, banks came under severe strains, public
debt moved to an unsustainable path, and international reserves dropped to critically low levels.
Much has been achieved since then, owing to the authorities’ efforts, supported by an arrangement
under the Extended Fund Facility (EFF) approved in 2015 (see Box 1), including prudent fiscal and
monetary policies and a shift to a flexible exchange rate regime, which sharply reduced fiscal and
current account deficits. Reserves have been partly rebuilt and confidence has strengthened.
2. However, with some notable exceptions, efforts to create a more dynamic, open, and
competitive economy have fallen short of expectations. Beyond macro stabilization, the EFF
arrangement was also designed to help Ukraine transform its economy—a key objective of the
authorities after the Maydan revolution. Despite some initial success in advancing energy and
banking sector reforms, and setting up anticorruption institutions, reforms increasingly faced
resistance (e.g., anticorruption efforts, restructuring and privatization of state-owned enterprises
(SOEs), land reform), causing delays in the completion of reviews. Only three reviews were
completed under the EFF arrangement, instead of the originally planned 15. With the EFF
arrangement set to expire in March 2019, insufficient time remained to fulfill the objectives of the
arrangement.
3. The economy continues to face important challenges. Growth is still too low to recover
the incomes lost during the crisis and for incomes to catch up to levels seen in regional peers. The
business environment is still weak, discouraging investment, the banking system has yet to address
the burden of legacy non-performing loans (NPLs), and external financing conditions have become
tighter and more volatile. Importantly, disappointed with domestic economic conditions, outward
migration has increased significantly, with an estimated 2–3 million Ukrainians working abroad.
4. Valuing the role of a Fund-supported program in anchoring economic policies, the
authorities request a new Stand-By Arrangement (SBA) to succeed the EFF arrangement. The
authorities believe that a new program can play a crucial role in anchoring policies during the
upcoming election period and until a new government is expected to be formed by end-2019
(presidential elections will be held in March 2019 and parliamentary elections in October 2019), by
preserving recent economic gains against an unsettled external environment. A new program would
help cover Ukraine’s balance of payments needs by bolstering confidence and unlocking external
financing and supporting the needed adjustment. The program will focus primarily on maintaining
economic and financial stability and advancing reforms that are within the authorities’ capacity. The
authorities have already implemented some key actions to set the program off to a good start,
including adopting a sound 2019 budget, raising gas and heating tariffs, and adopting legislation to
improve governance in state-owned banks.

UKRAINE
Box 1. Progress Under the EFF Arrangement
Prudent economic policies resulted in a dramatic reduction in the country’s external and internal
imbalances and a return to economic growth. Notably, the adoption of a flexible exchange rate regime,
strict income policies, and an impressive fiscal consolidation led to a sharp reduction in Ukraine’s twin
deficits. The current account deficit fell sharply from over 9 percent of GDP in 2013 to 2 percent of GDP in
2017. The overall fiscal deficit—including the energy sector’s quasi-fiscal deficit—which had swelled to
10 percent of GDP in 2014, declined to just above 2 percent of GDP in 2017, supported by bold increases in
energy tariffs in 2015 and 2016. Notwithstanding a deeper recession in 2015, as the conflict in the east took
a larger than expected toll on economic activity, with stronger policies confidence was gradually restored
and the economy started to grow again in 2016. On the back of strong fiscal discipline and tight monetary
policies, a more stable economic environment, as well as a debt operation with private creditors, public debt
declined from its peak of 85 percent of GDP in 2014 to below 70 percent by the end of 2018. However,
international reserves remained significantly below projections, reflecting slower than expected official
disbursements, while inflation has been above targets.
These broadly positive results mask some continuing deep underlying challenges. After initial progress,
delays in reform implementation led to frequent program interruptions. While the first review under the EFF
was completed broadly on time, the second review was delayed by 9 months, mainly related to a drawn-out
approval process of the 2016 budget, political tensions culminating in a change in government in April 2016,
and delays in appointing NABU management. The third review was completed two years after the program
started, following delays in adopting an automatic gas tariff adjustment mechanism, resolving a systemically
large but insolvent bank, and implementing asset declaration requirements for high-level officials. Programs
of other institutions suffered from similar delays in the implementation of policy commitments.
Overall, progress in structural reforms has been uneven. Initially, impressive progress was made in
strengthening the independence and governance of the NBU and cleaning up the banking system, with
many insolvent banks resolved and weaker, but solvent, banks recapitalized. In the energy sector, gas and
heating tariffs were brought closer to market levels with bold increases in 2015 and 2016—also reducing
opportunities for corruption—but soon after, the authorities suspended the implementation of the
automatic formula once international prices started to rise again, opening a gap with import-parity prices,
despite a generous utility subsidy system that supports vulnerable households. Progress on structural fiscal
reforms was more contentious, with the authorities favoring deep tax cuts, while delaying the
implementation of pension reform until the fall of 2017 and revenue administration reform has yet to start in
earnest. Following pressure from civil society and with international support, new independent institutions
were set up to tackle corruption, with the establishment of the National Anticorruption Bureau of Ukraine
(NABU) and a Special Anticorruption Prosecutor’s Office (SAPO), and recently the approval of legislation to
set up an anticorruption court. However, no cases of high-level corruption have so far been adjudicated,
deepening the public perception that not much has effectively changed. Also, although a new legal
framework was adopted to facilitate privatization and numerous regulations were streamlined, ensuring
property rights and the rule of law, improving the business environment, and the restructuring of the large
and inefficient public sector—including through privatization—have remained incomplete. Importantly, the
opening up of markets, including by creating a competitive gas market and a market for agricultural land,
have also yet to happen.

UKRAINE
Box 1. Progress Under the EFF Arrangement (concluded)
PROGRAM OBJECTIVES AND FINANCING
5. The authorities request a new 14-month SBA in the amount of SDR 2.8 billion (about
US$3.9 billion, 139 percent of quota) to succeed the EFF arrangement, which will be cancelled.
Policies under the program will focus primarily on maintaining economic and financial stability.
Specifically, policies will aim at: (i) continuing the ongoing fiscal consolidation to keep public debt
on a steady downward path; (ii) further reducing inflation to within the central bank’s 5±1 percent
target range, while maintaining a flexible exchange rate regime; (iii) strengthening the banking
system, promoting asset recovery, and reviving bank lending; and (iv) advancing a limited set of
structural reforms, particularly to improve tax administration and governance. The attached Letter of
Intent (LOI) and Memorandum of Economic and Financial Policies (MEFP) set out the authorities’
detailed policy commitments.
Sources: Ukrainian authorities, IMF staff calculations.
850
900
950
1000
1050
1100
1150
1200
-12
-10
-8
-6
-4
-2
0
2
4
6
2014 2015 2016 2017 2018 2019
Real GDP Growth and Level
(Billion UAH andpercent)
Growth act.
Growth EFF
GDP act. (rhs)
GDP EFF (rhs)
0
20
40
60
0
20
40
60
2014 2015 2016 2017 2018 2019
Inflation
(Percent)
CPI act.
CPI EFF
0
20
40
60
80
100
0
2
4
6
8
10
2014 2015 2016 2017 2018 2019
Fiscal Deficit and Public Debt incl.
Guarantees
(Percent of GDP)
Overall deficit act.
Overall deficit EFF
Public debt act. (rhs)
Public debt EFF (rhs)
0
10
20
30
40
50
0
10
20
30
40
50
2014 2015 2016 2017 2018 2019
Gross International Reserves
(Billion US dollar)
Reserves act.
Reserves EFF

UKRAINE
6. With the policy mix committed under the SBA and prospective financing, including
from other IFIs and capital markets, Ukraine should be able to meet its sizable financing
needs. Access, both in terms of annual purchases and outstanding credit, would remain below
exceptional access thresholds, and would help to maintain reserves at a level equivalent to three
months of imports. Despite sizable
foreign exchange purchases by the
National Bank of Ukraine (NBU) so far in
2018 and targeted also for 2019,
reserves will remain well below the level
equivalent to 100 percent of the
composite metric that had been
targeted under the EFF arrangement,
also impacting the pace of the removal
of remaining restrictions and capital flow
measures (see paragraphs 24 and 43).
Firm financing commitments are in place
for the duration of the arrangement to
support the authorities’ reform efforts.
This includes the European Union’s new
Macro Financial Assistance program
(€1 billion) and a new World Bank Policy-Based Guarantee that will enable the authorities to raise
US$1 billion. Strong program implementation will also help unlock additional capital market
financing in 2019. Despite the increased volatility in financial markets, Ukraine recently raised
US$2 billion in capital market financing.
7. The authorities are committed to continuing efforts to resolve the outstanding official
arrears consistent with the requirements of the policy on lending into arrears to official
bilateral creditors. A lawsuit filed by Russia in the UK courts is ongoing.1
Staff’s assessment is that
the Ukrainian authorities have continued to pursue good-faith efforts. In terms of process, they have
offered to meet with the Russian authorities in the context of a substantive dialogue to reach an
out-of-court agreement on the restructuring of the US$3 billion bond. The terms offered by the
Ukrainian authorities are in line with the financing and debt objectives set at the time of the
restructuring, which are an important assumption underpinning the present program. The terms
offered to Russia are proportionate to the contributions made by other official bilateral creditors at
the time of the restructuring. Furthermore, for the reasons outlined in Box 4 of IMF Country Report
No.16/319, a decision to provide financing despite the arrears is not expected to have an undue
1
In February 2016, the Trustee of the Eurobond held by Russia’s National Wealth Fund brought summary
proceedings in the UK’s High Court of Justice seeking full payment of principal and interest. On March 29, 2017, the
High Court ruled in favor of Russia but stayed execution of the judgement pending consideration of Ukraine’s
appeal. On September 14, 2018, the UK Court of Appeal reversed the High Court’s summary judgement, returning
the case to the High Court for full trial. The Russian authorities have indicated their intention to appeal the decision
to the Supreme Court. If they do so, the Supreme Court will need to decide whether to accept the case, in which case
hearings would likely be held next year. If the decision is not appealed, or if the appeal is rejected, the case will be
returned to the High Court for a full trial.
2015 2016 2017 2018 2019
Financing Gap 18.6 6.3 6.2 4.0 4.1
Reserve accumulation 5.8 2.5 3.0 0.0 0.7
Underlying BOP gap 12.8 3.7 3.2 4.0 3.5
Financing 18.6 6.3 6.2 4.0 4.1
IMF 6.5 1.0 1.0 1.4 2.5
Other multilateral/bilateral 3.3 1.8 0.8 0.6 1.6
Multilateral 1/ 1.0 0.4 0.2 0.0 1.0
European Union 0.9 0.1 0.6 0.6 0.6
Other bilateral 1.4 1.3 … … …
Debt operation 5.7 3.5 4.4 2.0 …
Other expectional financing 3.1 … … … …
Memorandum Items
Capital market access 0.0 0.0 3.2 2.7 2.0
Gross international reserves 13.3 15.8 18.8 18.8 19.5
% of composite metric 51.3 55.5 65.0 66.3 66.5
1/ The World Bank will provide a guarantee (PBG) of USD750mn in 2019.
Ukraine: Program Financing
(US$ billion)

UKRAINE
negative effect on the Fund’s ability to mobilize official financing packages in future cases.
Moreover, prompt financial support from the Fund is considered essential for Ukraine to maintain an
adequate level of reserves, while it pursues appropriate policies and undertakes reforms to support
its economy and address balance of payments needs. Thus, in staff’s view, the conditions have been
met for the Fund to proceed with providing financial support to Ukraine.
8. The program’s success hinges crucially on three key assumptions: (i) the full and timely
implementation of policies under the program; (ii) timely external financing from the official sector
and continued capital market access; and (iii) the non-intensification of the conflict in the eastern
part of Ukraine. These assumptions are incorporated in, and are critical for, the program.
MACROECONOMIC OUTLOOK AND RISKS
9. The current economic recovery is expected to continue. Growth reached 2.5 percent in
2017 and is expected to reach 3.3 percent this year, on the back of strong domestic demand. The
latter, together with some moderate real exchange rate appreciation, also contributed to a pick-up
in imports and a widening of the current account deficit to 3.3 percent of GDP this year. Reacting to
the sharp hike in policy rates, inflation has been slowly declining this year, after having peaked at
16.5 percent in September 2017 following large wage and pension increases and food price shocks.
Inflation is expected to reach 10 percent by the end of 2018, due inter alia to higher energy prices
(including higher gas and heating tariffs) (Tables 1–6).
10. In the absence of substantial reforms, growth is expected to remain constrained to
about 3 percent annually. Growth is projected to slow slightly, to 2.7 percent in 2019, as worsening
terms of trade and rising production cost—notably wages—are expected to trim economic activity
and offset somewhat the impact of the still robust domestic demand. At the same time, slow
progress in reforms and political uncertainty will continue to weigh on investment. Without an
acceleration in reform implementation in the coming years, potential growth will remain low and
growth will remain below the growth rates forecast for most CESEE countries. Growth will be far
from enough to enable people’s living standards to catch up with income levels in regional peers;
per capita GDP (at PPP) in Ukraine, although improving, will remain among the lowest in Europe.
11. Inflation is expected to continue its downward path in 2019. Although inflation
expectations remain elevated, continued tight monetary policies and slowing domestic demand will
help to gradually bring inflation back to just under 7 percent by end 2019 and within the NBU’s
target range of 5±1 percent in early 2020.

UKRAINE
Figure 1. Ukraine: Real Sector Indicators, 2013–18
-30
-20
-10
0
10
20
-30
-20
-10
0
10
20
2015 2016 2017 2018
GDP, Domestic Demand and Exports
(Y-o-Y percentchange)
GDP
Domestic demand
Exports
Economic growth remainsmodestandmainly
reliant on domestic demand.
0
20
40
60
80
100
120
0
10
20
30
40
50
2015 2016 2017 2018
Nominal Wages and Numberof Vacancies
(Percent)
Number of vacancies (thsd, rhs)
Nominal wage growth
While migration keeps wages elevated andcontinues to fuel
consumption...
-40
-20
0
20
40
60
-40
-20
0
20
40
60
2013 2014 2015 2016 2017 2018
Agriculture, Construction, and IPI
(Year-on-year percentchange, 3 month ma)
Construction output
Agricultural output
IPI
... in linewith theslowdown in construction andindustrial
activity.
-40
-20
0
20
40
60
80
100
-40
-20
0
20
40
60
80
100
2013 2014 2015 2016 2017 2018
Capital Investment Growth
(Y-o-Y percentchange)
Construction
Agriculture
Industry
... investment growth is decelerating...
-9
-6
-3
0
3
-9
-6
-3
0
3
2013 2014 2015 2016 2017 2018
Current Account Balance
(Billion US Dollar)
Current account
Goods
Services
Income and transfers
... and widened the currentaccountdeficit, despite continued
strongremittancesinflows.
60
65
70
75
80
85
-10
-5
0
5
10
15
2016 2017 2018
Export and Railway Freight Volumes
(Y-o-Y percentchange,3 month ma)
Railway freight volume
Exports
REER (CPI based)
Erosion ofpricecompetitivenessandtransportation
bottleneckshaveweighedon exports...
Sources: State Statistics Committee ofUkraine; Haver;andIMFstaff calculations.

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Figure 2. Ukraine: Inflation and Exchange Rate Developments, 2013–18
(Year-on-year percent change, unless otherwise indicated)
-5
5
15
25
35
45
55
65
-5
5
15
25
35
45
55
65
2013 2014 2015 2016 2017 2018
Contributions to Annual CPIInflation
Services
Other goods
Food
Headline inflation moderatedrecently due to a deceleration in
raw foodprices...
-10
0
10
20
30
40
50
60
70
80
90
100
-10
0
10
20
30
40
50
60
70
80
90
100
2013 2014 2015 2016 2017 2018
Core inflation
Headline inflation
Core inflation
Administered
prices inflation
... but coreinflation remainedelevated atalmost 10 percent...
-5
0
5
10
15
20
25
30
-5
-4
-3
-2
-1
0
1
2013 2014 2015 2016 2017 2018
International Reserves
(Billion US Dollar)
Daily FX interventions
Gross (right scale)
Net (current exchange rates, rhs)
Reserves are recoveringas NBU purchaseshave continuedin
2018, albeitat a lowerpace.
0
10
20
30
40
50
0
10
20
30
40
50
2013 2014 2015 2016 2017 2018
Expected CPI, and Wage Inflation 1/
Inflation expectations by households
Inflation expectations by businesses
Nominal wages
... driven by high nominalwagegrowth andstillelevated
inflation expectations.
0
10
20
30
40
0
10
20
30
40
2014 2015 2016 2017 2018
Discount rate
Lending Rate (NC)
Discount and LendingRate
Given risinginflationary pressuresdueto strongdomestic
demand andincreasingenergy prices,theNBU raised its
policyrate in several steps.
Sources:State Statistics Committee ofUkraine; InternationalCentrefor Policy Studies; NationalBankof Ukraine;
Bloomberg; Haver Analytics;http://fin.biz.ua;and IMFstaffcalculations.
1/ 12-monthsaheadinflation expectations.For businessesfromBusinessOutlookSurvey, conducted by theNBU. For
householdsfromGfK-Ukraine ConsumerConfidenceSurvey.
-60
-50
-40
-30
-20
-10
0
10
20
-60
-50
-40
-30
-20
-10
0
10
20
TUR
IND
RUS
BRA
KAZ
HUN
POL
CZE
BLR
CHN
BGR
ROU
GEO
UKR
Q1 Q2 Q3 October
Exchange Rates of Selected EM Currencies versus
USD, 2018
(Q-o-Q percent change,endof period)
Depreciation
The hryvnya / USD exchange ratehasbeen relatively stable
in 2018, despitetighteningfinancial conditions for EMs.

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Figure 3. Ukraine: Selected Economic Indicators, 2013–2023

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12. Under the baseline, the current account deficit is projected to remain at around
3 percent of GDP in the coming years. Exports are expected to continue to increase, albeit at a
somewhat decelerated pace (4–6 percent annual volume growth), relying primarily on exports of
metals, mineral products, industrial goods, and agricultural products, and on the back of a real
exchange rate that is broadly in line with fundamentals.2
Imports are expected to continue to
outpace exports as domestic demand remains strong. Gas transit revenues are expected to decline
once the Nord Stream 2 pipeline is completed around 2020. Sizable remittances, together with
official and capital market financing are projected to cover the trade deficit and increasing debt
service obligations, while foreign direct investment is expected to remain relatively low. Reserves are
projected to remain at three months of import coverage, or about 65-70 percent of the composite
metric. Reserves could reach higher levels after the election period should there be a renewed
impetus for deep structural reforms that could lead to larger investment inflows and stronger
growth, which would facilitate the faster elimination of the remaining restrictions and capital flow
measures.
13. Downside risks, however, are very large. On the domestic side, this includes primarily the
risk of policy slippages, as the pressure for populist policies could rise ahead of the elections. With
increasing polarization in the run-up to the elections, the authorities’ ability to implement the
program could weaken. The conflict in the eastern part of the country remains a key vulnerability, as
highlighted by recent events, although a ceasefire is generally holding. On the external side, risks
include a possible further deterioration in Ukraine’s terms of trade, a moderation in global and
regional growth, and a worsening of market sentiment vis-à-vis emerging markets, which could
make it difficult for Ukraine to tap international capital markets.
PROGRAM POLICIES
The program will maintain an appropriate policy mix, by maintaining a primary fiscal
surplus—for debt sustainability purposes and to moderate absorption, in line with
available external financing—combined with a continued tight monetary stance to bring
inflation down and allow further reserve accumulation, while removing remaining
exchange restrictions gradually as conditions permit.
A. Fiscal Policies: Continuing Consolidation to Bring Public Debt Down
14. The authorities have achieved a drastic fiscal consolidation. The budget deficit was
reduced from 4.5 percent of GDP in 2014 to 2.2 percent of GDP in 2017—well below the program
target of 3.1 percent of GDP on the back of a drastic reduction in spending, which more than offset
some decline in revenue following the sharp reduction in the social security contribution rate in
2016. Adding the quasi-fiscal deficit of the national gas company, Naftogaz, the adjustment was
even more impressive, with a reduction in the combined deficit from 10 percent of GDP in 2014 to
2
EBA-lite estimates show that Ukraine’s external position is broadly in line with fundamentals (see Annex 1).
Although rising real wages have eroded some of the competitiveness gains since the sharp depreciation of the local
currency in 2015, the real exchange rate remains broadly in line with fundamentals.

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2 percent of GDP in 2017. As a result of these policies, public debt declined from its peak of
85 percent of GDP in 2014 to 72 percent at end-2017.
15. Fiscal discipline, however, started to weaken last year. Parliament approved a
supplementary budget and pension legislation in the course of 2017 that included large wage and
pension increases, which fed into higher spending in 2018. Together with additional spending on
military pensions and utility subsidies, current spending is set to increase by almost 1 percentage
point of GDP in 2018, and this year’s budget deficit target of 2.5 percent of GDP is expected to be
met only by curtailing capital spending.
16. To keep fiscal policy on track to achieve medium-term sustainability, parliament
approved a 2019 budget with a deficit of 2.3 percent of GDP (prior action). With a primary
surplus of 1½ percent of GDP, this is projected to bring public debt down to 64 percent of GDP by
end-2019, placing it on a sustainable path (see the attached public debt sustainability analysis). The
budget is based on conservative revenue assumptions and while defense spending continues to be
elevated, the budget aims to improve the composition of spending by containing current spending.
The deficit target is expected to be met thanks to a mixture of expenditure and revenue measures
(MEFP ¶5b):
 Wage increases are contained to stabilize the wage bill as a share of GDP. The budget
accommodates significant increases for military wages but includes limited increases for civil
servants and public administration employees. To continue to reduce the incidence of poverty,
the minimum wage is raised by 12 percent.
 Pensions will be raised in line with the indexation rules of the new pension law, adopted in
2017 (see Box 2). Pension benefits will on average increase by 8½ percent, while retirees whose
pensions equal the subsistence minimum will see a 9½ percent increase. With the
implementation of the new pension law at the start of 2018, pension spending is projected to
fall slightly in 2019, to just over 10 percent of GDP, while the pension fund deficit is projected to
decline to 4¼ percent of GDP in 2019, compared to a deficit of over 6 percent of GDP in 2016.
 Sufficient social assistance is provided to vulnerable groups, including housing and utility
subsidies (HUS), but with improved targeting. Utility subsidies will help defray the impact of
higher gas and heating tariffs on low-income and vulnerable households, covering about
5 million households. In parallel, the authorities have enhanced means-testing of benefits to
address issues that emerged with the increase in beneficiaries outside of the targeted groups
last year, thus being able to contain budget outlays on HUS to 1½ percent of GDP.
 On the revenue side, the budget includes several tax measures. Besides increases in excise
rates, the royalty rates for oil, gas condensate, iron ore and forestry usage and the
environmental tax (on CO2 emissions by stationary sources) are raised, while the increase in the
wholesale price of gas for household use (see below) also leads to higher royalty and value-
added tax payments. In addition, import duties are levied on used cars and the cap on wages
subject to social security contributions will be lifted.

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Figure 4. Ukraine: Fiscal Sector Indicators, 2014–18
(Percent of GDP)Sources: National authorities; and IMF staff calculations.
-5
-4
-3
-2
-1
0
34
36
38
40
42
44
46
2014 2015 2016 2017 2018 2019
Proj.
BudgetDeficit
(percent ofGDP)
Total Revenue
Total Expenditure
Overall Balance (rhs)
Since 2017 fiscal discipline has been weakening.
-10
-8
-6
-4
-2
0
2
4
6
0
5
10
15
20
25
30
35
40
45
2014 2015 2016 2017 2018 2019
Proj.
Revenue Components
(percent ofGDP)
Nontax revenue Other taxes
VAT SSC
CIT, PIT Tot, Revenue y-o-y (rhs)
While revenuehasbeen rather stable...
30
35
40
45
50
30
35
40
45
50
2014 2015 2016 2017 2018 2019
Proj.
Spending
(percent ofGDP)
Net lending
Capital spending
Current Spending
Spending has been increasing,but the 2019 budget aims
ar revertingthis tendency...
0
5
10
15
20
25
0
5
10
15
20
25
2014 2015 2016 2017 2018 2019
Proj.
Social Spending
(percent ofGDP)
Unemployment, and other insurance
Pensions
Social programs
...by improvingthetargetingof socialspending...
0
20
40
60
80
100
0
20
40
60
80
100
2013 2014 2015 2016 2017 2018 2019
Proj.
Government debt
(Percent of GDP)
Debt in foreign currency
Debt in local currency
Despite remainingelevated, thanks to fiscal dispiline the
debt stockis on a declining trend.
8
9
10
11
12
8
9
10
11
12
2014 2015 2016 2017 2018 2019
Proj.
Spending on Wages
(percent ofGDP)
...and limitingtheincreasein thewagebill.

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Box 2. Pension Reform
Pension reform in Ukraine was long overdue, and repeatedly delayed despite the critical need to
place the pension system on a sound financial footing for future generations. Pension spending had
reached over 11 percent of GDP in 2016, one of the highest levels in Europe, despite that average pension
benefits were very low. This was the result of a very high dependency ratio, with about 12 million
pensioners, representing almost 30 percent of the population, and an equal number of contributors to the
pension system. On the other hand, pension fund revenues declined significantly following the halving of
the social security contribution rate adopted in late 2015 raising the pension fund deficit to around
6 percent of GDP. The need for pension reform was further accentuated by unfavorable demographic
trends, with low fertility and an ageing population, and a migration abroad of a growing number of
workers.
Parliament adopted a new pension law in October 2017, aimed at ensuring long-term sustainability
and intergenerational equity. Key elements included a lengthening of the number of qualifying years
needed to receive a pension and a strengthening of incentives to contribute. Individuals can retire within
an age corridor of 60–65 years, depending on their years of service. Retiring at the earliest possible age of
60 will require at least 25 years of service in 2018 for both men and women (from 15 years previously),
increasing by one year each year to 35 years by 2028. Retirement at the age of 63 will require 15 years of
service in 2018, rising by one year each year to 25 years by 2028; and retirement at 65 will require a
minimum of 15 years of service. A bonus of 6 percent for each year of delayed retirement (and 9 percent
per year if the deferment is more than 5 years) provides an incentive to work longer. Options for early
retirement have been substantially reduced. Pension benefits are indexed to a non-discretionary formula
(which equals to 50 percent of consumer price inflation in the preceding year and 50 percent of the
average salary growth rate in the preceding three years).
With these changes, pension expenditures are projected to stabilize at around 10 percent of GDP in
the medium term, while social security contributions would grow steadily towards 8 percent of GDP.
These trends would reduce the pension fund deficit by about 3 percentage points of GDP in the long run,
from over 6 percent of GDP in 2016. Average replacement rates would improve but would still remain
relatively modest at around 35 percent. Further improvement in pension benefit levels would require
further parametric changes.
8
9
10
11
12
13
14
15
8
9
10
11
12
13
14
15
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
No reform Reform
Pension Spending
(Percent of GDP)
0
1
2
3
4
5
6
7
8
9
10
0
1
2
3
4
5
6
7
8
9
10
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
No reform Reform
Pension Fund Deficit
(Percent of GDP)
Source: IMF staff calculations.

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17. Strong fiscal policies will need to be maintained in the coming years to continue the
ongoing debt reduction. Beyond 2019, the authorities are committed to maintaining fiscal
discipline, including by targeting primary surpluses between 1–1½ percent of GDP. There is a
projected fiscal gap stemming from wage level objectives embedded in various pieces of reform
legislation, including the civil service, health care, and education reform laws. There is scope under
the legislation, however, to address this by limiting wage increases to inflation and productivity
gains. Reducing public sector employment, and further improving tax administration and widening
the tax base would give an alternative strategy to fully realize the objectives of these laws. It will be
critical to avoid deficit-increasing tax changes. In this regard, the authorities have requested further
technical assistance from the Fund to support their efforts.
18. After several false starts, the authorities are preparing to make a new push to
modernize revenue administration (MEFP ¶7). As a priority, and to create a streamlined, function-
based organization, they plan to consolidate current central and regional tax and customs units of
the State Fiscal Service into two separate legal entities: a Tax Service and a Customs Service, by end-
April 2019, which will both report to the Minister of Finance (a structural benchmark). New
management for both entities will be appointed through a transparent recruitment process, also by
end-April 2019. The Ministry of Finance will strengthen its supervisory and control functions through
detailed reporting requirements and key performance indicators, while the ministry will also
complete an audit of the tax and customs administrations’ IT systems to detect weaknesses and risks
for data security. In parallel, the authorities are preparing additional operational steps to improve
the efficiency of the tax and customs administrations and alleviate the compliance burden on
taxpayers by shifting to risk-based audits; enhancing the online taxpayer portal (e-cabinet) to allow
for online registration, updating of taxpayer information, and electronic payment; and improving
taxpayer information services.
19. Efforts to further strengthen public financial management will also continue (MEFP ¶6).
This includes the adoption of a medium-term budget framework (MTBF) for 2019–2021 to reinforce
fiscal discipline, facilitate informed policymaking, and provide predictability in planning and
executing budgets. The authorities will also seek to amend the budget code to reflect core elements
of the MTBF, including a stronger mandate for fiscal risk monitoring and reporting; requiring a credit
risk assessment for issuing government guarantees; introducing binding budget ceilings for key
spending units in the annual budget declaration; and regularizing assessments of public expenditure
efficiency through rolling spending reviews.
B. Energy Sector Policies: Strengthening the Gas Sector
20. Gas tariffs had not been adjusted since April 2016, despite rising international prices
and the adoption in early 2017 of an automatic gas tariff adjustment mechanism as a prior
action for the third review under the EFF. Fearing a political backlash, the authorities suspended
the adjustment mechanism in the summer of 2017, leading to a growing wedge between household
tariffs and the fully liberalized (import-parity) prices for industry. This re-created opportunities for
corrupt schemes to divert household gas to industry. It also led to a worsening of Naftogaz’

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finances, although the company was able to maintain a positive cash balance owing to the receipt of
sizable transit revenues.
21. As a first step toward the liberalization of gas tariffs, the government adopted a
resolution (prior action) raising the wholesale price for gas for household use by 26 percent
effective November 1, 2018, and by an additional 15 percent effective May 1, 2019 (MEFP ¶8a).
As part of the prior action, new heating tariffs effective January 1, 2019 to reflect the higher
wholesale price for gas have been approved and published by the energy regulator for the bulk of
the heat supply companies. The tariffs for the remaining companies, which are set by local
authorities, are expected to be approved before end-December 2018 (a structural benchmark).
Household gas tariffs will be fully market-determined as of January 1, 2020. The resolution also aims
to improve the functioning of the gas market and payment discipline, including by allowing
Naftogaz to bypass non-paying intermediaries and by creating a customer database, under the
auspices of the Ministry of Finance, that will be available to all registered gas suppliers. A start will
be made with the monetization of utility subsidies, with the assistance of the World Bank (MEFP
¶8b).
22. Further steps will also be taken to increase gas production and help ensure energy
independence, via regular open tenders for production licenses and production sharing agreements
(MEFP ¶8d). Preparations for the unbundling of Naftogaz will also continue, including the
certification of a Transmission System Operator (MEFP ¶8c).
C. Monetary and Exchange Rate Policies: Reducing Inflation and Building
Reserves
23. After an acceleration in 2017, inflation is declining and projected to end this year at
around 10 percent. Headline inflation increased quickly in the second half on 2017, peaking at
16.5 percent in early 2018, following large wage increases in the public and private sectors. Although
at around 10 percent at end-October 2018, headline inflation is still above the NBU’s 6±2 percent
target range, it has been on clear deceleration path in recent months, owing much to the NBU’s
commitment to its inflation targeting framework and decisive actions by raising the policy rate in six
steps by 550 basis-points to 18 percent. Notwithstanding the turbulence in several emerging market
countries, the hryvnia has remained relatively stable, allowing the NBU to buy on balance nearly
US$1 billion so far this year—following net purchases of US$1.2 billion in 2017—and to continue to
gradually ease administrative restrictions in line with the agreed roadmap under the EFF
arrangement. Specifically, the NBU continued to expand the repatriation of dividends, canceled the
daily limit on banks’ net foreign exchange purchases and raised the limit on banks’ open long
foreign exchange position.
24. The NBU is strongly committed to continue with prudent monetary and exchange rate
policies, to anchor inflation expectations and build stronger reserve buffers (MEFP ¶3). The
monetary policy stance is appropriate, with the policy rate strongly positive in real terms, to bring
inflation gradually down to within the NBU’s inflation target by early 2020. As inflationary pressures
ease, the policy rate can be gradually reduced, but should remain sufficiently high to enable the

UKRAINE
NBU to steer inflation within the target band and to continue to buy foreign exchange, which is
necessary to build stronger reserve buffers. This will also allow the NBU to continue with a gradual
elimination of the remaining exchange restrictions, administrative controls, and capital flow
measures in line with the agreed roadmap and the recently approved currency law that provides a
new legal framework for currency operations. 3
25. The NBU has continued to strengthen its monetary policy framework. With all its
members now appointed, the NBU Council reaffirmed the NBU’s commitment to inflation-targeting,
with an inflation target of 5±1 percent for 2019 onwards, and a flexible exchange rate, with foreign
exchange intervention aimed at rebuilding international reserves, smoothing exchange rate
volatility, and supporting the transmission mechanism. The transparency and communication of
monetary policy decisions have been enhanced with the release of the summary of the minutes of
the Monetary Policy Committee meetings. To better align program conditionality with the NBU’s
inflation targeting regime and reflecting the strengthened institutional and technical capacity of the
NBU, the program includes a monetary policy consultation clause. An indicative target on the NBU’s
net domestic assets is retained to safeguard against excessive expansion of the NBU’s balance sheet.
26. The NBU is taking further steps to enhance its operational framework (MEFP ¶4). It will
move to more active liquidity management, to better ensure that the interbank market rate remains
close to the policy rate, especially as banks’ overall liquidity position is expected to change from a
structural surplus to fluctuating between a surplus and a deficit position. In this regard, enhancing
liquidity forecasting, including by improving information sharing between the Ministry of Finance
and the NBU will be important for effective monetary operations.
D. Financial Sector Policies: Strengthening Banks’ Financial Health Further
and Reviving Credit
27. Banks’ financial health has continued to improve, although challenges remain. Capital
buffers have strengthened since end-2016, with banks’ core equity capital (CET1) ratio increasing by
2.2 percentage points to 11.2 percent by end-July 2018. All banks met the minimum regulatory
capital of 7 percent of risk-weighted assets as of end-July 2018. Related-party exposures have
substantially declined and following large provisioning and losses in recent years, the banking
system is slowly returning to profitability. Liquidity ratios have also improved. Nonetheless, banks
continue to grapple with a high level of NPLs, at over 55 percent of total loans (although these are
largely provisioned for). Profitability remains a challenge for several banks.
28. The NBU reaffirmed its commitment to further strengthen bank capital. By end-March
2019, all banks should meet a minimum 7 percent Tier 1 capital and 10 percent CAR (MEFP ¶10).
Banks that fail to meet these minimum capital requirements will face appropriate supervisory
actions, including resolution, by end-June 2019 (a structural benchmark). Additionally, to mitigate
related-party exposure risks, the NBU agreed to revise by end-December 2018 the capital regulation
3
See https://www.imf.org/external/np/g20/pdf/2018/092818.pdf.

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to subtract from regulatory capital loan exposures to related parties that are above regulatory limits
(a structural benchmark).
29. The authorities will step up efforts to recover assets from failed banks and hold banks’
former owners accountable as envisaged by the Banking law and the law on the Deposit
Guarantee Fund (DGF) (MEFP ¶11). Progress in disposing of failed banks’ assets by the DGF has so
far been limited. The authorities reiterated their determination to accelerate the recovery and sale
processes to reduce the cost of bank failures to the state, including via ongoing litigation. In
addition, they are committed to seeking compensation from former bank owners and related
parties, in line with provisions in the Banking and DGF laws. They will publish the list of all former
shareholders of resolved banks that are yet to honor their debts to the failed institutions, as ruled by
court decisions. In addition, they will publish regular progress reports on asset recovery and
litigation efforts (a structural benchmark).
30. Several initiatives are underway to facilitate NPL resolution (MEFP ¶12). Little progress
has been made in reducing NPLs in the last two years, despite the adoption of a law to facilitate out-
of-court restructuring and the removal of tax impediments to NPL resolution. In this regard, the
authorities are taking further actions to encourage NPL workouts. In October 2018, a new insolvency
law was approved by parliament. A policy framework for NPLs restructuring in state-owned banks is
under preparation. In addition, the NBU, with technical support from the World Bank, is working on
a regulation, in line with the European Central Bank (ECB) approach, to provide guidance to banks
on how to reduce their NPL portfolios.
31. Improving governance in state-owned banks is a key priority (MEFP ¶13). State-owned
banks now account for more than half of the banking system’s assets. Following the recent adoption
of a law to strengthen corporate governance in state-owned banks (a prior action), the focus is now
on establishing supervisory boards with a two-thirds majority of independent board members. The
Ministry of Finance and each of the state-owned banks will also sign relationship agreements
consistent with the updated Principles of State Banking Sector Strategic Reforms that will govern
practical aspects of their interaction.
32. The authorities will further improve the supervisory and regulatory framework
(MEFP ¶10d). Key actions include the adoption of a regulation on Tier 1 capital instruments in line
with the Basel III criteria; the completion of the assessment of the collective suitability of the
supervisory boards and qualifications of senior management; the verification of compliance with the
risk management regulation; the adoption of the Supervisory Review and Evaluation Process (SREP),
and the introduction of a new regulation on banks’ registration and licensing, as well as a regulation
on internal controls.
33. The authorities will also aim to secure parliamentary approval of legislation that is
necessary for the development of financial markets (MEFP ¶14). Notably, they will encourage the
adoption of the draft law to improve the financial supervisory architecture by end-March 2019 (a
structural benchmark). Additionally, they plan to submit a revised banking law to parliament by
end-March 2019.

UKRAINE
E. Structural Reforms: Improving Governance and Encouraging Investment
Governance
34. Although new institutions have been set up, the anti-corruption reforms have not yet
delivered concrete results and continue to face strong opposition. While corruption
investigations have intensified with the establishment of the National Anti-Corruption Bureau
(NABU) and the Special Anti-Corruption Prosecutor’s Office (SAPO), no high-level public official has
been convicted of corruption. This could be attributable to significant vulnerabilities of the judicial
system, still widely perceived as corrupt by the public. In addition, anti-corruption law enforcement
agencies are under severe pressure. Attempts by vested interest to undermine the independence of
NABU are increasing, while the credibility of SAPO has been damaged by recent missteps, including
a disciplinary sanction against its head for misconduct.
35. The recent adoption of a legal framework enabling the High Anti-Corruption Court
(HACC) is a welcome step forward. Following the enactment of the HACC law in the summer of
2018, the authorities are now working to ensure that the court can start its operations by end-June
2019 (MEFP ¶15a). To this end, the selection process of anti-corruption judges is ongoing and
should be completed by end-April 2019 (a structural benchmark), and it is of paramount
importance for the credibility and reputation of the court that the judges to be selected have an
impeccable reputation and relevant professional skills. It also remains important that the powers and
independence of NABU are further strengthened, including by completing the independent external
audit contemplated in the law by end-July 2019 (a structural benchmark); by giving it the authority
to wiretap independently; and by safeguarding its exclusive jurisdiction for high-level corruption
cases (MEFP ¶15b).
36. Key additional actions, on asset declaration and AML/CFT, are necessary to consolidate
and deepen anticorruption efforts (MEFP ¶15c and d). To unlock the potential of the asset
declaration framework, the authorities should target compliance monitoring on high-level officials.
This may be facilitated by transferring the responsibility for the verification of asset declarations of
persons under NABU’s jurisdiction to NABU. As the AML/CFT assessment of Ukraine published by
Moneyval earlier this year concluded to an overall solid framework, this offers a good basis to
continue leveraging AML/CFT measures to address corruption and the laundering of the proceeds of
corruption. The legal framework preventing corrupt officials to misuse financial institutions needs to
be fine-tuned and banks rigorously supervised, with the imposition of dissuasive sanctions for non-
compliance. In this regard, the NBU’s decision earlier this year to publish information on AML/CFT
sanctions imposed on individual banks and their rationale has been a welcome step forward.
Privatization and Market Enhancement
37. While no major privatization has taken place in the last several years, a start has been
made with selling selected state-owned enterprises (SOEs) (MEFP ¶16a). Following the approval
of the new privatization law in February this year, the authorities hired reputable advisors for the
privatization of six SOEs. A tender for the sale of power generation company Centrenergo will be
launched by end-2018, followed by the six companies on the priority list by early-2019. Small-scale

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privatization, i.e. sales of assets under a UAH 250 million (about US$ 9 million), has been successfully
launched in September 2018, with several small companies already sold. A draft law for establishing
a transparent market for agricultural land has been prepared and the authorities will scale up
technical preparations and outreach (MEFP ¶18) to boost public support for adoption of the law
after the election season.
38. Governance of SOEs will continue to be improved (MEFP ¶16b). Following the
appointment of new majority-independent supervisory boards at the state gas company Naftogaz,
the railway company Ukrzaliznytsia and electricity company Ukrenergo, the process for the selection
of independent supervisory boards for some of the other large SOEs, including Boryspil airport and
Ukrposhta, is well underway. To clarify and strengthen the powers of these newly appointed
supervisory boards and grant legal immunity and indemnity to its members, the authorities will seek
parliamentary approval of the law on SOE governance. External audits of the largest SOEs will be
conducted by reputable international companies.
39. Efforts are also made to better assess fiscal risks emanating from SOEs (MEFP ¶16c). A
fiscal risks management division has already been established in the Ministry of Finance. Further
steps will include the setting-up of a comprehensive fiscal risk management system and adopting
the necessary legislative changes to better manage and reduce fiscal risks and enhance public asset
and debt management (including public guarantees, public private partnerships, and local
government borrowing).
40. In the last two years, the authorities have substantially streamlined the regulatory
framework, inter alia by reviewing and abolishing non-relevant sub-legislative acts; streamlining
procedures for obtaining permits and licenses; and improving clarity and transparency in the
construction, telecom, and natural resource sectors. The authorities will continue to further review
and streamline regulation (MEFP ¶17), in particular by reducing time required for land allocation,
simplifying access to geological information, piloting online auctions for subsoil licenses,
implementing risk-based approaches to audits and inspections by state authorities, simplifying cash
registers usage by introducing new technologies and widening possibilities for cashless transactions,
and imposing sanctions for violating cash turnover regulations.
PROGRAM MODALTIES
41. Phasing under the program is proposed to be spread over two semi-annual reviews. A
first purchase of SDR 1.0 billion would be made available upon approval, followed by two purchases
of SDR 0.9 billion each in the spring and fall of 2019, based on end-March 2019 and end-September
2019 performance criteria and a core set of structural benchmarks. The semi-annual review schedule
will better fit the authorities’ implementation capacity and the phasing of program measures, and
thus the monitoring of progress toward program goals. An update safeguards assessment will need
to be completed by the time of the first review. The NBU implemented all recommendations from
the last assessment, conducted in April 2015.

UKRAINE
42. Ukraine’s capacity to repay the Fund remains adequate, although subject to
considerable risks in the event of policy slippages and external shocks. While external debt
service obligations are picking up to US$6–8 billion per year in the coming years, Ukraine is
expected to be able to meet these provided that fiscal and monetary policies remain on track. With
continued prudent policies, Ukraine is expected to continue to be able to access capital markets
after the program, which would substantially ease debt servicing pressures. Thus, post-program
financing needs would remain manageable, and the relative large repurchases in 2022 and 2023
could be supported if necessary by additional capital market borrowing. Risks to the Fund are large,
however, particularly if policies deviate from the program, or if regional tensions were to intensify.
43. Ukraine continues to maintain exchange restrictions and Multiple Currency Practices
(MCPs), but a roadmap is in place to gradually phase them out. The exchange restrictions arise
from: (i) absolute limits on the availability of foreign exchange for certain non-trade current
international transactions; and (ii) a partial ban on the transfer abroad of dividends received by
nonresident investors from foreign investments in Ukraine. The MCPs arise from: (i) the use of
multiple price foreign exchange auctions conducted by the NBU without a mechanism to prevent a
spread deviation of more than 2 percent between the auction and market exchange rates; (ii) the
use of the official exchange rate for exchange transactions with the government without a
mechanism to prevent a spread deviation of more than 2 percent between the official exchange rate
and market exchange rates; and (iii) the requirement to transfer any gains from the purchase of
foreign exchange to the state budget if it is unused and resold.
STAFF APPRAISAL
44. Ukraine has made impressive progress in reducing external and internal imbalances
under the EFF arrangement in the last few years. The large fiscal and quasi-fiscal deficits have
been reigned in and public debt is on a downward path; the exchange rate is broadly flexible;
inflation, while still elevated, is declining; the central bank’s international reserves have increased
substantially; and, importantly, growth has returned. Several key reforms were also advanced,
notably strengthening the independence and governance of the central bank, cleaning up the
banking system, adopting pension reforms, raising gas tariffs, and setting up new, independent
institutions to tackle corruption. This progress is commendable and was by no means assured when
the EFF arrangement was approved in early 2015.
45. However, the slow progress in structural reforms is a missed opportunity to
fundamentally transform the Ukrainian economy. The EFF arrangement offered an opportunity
to begin to address some deep-rooted structural problems and create an enabling environment for
private activity. Tackling corruption and entrenching the rule of law, reforming and privatizing the
large and inefficient state enterprise sector and opening up the market for agricultural land and the
gas sector were aimed at creating a more competitive and resilient economy, but these have yet to
happen. Despite progress achieved, the structure of the economy remains largely unchanged, with
key economic sectors still dominated by oligarchs, stifling competition and deterring new entrants.
Also, while opportunities for corruption have been reduced, few of those who benefited from
corrupt schemes have been convicted, leaving a sense of impunity and disappointment in society. As

UKRAINE
a result, investment remains low and far from enough to support the stronger growth needed for
incomes to catch up with those in other countries in the region. It is regrettable, but not surprising,
that an exodus of workers has taken place to find better job opportunities abroad.
46. Against the backdrop of continued balance of payments needs, there is merit in
preserving the economic gains with a new Fund-supported program. Recent gains are not
irreversible and can be lost in an election year if there is a backsliding of policies. It is reassuring that
the authorities have developed a policy agenda that prioritizes macroeconomic stability on the basis
of prudent policies, and value the continued engagement with the international community,
including the Fund through a new SBA. It is important that the program stays on track throughout
its duration and the authorities avoid missteps that led to delays and interruptions of previous Fund
programs. It is equally important that commitments vis-a-vis other institutions are also carried out
promptly to ensure their timely implementation.
47. The adoption of a sound government budget for 2019 shows the authorities’
commitment to ensuring fiscal sustainability. Notwithstanding political pressures, there is no
space for tax cuts next year, given the pressing spending needs and the imperative of continuing to
reduce public debt. Instead, the authorities’ effort should be squarely on improving tax and customs
administration, which remains the Achilles heel of the current fiscal framework. Keeping the
2019 budget on target will strengthen confidence and help maintain Ukraine’s access to capital
markets. Efforts to recover losses to the state from bank failures need to continue unabatedly.
48. The transformation of the NBU into a modern central bank has been perhaps the most
important recent institutional achievement and should be protected. Recent interest rate
decisions are testament to the NBU’s commitment to low and stable inflation as an anchor for
economic stability. Its continuing efforts to improve banks’ financial health, as well as its
management of the foreign exchange system and the gradual removal of capital controls have been
exemplary. It is crucial that the NBU’s independence is safeguarded.
49. Firm implementation of the more narrowly focused set of reforms will be critical to
the program’s success. Strengthening revenue administration will be essential to help ensure fiscal
sustainability, as well as to continue to improve governance and the business climate to attract
investment and thus underpin growth and external sustainability, together also with continued
efforts to tackle corruption and finally making a start with the sale of larger state-owned companies.
Along with the operationalization of an independent anti-corruption court, it will be crucial for the
effectiveness of the anti-corruption criminal justice framework that a credible anti-corruption
prosecutor effectively supports the investigative efforts of NABU and ensures that robust cases
related to high-level officials are prosecuted and sent for adjudication in an evenhanded manner.
These are all areas where there is strong support within society, which should help overcome
resistance from vested interests.
50. Staff supports the authorities’ request for a Stand-By Arrangement, to succeed the EFF
arrangement. The new SBA will provide an important anchor for the authorities’ economic policies
during a challenging year. The program has an appropriate balance between adjustment and
financing, aiming to further reduce Ukraine’s economic vulnerabilities. The risks to the new

UKRAINE
program—and to Ukraine’s capacity to repay—are clearly large, especially the political risk and risk
of policy slippages, as well as the risks from the unresolved conflict in the eastern part of the
country. While these risks have been partly mitigated by the steps already taken by the authorities,
steadfast implementation will be critical for the program’s success. For these efforts, the authorities
deserve the continued support of the international community. Staff also supports the authorities’
request for approval, for a period of 12 months, of the retention of the exchange restrictions and
multiple currency practices on the grounds that these are non-discriminatory, imposed for balance
of payments reasons, and are temporary.

UKRAINE
Table 1. Ukraine: Selected Economic and Social Indicators, 2017–2023
2018 2019 2020 2021 2022 2023
Act. Proj. Proj. Proj. Proj. Proj. Proj.
Real economy (percent change, unless otherwise indicated)
Nominal GDP (billions of Ukrainian hryvnias) 1/ 2,983 3,447 3,916 4,433 4,918 5,420 5,970
Real GDP 1/ 2.5 3.3 2.7 3.0 3.1 3.2 3.3
Contributions:
Domestic demand 7.1 5.4 4.6 4.9 5.2 5.1 5.1
Private consumption 5.8 3.7 3.2 3.2 3.3 3.1 3.3
Public consumption 0.7 0.5 0.6 0.7 0.7 0.9 0.8
Investment 0.6 1.2 0.8 1.0 1.1 1.0 1.1
Net exports -4.7 -2.2 -1.9 -1.9 -2.1 -1.9 -1.8
GDP deflator 22.0 11.9 10.6 9.9 7.6 6.8 6.6
Output gap (percent of potential GDP) -1.7 -0.7 -0.4 -0.2 -0.1 0.0 0.0
Unemployment rate (ILO definition; percent) 9.5 9.2 8.6 8.0 7.3 6.8 6.6
Consumer prices (period average) 14.4 11.0 9.2 5.9 5.4 5.0 5.0
Consumer prices (end of period) 13.7 10.2 7.0 5.5 5.1 5.1 4.9
Nominal wages (average) 37.1 23.0 17.2 11.0 10.0 9.5 8.5
Real wages (average) 19.1 10.8 7.4 4.8 4.4 4.3 3.3
Savings (percent of GDP) 18.6 18.1 18.6 19.6 19.1 20.5 21.5
Private 17.4 16.9 17.1 18.0 17.4 18.5 19.6
Public 1.1 1.3 1.5 1.6 1.7 1.9 1.9
Investment (percent of GDP) 20.7 21.5 21.4 21.8 22.7 23.7 24.1
Private 17.4 17.5 17.3 17.5 18.3 19.4 19.8
Public 3.3 4.0 4.2 4.3 4.3 4.3 4.3
Public finance (percent of GDP)
General government balance 2/ -2.2 -2.5 -2.3 -2.3 -2.2 -2.0 -2.0
Public and publicly-guaranteed debt 71.9 65.2 64.3 59.8 56.1 52.0 48.7
Money and credit (end of period, percent change)
Base money 4.6 12.9 8.5 8.8 8.9 8.7 8.7
Broad money 9.6 9.8 8.7 13.8 13.7 13.5 13.1
At program exchange rate 9.4 9.7 7.1 14.2 14.2 15.7 14.1
Credit to nongovernment 2.1 8.4 3.2 11.2 10.9 10.7 10.8
Velocity 2.5 2.6 2.7 2.7 2.6 2.6 2.5
Interbank overnight rate (annual average, percent)
11.9 16.6 … … … … …
Balance of payments (percent of GDP)
Current account balance -2.2 -3.3 -2.9 -2.2 -3.6 -3.2 -2.6
Foreign direct investment 2.3 1.7 1.6 1.7 1.7 1.7 1.7
Gross reserves (end of period, billions of U.S. dollars) 18.8 18.8 19.5 20.9 20.8 22.9 23.5
Months of next year's imports of goods and services 3.3 3.2 3.1 3.2 3.0 3.1 3.2
Percent of short-term debt (remaining maturity) 41.1 53.1 50.4 54.0 50.0 50.4 51.4
Percent of the IMF composite metric (float) 65.0 66.3 66.5 69.6 66.4 69.2 68.8
Goods exports (annual volume change in percent) 7.8 3.9 4.7 3.9 4.6 5.6 6.2
Goods imports (annual volume change in percent) 16.7 7.3 4.5 5.1 6.9 7.0 6.9
Goods terms of trade (percent change) 6.8 -1.2 -1.7 3.1 1.4 1.5 1.7
Exchange rate
Hryvnia per U.S. dollar (end of period) 28.1 … … … … … …
Hryvnia per U.S. dollar (period average) 26.6 … … … … … …
Real effective rate (deflator-based, percent change) 11.6 3.9 1.8 2.5 2.2 2.0 1.8
Real effective rate (deflator-based, 2010=100) 91.7 95.3 97.0 99.4 101.6 103.6 105.4
Memorandum items:
Per capita GDP / Population (2017): US$2,640 / 44.8 million
Literacy / Poverty rate (2016): 100 percent / 5.7 percent
1/ Data based on SNA 2008, exclude Crimea and Sevastopol.
Sources: Ukrainian authorities; World Bank, World Development Indicators; and IMF staff
2/ The general government includes the central and local governments and the social funds.
2017

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Table 2a. Ukraine: General Government Finances, 2017–2023 1/
(Billions of Ukrainian hryvnia)
2020 2021 2022 2023
Act. Budget Proj. Budget Proj. Proj. Proj. Proj. Proj.
Revenue 1,172.0 1,397.9 1,398.2 1,572.2 1,574.2 1,743.5 1,931.1 2,137.3 2,355.2
Tax revenue 1,019.8 1,236.8 1,236.6 1,390.8 1,392.9 1,570.1 1,741.2 1,930.1 2,129.1
Tax on income, profits, and capital gains 259.1 317.5 334.0 372.7 372.7 430.9 483.2 540.4 601.7
Personal income tax 185.7 226.7 230.2 267.4 267.5 311.8 351.1 394.7 441.1
Corporate profit tax 73.4 90.8 103.8 105.2 105.2 119.1 132.1 145.7 160.6
Social security contributions 185.6 247.3 237.0 265.8 265.5 309.4 346.9 393.0 436.5
Property tax 29.1 31.0 31.1 32.3 32.3 36.6 40.6 44.8 49.3
Tax on goods and services 443.0 530.7 528.2 587.8 590.1 651.9 715.0 781.2 854.0
VAT 313.9 384.3 387.8 434.3 431.1 474.5 520.1 568.0 620.9
Excise 121.4 137.5 131.5 144.2 149.7 166.9 183.2 200.3 218.9
Other 7.7 8.8 8.9 9.3 9.3 10.6 11.7 12.9 14.2
Tax on international trade 24.5 28.7 28.7 31.5 31.6 34.5 37.7 41.2 45.0
Other tax 78.6 81.5 77.5 100.6 100.6 106.9 117.7 129.5 142.5
Nontax revenue 152.2 161.2 161.6 181.4 181.3 173.4 189.9 207.2 226.1
Expenditure 1,237.4 1,476.6 1,484.3 1,657.0 1,664.3 1,940.9 2,172.5 2,420.1 2,666.6
Current 1,135.6 1,320.6 1,337.4 1,488.5 1,495.8 1,742.5 1,952.3 2,177.3 2,399.1
Compensation of employees 315.5 383.6 383.6 431.8 431.8 550.0 638.7 731.6 829.2
Goods and services 198.4 227.8 227.8 276.3 276.3 312.8 347.0 382.7 421.7
Interest 111.7 132.5 132.5 148.1 148.1 151.6 167.1 182.2 190.5
Subsidies to corporations and enterprises 43.9 29.3 29.3 48.4 48.4 51.3 54.1 56.8 59.6
Social benefits 463.4 545.6 562.3 582.8 590.2 675.6 744.2 822.7 896.5
Social programs (on budget) 146.6 166.4 172.4 148.6 152.4 172.5 191.3 211.0 232.6
Pensions 293.2 345.8 356.6 396.4 400.0 461.6 508.1 563.9 613.0
Unemployment, disability, and accident 23.7 33.3 33.3 37.8 37.8 41.5 44.7 47.8 51.0
Other current expenditures 2.8 1.8 1.8 1.1 1.1 1.2 1.3 1.3 1.4
Capital 99.6 147.5 138.4 162.8 162.8 192.0 213.0 234.9 258.9
Net lending 2.1 6.8 6.8 4.0 4.0 4.5 5.0 5.5 6.1
Contingency reserve 0.0 1.7 1.7 1.7 1.7 1.9 2.2 2.4 2.6
Unidentified measures 0.0 0.0 0.0 0.0 0.0 95.5 133.2 174.3 191.9
General government overall balance -65.3 -78.7 -86.2 -84.7 -90.1 -102.0 -108.2 -108.5 -119.5
General government financing 65.3 78.7 86.2 84.7 90.1 102.0 108.2 108.5 119.5
External 57.3 44.4 26.1 22.1 11.5 -8.6 3.7 53.3 6.1
Disbursements 127.0 98.7 98.2 143.9 111.1 122.5 117.8 144.4 99.3
Amortizations -69.7 -54.3 -72.1 -121.8 -99.7 -131.1 -114.0 -91.1 -93.2
Domestic (net) 8.0 34.3 60.0 62.6 78.6 110.5 104.5 55.2 113.4
Bond financing 2/ -1.9 13.0 9.8 45.8 68.1 88.8 90.9 40.2 96.9
Direct bank borrowing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deposit finance 6.6 0.0 50.0 -0.8 0.0 0.0 0.0 0.0 0.0
Privatization 3.4 21.3 0.2 17.6 10.5 21.8 13.6 15.0 16.5
Bank and DGF recapitalization 71.0 38.0 0.0 14.0 14.0 15.0 0.0 0.0 0.0
Memorandum items:
Primary balance 46.3 53.8 46.4 63.3 58.0 49.7 58.9 73.7 71.0
Cyclically-adjusted primary balance 3/ 66.2 70.4 55.8 78.0 64.8 53.1 61.4 74.2 71.8
Structural primary balance 3/ 4/ 53.2 52.0 45.6 60.0 64.8 53.1 61.4 74.2 71.8
Public and publicly-guaranteed debt 2,144 2,610 2,248 2,519 2,519 2,653 2,760 2,820 2,910
Nominal GDP (billions of Ukrainian hryvnia) 2,983 3,329 3,447 3,916 3,916 4,433 4,918 5,420 5,970
Sources: Ministry of Finance; National Bank of Ukraine; and IMF staff estimates and projections.
3/ For the calculation of these balances, it is asumed that the unidentified measures are on the expenditure side.
2/ Domestic bonds have been adjusted to reflect discrepancy between the above-the-line and the below-the-line deficits.
4/ Advanced pension payments and part of the NBU profit transfer are considered one-off operations.
2017
1/ National methodology, cash basis.
2018 2019

UKRAINE
Table 2b. Ukraine: General Government Finances, 2017–2023 1/
(Percent of GDP)
2020 2021 2022 2023
Act Budget Proj. Budget Proj. Proj. Proj. Proj. Proj.
Revenue 39.3 42.0 40.6 40.1 40.2 39.3 39.3 39.4 39.4
Tax revenue 34.2 37.2 35.9 35.5 35.6 35.4 35.4 35.6 35.7
Tax on income, profits, and capital gains 8.7 9.5 9.7 9.5 9.5 9.7 9.8 10.0 10.1
Personal income tax 6.2 6.8 6.7 6.8 6.8 7.0 7.1 7.3 7.4
Corporate profit tax 2.5 2.7 3.0 2.7 2.7 2.7 2.7 2.7 2.7
Social security contributions 6.2 7.4 6.9 6.8 6.8 7.0 7.1 7.3 7.3
Property tax 1.0 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8
Tax on goods and services 14.9 15.9 15.3 15.0 15.1 14.7 14.5 14.4 14.3
VAT 10.5 11.5 11.3 11.1 11.0 10.7 10.6 10.5 10.4
Excise 4.1 4.1 3.8 3.7 3.8 3.8 3.7 3.7 3.7
Other 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2
Tax on international trade 0.8 0.9 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Other tax 2.6 2.4 2.2 2.6 2.6 2.4 2.4 2.4 2.4
Nontax revenue 5.1 4.8 4.7 4.6 4.6 3.9 3.9 3.8 3.8
Expenditure 41.5 44.4 43.1 42.3 42.5 43.8 44.2 44.6 44.7
Current 38.1 39.7 38.8 38.0 38.2 39.3 39.7 40.2 40.2
Compensation of employees 10.6 11.5 11.1 11.0 11.0 12.4 13.0 13.5 13.9
Goods and services 6.7 6.8 6.6 7.1 7.1 7.1 7.1 7.1 7.1
Interest 3.7 4.0 3.8 3.8 3.8 3.4 3.4 3.4 3.2
Subsidies to corporations and enterprises 1.5 0.9 0.8 1.2 1.2 1.2 1.1 1.0 1.0
Social benefits 15.5 16.4 16.3 14.9 15.1 15.2 15.1 15.2 15.0
Social programs (on budget) 4.9 5.0 5.0 3.8 3.9 3.9 3.9 3.9 3.9
Pensions 9.8 10.4 10.3 10.1 10.2 10.4 10.3 10.4 10.3
Unemployment, disability, and accident 0.8 1.0 1.0 1.0 1.0 0.9 0.9 0.9 0.9
Other current expenditures 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0
Capital 3.3 4.4 4.0 4.2 4.2 4.3 4.3 4.3 4.3
Net lending 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1
Contingency reserve 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Unidentified measures 0.0 0.0 0.0 0.0 0.0 2.2 2.7 3.2 3.2
General government overall balance -2.2 -2.4 -2.5 -2.2 -2.3 -2.3 -2.2 -2.0 -2.0
General government financing 2.2 2.4 2.5 2.2 2.3 2.3 2.2 2.0 2.0
External 1.9 1.3 0.8 0.6 0.3 -0.2 0.1 1.0 0.1
Disbursements 4.3 3.0 2.9 3.7 2.8 2.8 2.4 2.7 1.7
Amortizations -2.3 -1.6 -2.1 -3.1 -2.5 -3.0 -2.3 -1.7 -1.6
Domestic (net) 0.3 1.0 1.7 1.6 2.0 2.5 2.1 1.0 1.9
Bond financing 2/ -0.1 0.4 0.3 1.2 1.7 2.0 1.8 0.7 1.6
Direct bank borrowing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deposit finance 0.2 0.0 1.5 0.0 0.0 0.0 0.0 0.0 0.0
Privatization 0.1 0.6 0.0 0.4 0.3 0.5 0.3 0.3 0.3
Bank and DGF recapitalization 2.4 … 0.0 0.4 0.4 0.3 0.0 0.0 0.0
Memorandum items:
Primary balance 1.6 1.6 1.3 1.6 1.5 1.1 1.2 1.4 1.2
Cyclically-adjusted primary balance 3/ 2.2 2.1 1.6 2.0 1.7 1.2 1.2 1.4 1.2
Structural primary balance 3/ 4/ 1.8 1.6 1.3 1.5 1.7 1.2 1.2 1.4 1.2
Sources: Ministry of Finance; National Bank of Ukraine; and IMF staff estimates and projections.
3/ For the calculation of these balances, it is asumed that the unidentified measures are on the expenditure side.
4/ Advanced pension payments and part of the NBU profit transfer are considered one-off operations.
2/ Domestic bonds have been adjusted to reflect discrepancy between the above-the-line and the below-the-line deficits.
1/ National methodology, cash basis.
20182017 2019

UKRAINE
Table 3. Ukraine: Balance of Payments, 2017–2023 1/
(Billions of U.S. dollars, unless otherwise indicated)
2021 2022 2023
Proj. Proj. Proj. Proj. Proj. Proj.
Current account balance -2.4 -4.2 -3.9 -3.2 -5.6 -5.4 -4.7
Goods (net) -9.4 -12.6 -13.5 -13.2 -14.3 -15.2 -15.6
Exports 39.7 43.0 43.4 46.0 48.5 51.8 55.8
Imports -49.1 -55.5 -56.9 -59.2 -62.8 -67.0 -71.5
Of which : gas -2.9 -3.4 -3.1 -2.8 -2.6 -2.4 -2.6
Services (net) 0.8 0.8 1.2 1.1 -0.8 -0.7 -0.5
Receipts 14.1 14.4 15.4 16.1 14.9 15.9 16.9
Payments -13.3 -13.6 -14.2 -15.0 -15.7 -16.5 -17.3
Primary income (net) 2.7 3.9 4.3 4.4 4.7 5.1 5.6
Secondary income (net) 3.5 3.6 4.2 4.5 4.8 5.3 5.8
Capital account balance 2/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Financial account balance -4.3 -4.2 -3.6 -5.7 -6.8 -10.0 -8.8
Direct investment (net) 3/ -2.6 -2.1 -2.2 -2.5 -2.6 -2.8 -3.1
Portfolio investment (net) -1.8 -2.3 -0.6 -1.5 -1.9 -3.1 -2.6
Portfolio investment: assets 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Portfolio investment: liabilities 1.8 2.3 0.6 1.5 1.9 3.1 2.6
Financial derivatives (net) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other investment (net) 0.1 0.2 -0.8 -1.8 -2.3 -4.1 -3.1
Other investment: assets 0.9 1.9 -0.1 -1.0 -1.0 -1.9 -1.9
Other investment: liabilities 0.8 1.6 0.7 0.8 1.3 2.2 1.3
Central Bank 0.1 0.0 0.0 0.0 -0.2 -0.1 0.0
General government 0.5 0.4 0.6 -0.5 0.0 0.5 -1.0
Banks 3/ -1.5 -0.5 0.0 0.3 0.3 0.3 0.3
Other sectors 1.7 1.7 0.1 0.9 1.2 1.5 2.0
Errors and omissions 0.7 0.8 0.0 0.0 0.0 0.0 0.0
Overall balance 2.6 0.8 -0.3 2.6 1.2 4.6 4.1
Financing -2.6 -0.8 0.3 -2.6 -1.2 -4.6 -4.1
Gross official reserves (increase: -) -2.7 -0.1 -0.7 -1.5 0.1 -2.1 -0.7
Net use of IMF resources 0.1 -0.7 0.9 -1.1 -1.4 -2.5 -3.5
Of which: Prospective Fund purchases 1.0 1.4 2.5 0.0 0.0 0.0 0.0
Exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Memorandum items:
Total external debt (percent of GDP) 104.1 95.5 92.3 86.7 82.4 78.8 74.4
Current account balance (percent of GDP) -2.2 -3.3 -2.9 -2.2 -3.6 -3.2 -2.6
Goods and services trade balance (percent of GDP) -7.7 -9.3 -9.2 -8.3 -9.7 -9.4 -8.9
Gross international reserves 18.8 18.8 19.5 20.9 20.8 22.9 23.5
Percent of the IMF composite metric 65.0 66.3 66.5 69.6 66.4 69.2 68.8
Sources: National Bank of Ukraine; and IMF staff estimates and projections.
1/ Based on BPM6.
2/ Official capital transfers are reported below the line.
2017 2018 2019 2020
3/ Includes banks' debt for equity operations.

UKRAINE
Table 4. Ukraine: Gross External Financing Requirements, 2017–2023
(Billions of U.S. dollars)
2021 2022 2023
Total financing requirements 57.0 57.93 46.0 48.3 50.6 51.2 52.4
Current account deficit 2.4 4.2 3.9 3.2 5.6 5.4 4.7
Portfolio investment 2.1 2.3 2.9 3.8 3.1 1.9 2.4
Private 0.1 0.6 1.2 1.4 0.7 0.5 1.1
General government 2.0 1.7 1.7 2.4 2.4 1.4 1.4
Medium and long-term debt 24.3 21.6 11.4 14.2 14.2 16.2 16.5
Private 24.0 21.2 10.7 12.7 13.3 15.2 15.4
Banks 0.3 0.7 0.5 0.5 0.5 0.6 0.6
Corporates 23.7 20.5 10.2 12.2 12.8 14.6 14.8
Short-term debt (including deposits) 13.5 14.2 14.2 14.2 14.2 14.2 14.2
Other net capital outflows 1/ 0.8 1.8 -0.1 -1.0 -1.0 -1.9 -1.9
Trade credit 13.8 13.8 13.8 13.9 14.5 15.4 16.4
Total financing sources 59.4 56.5 44.5 49.8 51.1 54.3 56.5
Capital transfers 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Direct investment, net 2.6 2.1 2.2 2.5 2.6 2.8 3.1
Portfolio investment 3.9 4.5 3.5 5.3 5.0 5.0 5.0
Private 0.4 0.9 0.5 2.3 2.0 2.0 2.0
Of which: Eurobond issuance 3.2 2.7 3.0 3.0 3.0 3.0 3.0
Medium and long-term debt 26.9 21.8 10.7 13.2 13.7 15.6 16.1
Private 26.9 21.8 10.7 13.2 13.7 15.6 16.1
Banks 0.0 0.7 0.5 0.6 0.6 0.7 0.9
Corporates 26.9 21.1 10.2 12.5 13.2 15.0 15.2
Short-term debt (including deposits) 13.6 14.2 14.2 14.4 14.4 14.4 14.2
Trade credit 12.3 13.8 13.9 14.5 15.4 16.4 18.1
Increase in gross reserves 2.7 0.1 0.7 1.5 -0.1 2.1 0.7
Errors and omissions 0.7 0.8 0.0 0.0 0.0 0.0 0.0
Total financing needs -0.4 0.8 2.2 -0.1 -0.6 -1.0 -3.5
Official financing 2.4 0.2 2.2 -0.1 -0.6 -1.3 -3.5
IMF 0.1 -0.7 0.9 -1.1 -1.4 -2.5 -3.5
Prospective purchases 1.0 1.4 2.5 0.0 0.0 0.0 0.0
Repurchases 0.9 2.1 1.6 1.1 1.4 2.5 3.5
Official creditors 2.3 0.9 1.3 1.0 0.7 1.2 0.0
World Bank 0.8 0.2 0.2 0.4 0.3 1.2 0.0
EU 0.6 0.6 0.6 0.0 0.0 0.0 0.0
EBRD/EIB/Others 0.9 0.1 0.5 0.6 0.4 0.0 0.0
Exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Memorandum items:
Gross international reserves 18.8 18.8 19.5 20.9 20.8 22.9 23.5
Percent of short-term debt (remaining maturity) 41.1 53.1 50.4 54.0 50.0 50.4 51.4
Percent of the IMF composite metric 2/ 65.0 66.3 66.5 69.6 66.4 69.2 68.8
Loan rollover rate (percent)
Banks 86.7 100.0 100.0 104.9 104.6 104.6 104.6
Corporates 102.4 100.0 100.0 101.6 101.6 101.7 101.7
Total 99.6 100.0 100.0 102.4 102.3 102.3 102.3
1/ Reflects changes in banks', corporates', and households' gross foreign assets as well as currency
2/ The IMF composite measure is calculated as a weighted sum of short-term debt, other portfolio and
investment liabilities, broad money, and exports. Official reserves are recommended to be in the range of
2018 2019 20202017

UKRAINE
Table 5. Ukraine: Monetary Accounts, 2017–2023
(Billions of Ukrainian hryvnia, unless otherwise noted)
2021 2022 2023
Monetary survey
Net foreign assets 171 225 257 321 348 472 453
Net domestic assets 1,038 1,102 1,185 1,320 1,519 1,647 1,943
Domestic credit 1,748 1,885 2,001 2,227 2,455 2,645 2,909
Net claims on government 716 767 848 945 1,035 1,074 1,170
Credit to the economy 1,024 1,110 1,145 1,274 1,412 1,562 1,731
Domestic currency 577 594 596 667 756 869 1,001
Foreign currency 447 516 549 607 656 693 730
Other claims on the economy 8 8 8 8 8 8 8
Other items, net -710 -783 -816 -907 -936 -998 -967
Broad money 1,209 1,328 1,443 1,641 1,866 2,119 2,396
Currency in circulation 333 373 406 437 470 506 544
Total deposits 876 954 1,036 1,204 1,396 1,612 1,851
Domestic currency deposits 491 546 588 720 875 1,061 1,262
Foreign currency deposits 386 408 449 484 521 552 590
Accounts of the NBU
Net foreign assets 182 214 218 306 355 514 529
Net international reserves 187 219 223 311 361 520 536
(In billions of U.S. dollars) 6.7 7.5 7.2 9.7 10.9 15.5 15.5
Reserve assets 528 545 603 669 686 768 814
(In billions of U.S. dollars) 18.8 18.8 19.5 20.9 20.8 22.9 23.5
Other net foreign assets -5 -4 -6 -6 -6 -6 -7
Net domestic assets 217 236 271 226 224 116 155
Net domestic credit 322 379 426 422 441 371 433
Net claims on government 322 351 346 327 314 302 288
Claims on government 1/ 378 361 349 336 324 313 300
Net claims on banks 0 28 80 95 127 70 146
Other items, net -106 -143 -155 -196 -217 -256 -278
Base money 399 450 489 532 579 629 684
Currency in circulation 333 373 406 437 470 506 544
Banks' reserves 67 77 83 95 109 124 140
Cash in vault 29 32 34 40 46 53 60
Correspondent accounts 38 45 49 55 63 71 80
Deposit money banks
Net foreign assets -11 11 40 16 -7 -42 -75
Foreign assets 165 183 196 202 208 212 219
Foreign liabilities 176 172 156 186 215 254 294
Net domestic assets 887 942 997 1,188 1,403 1,655 1,927
Domestic credit 1,531 1,618 1,691 1,933 2,156 2,431 2,649
Net claims on government 2/ 393 416 502 618 721 773 882
Credit to the economy 1,024 1,112 1,145 1,273 1,412 1,562 1,731
Other claims on the economy 8 8 8 8 8 8 8
Net claims on NBU 106 83 37 34 16 88 27
Of which: refinancing loans 3/ 69 60 76 95 130 75 151
Other items, net -644 -676 -695 -745 -753 -776 -722
Banks' liabilities 876 954 1,036 1,204 1,396 1,612 1,851
Memorandum items:
Base money 4.6 12.9 8.5 8.8 8.9 8.7 8.7
Currency in circulation 5.8 12.3 8.7 7.6 7.6 7.6 7.7
Broad money 9.6 9.8 8.7 13.8 13.7 13.5 13.1
Credit to the economy 2.1 8.4 3.2 11.2 10.9 10.7 10.8
Real credit to the economy 4/ -10.1 -1.7 -3.6 5.4 5.4 5.3 5.5
Credit-to-GDP ratio, in percent 32.2 32.2 29.2 28.7 28.7 28.8 28.9
Velocity of broad money, ratio 2.47 2.60 2.71 2.70 2.63 2.56 2.50
Money multiplier, ratio 3.03 2.95 2.95 3.09 3.22 3.37 3.50
Hryvnia per U.S. dollar (end of period) 28.1 … … … … …… …
1/ Includes purchases of Naftogaz and PrivatBank recapitalization bonds and DGF financing.
2/ Includes claims for recapitalization of banks.
3/ Includes regular liquidity provision operations in the forecast period.
4/ Deflated by CPI (eop), at current exchange rates, year-on-year percent change.
20202018
(End of period, percent change unless
20192017

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Table 6. Ukraine: Structural and Financial Soundness Indicators for the Banking Sector,
2016–18
(Percent, unless otherwise indicated)
Jun. Dec. Jun. Dec. Jun.
Ownership
Number of banks, of which 1/ 110 100 93 84 83
Private 103 93 86 79 78
Domestic 62 52 47 40 38
Foreign 41 41 39 39 40
Of which: 100% foreign-owned 17 19 18 19 23
State-owned 3 2 2 2 2
State-controlled (inc. in sanation) 4 5 5 3 3
Foreign-owned banks' share in statutory capital 51.2 51.0 34.7 34.3 34.3
Concentration
Share of assets of largest 10 banks 72.4 72.2 75.4 75.7 76.5
Share of assets of largest 25 banks 90.7 91.4 93.1 93.4 93.3
Number of bank with assets less than $150 million 77 68 65 54 52
Capital Adequacy
Regulatory capital to risk-weighted assets 2/ 13.0 12.7 12.4 16.1 16.4
Regulatory Tier 1 capital to risk-weighted assets 9.0 9.0 9.2 12.1 11.2
Capital to total assets 11.1 9.8 11.1 11.9 10.3
Asset Quality
Change of credit to GDP ratio (year-over-year, percentage points) -15.1 -8.9 -9.8 -7.7 -4.3
NPLs to total loans (NBU definition) 3/ 30.4 30.5 57.7 54.5 55.7
NPLs net of provisions to capital (NBU definition) 3/ 93.6 89.4 96.3 70.2 62.2
Provisioning coverage ratio 65.8 72.7 77.3 81.1 86.7
Loan loss reserves to total (gross) loans 31.2 44.9 47.4 46.7 52.1
Foreign Exchange Rate Risk
Loans in foreign currency to total loans 56.9 51.4 48.6 47.1 46.2
Deposits in foreign currency to total deposits 49.0 49.9 46.6 46.6 43.0
Foreign currency loans to foreign currency deposits 139.0 122.3 117.3 115.1 124.1
Net open FX position to capital 4/ 122.5 118.9 109.8 89.6 138.8
Net open FX position to regulatory capital (staff estimate) 5/ -40.2 -100.8
Liquidity Risk
Liquid assets to total assets 38.4 48.5 53.0 53.9 54.2
Customer deposits to total loans to the economy 79.4 80.5 84.8 84.6 84.2
Earnings and Profitability
Return on assets (after tax; end-of-period) 6/ -2.1 -12.3 -0.7 -2.0 0.5
Return on equity (after tax; end-of-period) 6/ -20.6 -115.0 -6.4 -17.2 4.0
Net interest margin to total assets 1.8 3.6 2.0 3.9 2.5
Interest rate spreads (percentage points; end-of-period)
Between loans and deposits in domestic currency 8.7 7.3 6.9 8.0 9.1
Between loans and deposits in foreign currency 5.0 3.0 4.0 3.9 3.4
Between loans in domestic and foreign currency 12.1 9.6 8.5 11.0 11.8
Between deposits in domestic and foreign currency 8.4 5.4 5.6 6.9 6.0
Number of banks not complying with banking regulations
Not meeting capital adequacy requirements for Tier I capital 11 10 10 3 2
Not meeting prudential regulations 33 39 32 32 31
Not meeting reserve requirements 9 7 3 3 3
Sources: National Bank of Ukraine; and IMF staff estimates.
1/ Excludes banks under liquidation.
5/ Net position calculated as on-balance sheet assets in foreign currency minus on-balance sheet liabilities in foreign currency.
6/ Cumulative profits year-to-date, annualized.
3/ From 2012-2016, NPLs consisted of loans in categories IV and V as recorded on the balance sheet; total gross loans included off-
balance sheet obligations on guarantees and loans used for credit assessments. Since 1th quarter of 2017 NPLs include loans
classified into the lowest class, in particular: class 10 - loans to corporate borrowers (excluding banks and state owned entities); class
5 - loans to other borrowers/counterparties accounted; total gross loans as debts arising from credit transactions, including loans to
customers, interbank loans and deposits, excluded off-balance sheet obligations on guarantees and loans given to banks and
customers, used for credit risk assessment.
4/ Calculated according to IMF STA guidelines, with net open position equal to the sum of the absolute value of the net open
position in individual foreign currencies.
2018
2/Prior to 2017, capital does not reflect the impact of June 2016 Credit Risk Regulation (No 351), which came into effect January 3,
2017.
2016 2017

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32INTERNATIONALMONETARYFUND
Table 7. Ukraine: Indicators of Fund Credit, 2017–2026
(In millions of SDR)
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Actual
Existing Fund credit
Stock 1/ 8,522 7,036 5,883 5,095 4,126 3,096 2,067 1,037 303 61
Obligations 853 430 1,359 959 1,097 1,120 1,099 1,078 762 260
Principal (repurchases) 629.0 372 1,153 788 969 1,030 1,030 1,030 734 242
Interest charges 224.0 58 206 171 129 90 69 48 27 18
Prospective purchases
Disbursements 0.0 1,000 1,800 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Stock 1/ 0.0 1,000 2,800 2,800 2,800 2,075 675 0.0 0.0 0.0
Obligations 2/ 0.0 5.0 74 146 152 857 1,457 685 0.3 0.0
Principal (repurchases) 0.0 0.0 0.0 0.0 0.0 725 1,400 675 0.0 0.0
Interest charges 0.0 5.0 73.7 146.0 152.0 132.5 57.5 10.2 0.3 0.0
Stock of existing and prospective Fund credit 1/ 8,522 8,036 8,683 7,895 6,926 5,171 2,742 1,037 303 61
In percent of quota 3/ 424 399 432 392 344 257 136 52 15.1 3.0
In percent of GDP 5.4 4.5 4.5 3.8 3.1 2.1 1.0 0.3 0.1 0.0
In percent of exports of goods and nonfactor services 11.2 9.9 10.4 8.9 7.6 5.3 2.6 1.0 0.3 0.1
In percent of gross reserves 32.0 30.4 31.3 26.5 23.4 15.9 8.2 3.1 0.9 0.2
In percent of public external debt 13.1 11.8 11.7 10.9 9.5 7.1 3.7 1.4 0.4 0.1
Obligations to the Fund from existing and prospective
Fund credit 853 435 1,433 1,105 1,249 1,977 2,556 1,763 762 260
In percent of quota 42.4 21.6 71.2 54.9 62.1 98.3 127.1 87.6 37.9 12.9
In percent of GDP 0.5 0.2 0.7 0.5 0.6 0.8 1.0 0.5 0.2 0.1
In percent of exports of goods and nonfactor services 1.1 0.5 1.7 1.2 1.4 2.0 2.4 1.7 0.7 0.2
In percent of gross reserves 3.2 1.6 5.2 3.7 4.2 6.1 7.7 5.3 2.3 0.8
In percent of public external debt service 20.4 9.7 32.4 19.2 25.1 38.1 49.2 33.9 14.7 5.0
Source: Fund staff estimates and projections.
1/ End of period.
2/ Repayment schedule based on repurchase obligations and GRA charges. Includes service charges.
3/ Ukraine's quota is SDR 2011.8 million effective since Febrauary 2016.
Projections

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INTERNATIONALMONETARYFUND33
Table 8. Ukraine: Schedule of Reviews and Available Purchases
(SDR
billions)
(USD
billions)
(Percent of
quota)
18-Dec-18
Approval of the 14-month SBA 1.0 1.4 49.7
15-May-19
Completion the first review based on end-March 2019
performance criteria
0.9 1.3 44.7
15-Nov-19
Completion the second review based on end-September 2019
performance criteria
0.9 1.3 44.7
Total available 2.8 3.9 139
Source: Fund staff estimates and projections.
Availability Date Condition
Amount of Purchase

UKRAINE
Annex I. External Sector Assessment
Staff’s overall assessment is that Ukraine’s external position in 2018 is broadly in line with
fundamentals. Competitiveness has been affected by a series of negative shocks, including to
production capacity due to the conflict in the eastern part of Ukraine and rising real wages. The
policy assumptions underpinning this assessment hinge upon the timely and steadfast
implementation of the program. Reserves would remain at adequate levels although well below
100 percent of the composite metric. Risks to the outlook stem from policy slippages and political
uncertainty, adverse terms of trade shocks, financial market volatility, and a possible escalation of
the conflict in eastern Ukraine.
Real Exchange Rate
1. Ukraine’s competitiveness
improved markedly in 2014 after moving
to a flexible exchange rate regime, but
some of those gains have been eroded in
recent years. The nominal effective exchange
rate has depreciated in the last few years and
while inflation has been declining, it remains
relatively high compared to trading partners.
On balance, the real effective exchange rate
has been gradually appreciating. The
appreciation of the REER in unit-labor cost
terms is more pronounced. This is in part
explained by the large migration of workers
to new markets (mostly Poland), which has
led to a sizable increase in remittances
inflows but also to an upward pressure on
wages in Ukraine as firms compete for
workers.
2. Trade tensions continue to affect
the external outlook. On the one hand,
more than four years after its beginning, the conflict in the eastern part of Ukraine continues, with
no clear resolution in sight. More recently, the construction by Russia of a bridge in the Sea of Azov
has resulted in delays in transportation of mostly metallurgical products from the eastern part of
Ukraine. In some cases, companies have had to switch to transporting their production via rail, at an
increased cost and with lower efficiency. The recent financial market turmoil in Turkey, one of
Ukraine’s main trading partners, is also adversely affecting Ukrainian exports. Trade tensions
between the US and China and the associated tariffs have so far had limited impact on Ukrainian
exports, but this could change quickly if trade measures were to escalate and spread.

UKRAINE
3. The current account
widened in 2018 to about 3
percent of GDP due to
increased imports and
dividend repatriations.
Exports recovered, after the
drought of 2017 that had hurt
agriculture, but robust
domestic demand led a faster
increase in imports. Tourism
has been permanently
impacted by Russia’s annexation of Crimea. A pick-up in remittances has provided sizable inflows,
however, that help finance the current account deficit. Going forward, the completion of the Nord
Stream 2 pipeline could result in large losses in transit fees for Ukraine. The baseline assumes a
considerable reduction in transit fees starting in 2021.
4. Staff assesses the external position to be in line with fundamentals. Both the current
account (CA) and the external sustainability models point to
the exchange rate being in line with fundamentals. On the
other hand, the effective exchange rate index model points to
a slight overvaluation of the hryvnia of about 10 percent.
Foreign Asset and Liability Position
5. Ukraine’s international investment
position has marginally improved in recent
years. This was the result lower current
account deficits, but also lower FDI and other
inflows into the economy. Going forward, it is
expected to deteriorate to about 27 percent
in 2023, as Ukraine continues to tap
international markets, and more capital is
projected to flow into the economy.
2018 REER gap estimates
EBA‐lite CA model ‐2.5
EBA‐lite ES model 4.8
EBA‐lite REER model ‐10.3
‐15
‐10
‐5
0
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Current Account (percent of GDP)
Goods (net) Services (net) Primary Income (net)
Secondary Income (net) Current Account Balance
Source: Haver, NBU, and IMF stafff calculations
Projection
‐80
‐60
‐40
‐20
0
20
40
60
‐250
‐200
‐150
‐100
‐50
0
50
100
150
200
2010 2011 2012 2013 2014 2015 2016 2017 2018H1
Net International Investment Position (billion USD)
Direct investment (A) Other investment (A) Reserve assets (A)
Direct investment (L) Portfolio investment (L) Other investment (L)
NIIP (percent GDP) (RHS)
Source: Haver, NBU, and IMF stafff calculations

UKRAINE
Capital and Financial Account Flows and Policy Measures
6. Ukraine has maintained access to international capital markets and has continued
building reserves. Most net
inflows of FDI since 2015–16
have been directed at the
banking sector, as debt-to-
equity or debt-forgiveness
operations between
subsidiaries and parent banks.
In early 2018, non-resident
purchased domestic
government securities, but
these flows reversed in the fall
as the outlook for emerging
markets deteriorated. The
introduction of Clearstream in 2019 could facilitate further inflows of non-residents into the
Ukrainian securities market. The NBU has also continued with the gradual removal of foreign
exchange restrictions. As a result, dividend repatriations increased substantially in 2018, reaching
US$2.8 billion in the first ten months of the year, compared to US$1.8 billion in the whole of 2017.
7. Ukraine’s gross international reserves have reached an adequate level, but further
efforts should be made to build additional buffers. Ukraine has made considerable efforts in
recent years to rebuild its
international reserves. However,
these fall short from the levels
suggested by the IMF’s reserve
adequacy metric. The 2015 EFF
envisioned surpassing
100 percent of the metric by the
end of the program. Delays in
program implementation and
additional external challenges
made reaching this target
unattainable. Under the
proposed SBA, Ukraine would be
able to meet its sizable external obligations in coming years while maintaining its current reserve
buffers.

UKRAINE
Annex II. Debt Sustainability Analysis
Public debt is expected to decline to just over 65 percent of GDP by the end of 2018 and to
continue on a sustainable downward path in the medium-term, falling to below 50 percent of
GDP in 2023. A strong fiscal adjustment effort and the return of economic growth have helped
bring down debt from its peak of 85 percent of GDP in 2016. The debt outlook remains subject to
significant risks, however, and debt indicators could worsen substantially in case of exchange rate
or growth shocks, either of which could be triggered by policy slippages, a worsening external
environment, or an intensification of regional tensions.
A. Key Assumptions in the DSA
1. The main assumption in the macroeconomic framework are:
 Real GDP growth. Growth is projected to reach 3.3 percent in 2018 and remain around that level
in the medium-term. In the absence of structural reforms, potential GDP is also estimated at 3.3
percent.
 Exchange rate. The average exchange rate stood at UAH27.4/$ so far in 2018. It is expected that
relatively contained current account deficits and continued capital inflows would continue
supporting a small real exchange rate appreciation over the medium term.
 Inflation. Inflation (measured by the GDP deflator) is set to decline to 12 percent in 2018 and is
expected to continue to decline to about 6.5 percent in the medium-term.
 Fiscal deficits. In 2018 the fiscal deficit (including Naftogaz) is expected to be around 2.5 percent
of GDP (assuming that budget spending will accelerate in the last months of the year), and it will
decline slightly to 2.3 percent of GDP in 2019. The primary balance will remain at around 1.5
percent of GDP in 2018 and 2019. In cyclically adjusted terms, this implies a modest easing of
the fiscal stance, although it on balance still represents a fiscal adjustment of around
4 percentage points of GDP since 2013. Assuming that the authorities will continue to pursue
sound fiscal policies, primary surpluses between 1 and 1.5 percent of GDP are projected
throughout the projection period.
2. Other identified debt-creating/reducing flows.
 Banking system support. With much of the rehabilitation of the banking system achieved, and
with stronger capital buffers and improved NPL provisioning, the projected additional fiscal
costs for 2019 and 2020 are projected at about 0.4 percent of GDP.
 Issuance of guaranteed debt. During 2018, guarantees amounted to about 0.7 percent of GDP.
For 2019, it is assumed that the issuance of new guarantees would remain at 0.6 percent of GDP
and will be limited to 0.3 percent of GDP per year from 2020 onwards due to the expected
reduced demand brought about by the privatization and corporatization of state-owned
enterprises.

UKRAINE
 Privatization proceeds. For the period 2018–23, the baseline assumes no proceeds from
privatization.
3. Official financing. Multilateral financing is expected from the EU under its Macro-Financial
Assistance program for €1 billion. The World Bank is expected to provide a Policy-Based Guarantee
for USD750 million that would allow Ukraine to borrow up to US$ 1 billion. IMF lending under the
current program is on SBA terms.
4. Market access. Ukraine has regained market access and has been able to tap international
markets in the last two years. In 2018, Ukraine made a private placement in September in the
amount US$ 725million and issued US$ 2 billion in bonds in November. The expected World Bank
Policy-Based Guarantee would allow Ukraine to borrow up to US$ 1 billion at more favorable terms.
Thanks to the adjustment efforts of recent years, gross financing needs during the post-program
period would remain well below the high-risk benchmark in the debt sustainability framework, which
would help ensure the needed continuous market access.
B. Public Sector DSA
5. The coverage of public debt in this DSA includes: (i) central government direct debt;
(ii) domestic and external government-guaranteed debt (loans and bonds) extended to SOEs;
(iii) debt of local governments; and (iv) Ukraine’s liabilities to the IMF that are not included in central
government direct debt. It does not include non-guaranteed SOEs domestic and external liabilities.
6. Baseline projections indicate that the debt ratio would fall below 50 percent of GDP by
2023 (Figure 3). After peaking at 85 percent in 2016, public debt declined substantially, mostly on
the back of the fiscal adjustment and the improved interest rate-growth differential. Reduced
recapitalization costs for banks and Naftogaz relative to the previous DSA help improve the debt
dynamics. The projected decline in public in the medium-term is driven by sustained fiscal
adjustment and continued real growth, as well as a modest real exchange rate appreciation.
7. A heat map and fan charts indicate that Ukraine risks to debt sustainability have
declined but remain significant (Figure 1). The worsening external environment for emerging
markets could lead to a sharp increase in borrowing costs for Ukraine. On the domestic front, the
upcoming elections could also have an impact on rollover rates and overall financing costs. These
risks are somewhat alleviated by the lower debt level and gross financing needs. Another source of
vulnerability is the large share of debt denominated in foreign currency, making Ukraine highly
vulnerable to large movements of the exchange rate. The large share of public debt held by
nonresidents (two-thirds of total debt) also poses some risks, although this is mitigated by the large
holdings of debt by official creditors. Going forward, as Ukraine continues to repay much of its debt
to official creditors, it a prudent debt management strategy will be necessary to ensure that the
improved debt dynamics are preserved.

UKRAINE
Public and Publicly Guaranteed Debt 2018
8. Stress tests suggest that the debt profile is most vulnerable to a real exchange rate
shock and a real GDP shock. The shock scenarios also point to risks related to larger-than-
expected financing needs, including to support the banking sector. However, under the baseline,
owing to the efforts made so far, gross financing needs have declined to the extent that the heat
map points to low to moderate liquidity risks compared to the high risks at the time of 2015 EFF
approval. Under stress tests, only the combined shock has a substantial impact on gross financing
needs, raising these to an average of more than 15 percent of GDP during the projection period.
C. External Sector DSA
9. Baseline projections suggest that external debt would drop to about 80 percentage
points of GDP by 2023. Gross external debt has declined to about 100 percent, after peaking at
130 percent of GDP in 2015. The medium-term sustainability of external debt is underpinned by a
moderate external adjustment. Exports of goods and services are expected to decline in 2021 as gas
transit fees decline following the projected start of operations of the Nord Stream 2 pipeline.
However, continued strong performance by other exports and limited increases of imports would
keep the trade balance at relatively constant levels. The downward path of external debt is also
supported by the impact of the debt operation through the primary income balance in the current
account, as well as by the sizable inflow of remittances.
10. External debt dynamics are subject to downside risks stemming from macroeconomic
shocks or a quick reversal of the recent external adjustment (Figure 6). Increased international
trade tensions, worsening financial conditions for emerging markets, and/or a faster than expected
p y g
UAH
(billion)
USD
(billion)
percent
of GDP
percent
of total
Public and publicly guaranteed debt 2,248.3 82.2 65.2 100.0
Domestic debt 780.4 28.5 22.6 34.7
Direct debt in UAH 628.3 23.0 18.2 27.9
Direct debt in FX 122.2 4.5 3.5 5.4
Guaranteed 29.9 1.1 0.9 1.3
External debt 1,467.9 53.6 42.6 65.3
Multilateral 1/ 343.0 12.5 10.0 15.3
of which: IMF budget support 152.1 5.6 4.4 6.8
Bilateral 2/ 170.1 6.2 4.9 7.6
Sovereign Eurobonds 645.0 23.6 18.7 28.7
Local government Eurobonds 3/ 9.6 0.3 0.3 0.4
External guaranteed debt 300.2 11.0 8.7 13.4
of which: IMF loans to NBU 231.0 8.4 6.7 10.3
Sources: Ministry of Finance of Ukraine
1/ Includes IMF, World Bank, EBRD, EIB
2/ Includes EU
3/ Issued by the city of Kiev

UKRAINE
normalization in interest rates in advanced economies could undo the adjustment of the current
account deficit at the time when imports start to respond to the recovery in growth. FDI flows are
projected to continue mainly in the form of debt-to-equity operations. Looking ahead, since the
baseline assumes no acceleration in structural reforms, a less uncertain political outlook and deeper
structural reforms could lead to a resumption of non-debt creating inflows into the economy. The
historical scenario, with the main macro variables constant at their 10-year historical average,
generates unsustainable debt dynamics. Similar to the public DSA, external debt dynamics are also
highly vulnerable to an exchange rate shock.

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Annex II. Figure 1. Ukraine: Public DSA Risk Assessment
Ukraine
Source: IMF staff.
1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline,
red if benchmark is exceeded under baseline, white if stress test is not relevant.
Real Interest
Rate Shock
External
Financing
Requirements
Real GDP
Growth Shock
Heat Map
Upper early warning
Evolution of Predictive Densities of Gross Nominal Public Debt
(in percent of GDP)
Debt profile 3/
Lower early warning
(Indicators vis-à-vis risk assessment benchmarks, in 2017)
Debt Profile Vulnerabilities
Gross financing needs 2/
Debt level 1/ Real GDP
Growth Shock
Primary Balance
Shock
3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if
country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white.
Lower and upper risk-assessment benchmarks are:
Change in the
Share of Short-
Term Debt
Foreign
Currency
Debt
Public Debt
Held by Non-
Residents
Primary Balance
Shock
Real Interest
Rate Shock
Exchange Rate
Shock
Contingent
Liability Shock
Exchange Rate
Shock
Contingent
Liability shock
5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at
the end of previous period.
4/ EMBIG, an average over the last 3 months, 22-Aug-18 through 20-Nov-18.
2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not
baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.
200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45
percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.
Market
Perception
20
60
70%
1 2
200
600
583
bp
1 2
5
15
46%
1 2
0.5
1
-0.3%
1 2
EMBIG
External Financing
Requirement
Annual Change in
Short-Term Public
Debt
Public Debt in
Foreign Currency
(in basis points) 4/ (in percent of GDP) 5/ (in percent of total) (in percent of total)
0
20
40
60
80
100
120
2016 2017 2018 2019 2020 2021 2022 2023
10th-25th 25th-75th 75th-90thPercentiles:Baseline
Symmetric Distribution
0
10
20
30
40
50
60
70
80
90
2016 2017 2018 2019 2020 2021 2022 2023
Restricted (Asymmetric) Distribution
no restriction on the growth rate shock
no restriction on the interest rate shock
0 is the max positive pb shock (percent GDP)
0 is the max real appreciation shock (percent)
Restrictions on upside shocks:
15
45
64%
1 2
Public Debt Held by
Non-Residents
(in percent of total)

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42INTERNATIONALMONETARYFUND
Annex II. Figure 2. Ukraine: Public DSA—Realism of Baseline Assumptions

UKRAINE
Annex II. Figure 3. Ukraine: Public DSA—Baseline Scenario
(in percent of GDP unless otherwise indicated)
As of July 20, 2018
2/
2016 2017 2018 2019 2020 2021 2022 2023
Nominal gross public debt 41.2 81.2 71.9 65.2 64.2 59.7 56.0 51.9 48.6 Sovereign Spreads
Of which: guarantees 7.2 11.7 10.1 9.6 10.5 9.0 7.4 5.5 3.8 EMBIG (bp) 3/ 646
Public gross financing needs 8.6 12.2 9.6 9.1 8.5 8.8 7.2 6.1 6.2 5Y CDS (bp) 474
Real GDP growth (in percent) -1.7 2.4 2.5 3.3 2.7 3.0 3.1 3.2 3.3 Ratings Foreign Local
Inflation (GDP deflator, in percent) 17.7 17.1 22.0 11.9 10.6 9.9 7.6 6.8 6.7 Moody's Caa2 Caa2
Nominal GDP growth (in percent) 15.6 20.0 25.1 15.5 13.6 13.2 10.9 10.3 10.2 S&Ps B- B-
Effective interest rate (in percent)
4/
7.5 7.3 6.7 7.0 7.7 7.3 7.5 7.7 7.6 Fitch B- B-
2016 2017 2018 2019 2020 2021 2022 2023 cumulative
Change in gross public sector debt 7.2 1.8 -9.3 -6.7 -1.0 -4.5 -3.7 -4.1 -3.3 -23.3
Identified debt-creating flows 6.0 1.6 -9.6 -8.0 -6.0 -5.3 -3.6 -2.1 -2.0 -27.1
Primary deficit 1.9 -1.9 -1.6 -1.3 -1.5 -1.1 -1.2 -1.4 -1.2 -7.7
Primary (noninterest) revenue and grants 42.2 38.3 39.3 40.6 40.2 39.3 39.3 39.4 39.4 238.2
Primary (noninterest) expenditure 44.1 36.5 37.7 39.2 38.7 38.2 38.1 38.0 38.2 230.5
Automatic debt dynamics
5/
3.2 -2.0 -10.3 -5.3 -3.4 -3.3 -1.9 -1.3 -1.2 -16.5
Interest rate/growth differential
6/
-1.9 -8.4 -11.8 -5.3 -3.4 -3.3 -1.9 -1.3 -1.2 -16.5
Of which: real interest rate -2.7 -6.8 -10.2 -3.3 -1.8 -1.7 -0.2 0.3 0.3 -6.3
Of which: real GDP growth 0.9 -1.6 -1.6 -2.0 -1.6 -1.7 -1.7 -1.6 -1.5 -10.1
Exchange rate depreciation
7/
5.1 6.4 1.5 … … … … … … …
Other identified debt-creating flows 0.9 5.4 2.3 -1.3 -1.1 -0.8 -0.5 0.5 0.4 -2.9
General government financing: Domestic (net): Priva-0.5 0.0 -0.1 0.0 -0.3 -0.5 -0.3 -0.3 -0.3 -1.6
Bank and Naftogaz recapitalization 1.4 5.4 2.4 0.0 0.4 0.3 0.0 0.0 0.0 0.7
Other adjustments 0.0 0.0 0.0 -1.3 -1.2 -0.7 -0.3 0.8 0.6 -2.0
Residual, including asset changes
8/
1.2 0.3 0.3 1.4 5.0 0.8 -0.1 -2.0 -1.3 3.9
Source: IMF staff.
2/ Based on available data.
3/ EMBIG.
4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.
5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;
a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).
6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.
7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).
8/ Includes changes in the stock of guarantees (including IMF financing to NBU), and asset changes. For projections, includes exchange rate changes during the projection period.
9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
1/ Public sector is defined as general government and includes public guarantees, defined as domestic and external guarantees. Projections assume new guarantees issuance of 1.3 percent of GDP in
2016, 0.6 percent in 2017, and 0.3 percent in 2018-2021.
0.0
balance
9/
primary
Debt, Economic and Market Indicators 1/
2007-2015
Actual
Projections
Contribution to Changes in Public Debt
Projections
2007-2015
Actual
debt-stabilizing
-30
-20
-10
0
10
20
30
40
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Debt-Creating Flows
Primary deficit Real GDP growth Real interest rate
Exchange rate depreciation Other debt-creating flows Residual
Change in gross public sector debt
projection
(in percent of GDP)
-30
-25
-20
-15
-10
-5
0
5
10

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Annex II. Figure 4. Ukraine: Public DSA—Composition of Public Debt and
Alternate Scenarios
Baseline Scenario 2018 2019 2020 2021 2022 2023 Historical Scenario 2018 2019 2020 2021 2022 2023
Real GDP growth 3.3 2.7 3.0 3.1 3.2 3.3 Real GDP growth 3.3 -1.8 -1.8 -1.8 -1.8 -1.8
Inflation 11.9 10.6 9.9 7.6 6.8 6.7 Inflation 11.9 10.6 9.9 7.6 6.8 6.7
Primary Balance 1.3 1.5 1.1 1.2 1.4 1.2 Primary Balance 1.3 -1.2 -1.2 -1.2 -1.2 -1.2
Effective interest rate 6.9 7.7 7.2 7.4 7.6 7.7 Effective interest rate 6.9 6.9 5.6 5.0 4.6 4.0
Constant Primary Balance Scenario
Real GDP growth 3.3 2.7 3.0 3.1 3.2 3.3
Inflation 11.9 10.6 9.9 7.6 6.8 6.7
Primary Balance 1.3 1.3 1.3 1.3 1.3 1.3
Effective interest rate 6.9 6.9 6.5 6.9 7.1 7.1
Source: IMF staff.
Underlying Assumptions
(in percent)
Alternative Scenarios
Composition of Public Debt
Baseline Historical Constant Primary Balance
0
10
20
30
40
50
60
70
80
90
2016 2017 2018 2019 2020 2021 2022 2023
Gross Nominal Public Debt
(in percentof GDP)
projection
0
2
4
6
8
10
12
14
2016 2017 2018 2019 2020 2021 2022 2023
Public Gross Financing Needs
(in percentof GDP)
projection
0
10
20
30
40
50
60
70
80
90
2007 2009 2011 2013 2015 2017 2019 2021 2023
By Maturity
Medium and long-term
Short-term
projection
(in percentof GDP)
0
10
20
30
40
50
60
70
80
90
2007 2009 2011 2013 2015 2017 2019 2021 2023
By Currency
Local currency-denominated
Foreign currency-denominated
projection
(in percentof GDP)

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Annex II. Figure 5. Ukraine: Public DSA—Stress Tests
Primary Balance Shock 2018 2019 2020 2021 2022 2023 Real GDP Growth Shock 2018 2019 2020 2021 2022 2023
Real GDP growth 3.3 2.7 3.0 3.1 3.2 3.3 Real GDP growth 3.3 -3.8 -3.5 3.1 3.2 3.3
Primary balance 1.3 0.2 -0.2 1.2 1.4 1.2 Primary balance 1.3 1.5 1.1 1.2 1.4 1.2
Real Interest Rate Shock Real Exchange Rate Shock
Real GDP growth 3.3 2.7 3.0 3.1 3.2 3.3 Real GDP growth 3.3 2.7 3.0 3.1 3.2 3.3
Primary balance 1.3 1.5 1.1 1.2 1.4 1.2 Primary balance 1.3 1.5 1.1 1.2 1.4 1.2
Combined Shock Contingent Liability Shock
Real GDP growth 3.3 -3.8 -3.5 3.1 3.2 3.3 Real GDP growth 3.3 -3.8 -3.5 3.1 3.2 3.3
Primary balance 1.3 0.2 -0.2 1.2 1.4 1.2 Primary balance 1.3 -2.5 1.1 1.2 1.4 1.2
Source: IMF staff.
Macro-Fiscal Stress Tests
Baseline Primary Balance Shock
Real GDP Growth Shock
Real Interest Rate Shock
(in percent)
Real Exchange Rate Shock
Combined Macro-Fiscal Shock
Additional Stress Tests
Baseline
Underlying Assumptions
Contingent Liability Shock
0
10
20
30
40
50
60
70
80
90
2018 2019 2020 2021 2022 2023
(in percent of GDP)
0
50
100
150
200
250
2018 2019 2020 2021 2022 2023
(in percent of Revenue)
0
2
4
6
8
10
12
2018 2019 2020 2021 2022 2023
(in percent of GDP)
0
20
40
60
80
100
120
2013 2018 2019 2020 2021 2022 2023
(in percent of GDP)
0
50
100
150
200
250
300
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(in percent of Revenue)
0
2
4
6
8
10
12
14
16
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(in percent of GDP)

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Annex II. Figure 6. Ukraine: External Debt Sustainability: Bound Tests 1/
(External debt in percent of GDP)
Source:IMF staffestimates.
1/ Shadedareasrepresent actual data.Individual shocksare permanent one-halfstandard deviation shocks.Figures in the
boxes represent average projectionsfor the respective variablesin the baselineandscenariobeing presented.Ten-year
historicalaverageforthe variableis alsoshown.
2/ Permanent 1/4 standard deviation shocksappliedto realinterestrate,growth rate,and currentaccountbalance.
3/ In line with standardIMF stresstests,theshocksimulatesthe impactof a one-timereal depreciation of 30 percent in 2016.
Historical 132
Baseline
74
0
20
40
60
80
100
120
140
160
180
0
20
40
60
80
100
120
140
160
180
2013 2015 2017 2019 2021 2023
Baseline and Historical Scenarios
Gross financing
needs under
baseline
(right scale)
i-rate
shock
77
Baseline
74
60
80
100
120
140
160
180
60
80
100
120
140
160
180
2013 2015 2017 2019 2021 2023
Interest Rate Shock (Percent)
Growth
shock
87
Baseline
74
60
80
100
120
140
160
180
60
80
100
120
140
160
180
2013 2015 2017 2019 2021 2023
Growth Shock (Percent peryear)
CA shock
84
Baseline
74
60
80
100
120
140
160
180
60
80
100
120
140
160
180
2013 2015 2017 2019 2021 2023
Noninterest Current Account Shock
(Percent of GDP)
Combined
shock 90
Baseline
74
60
80
100
120
140
160
180
60
80
100
120
140
160
180
2013 2015 2017 2019 2021 2023
Combined Shock 2/
121
Baseline 74
40
60
80
100
120
140
160
180
200
220
240
40
60
80
100
120
140
160
180
200
220
240
2013 2015 2017 2019 2021 2023
Real Depreciation Shock 3/
30%
depreciation
Baseline:
Scenario:
Historical:
2.4
0.5
1.5
Baseline:
Scenario:
Historical:
3.1
0.4
-1.8
Baseline:
Scenario:
Historical:
6.4
7.1
6.6

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Appendix I. Letter of Intent
Kyiv, December 5, 2018
Ms. Christine Lagarde
Managing Director
Washington, DC 20431
Dear Madame Lagarde:
1. Since the deep economic crisis of 2014-15, with strong support from the international
community, we have been able to make considerable progress in stabilizing the economy and
restoring growth by beginning to address key macroeconomic imbalances and advancing
structural reforms. Notably, a drastic fiscal consolidation and the adoption of a flexible exchange
rate regime have led to a sharp reduction in Ukraine’s twin deficits. The overall fiscal deficit—
including the energy sector’s quasi-fiscal deficit—which had swelled to 10 percent of GDP in
2014, declined to just above 2 percent of GDP last year, supported by prudent fiscal policies and
needed increases in energy tariffs in 2015 and 2016. Similarly, the current account deficit fell
sharply from over 9 percent of GDP in 2013 to 2 percent of GDP last year. Inflation has declined
to single digits and official reserves have reached nearly US$17 billion. These results reflect our
commitment to sound economic policies consistent with the targets under our arrangement
under the IMF’s Extended Fund Facility that had been approved in March 2015.
2. Structural reforms—needed to complete the transformation to a modern and open
market economy—have proven to be more challenging. Considerable progress has been made in
the last few years in strengthening the financial health of our banking system and in creating new
independent institutions to fight corruption, with the establishment of the National
Anticorruption Bureau of Ukraine (NABU), the Special Anticorruption Prosecutor’s Office (SAPO),
and more recently with the adoption of legislation to set up a High Anticorruption Court (HACC).
Similarly, we have adopted pension reform legislation, to enhance the financial viability of the
pension system, while allowing payment of better pensions, as well as a new privatization law to
substantially streamline the privatization processes. Despite these achievements, several areas of
reforms have faced delays. Privatization and revenue administration reform are just starting,
deregulation, energy sector reforms and improving governance of state-owned enterprises are
underway but have yet to be completed, while land reform is still at the stage of public debate.
Because of these delays, some of the goals of the EFF arrangement are no longer attainable
before its expiration in Mach 2019.
3. Nonetheless, we greatly value the continued support from the IMF and hereby request a
14-month Stand-By Arrangement (SBA) in the amount of SDR 2.8 billion (139.2 percent of quota)
to succeed the EFF arrangement. The SBA will build upon progress made under the EFF
arrangement and continue to provide a valuable anchor for our economic policies during 2019—
a particularly challenging year as it includes two major elections and with the formation of a new
government not expected before the end of 2019. The new arrangement will also continue to
play a catalytic role in mobilizing international support, notably from the EU and the World Bank,

UKRAINE
which have committed additional funds to help ensure that the proposed program is fully
financed.
4. The SBA will focus primarily on maintaining macroeconomic stability and keeping the
economy on a path toward sustainable growth. It will focus on: (i) continuing with fiscal
consolidation to keep public debt on a steady downward path; (ii) maintaining a flexible
exchange rate and a tight monetary stance to bring inflation down toward the National Bank of
Ukraine’s medium-term inflation target and allow a further accumulation of international
reserves; and (iii) reforms to further strengthen tax administration, the financial sector and the
energy sector, as well as continue to improve governance and address corruption. The attached
Memorandum of Economic and Financial Policies (MEFP) sets out our economic policies for the
remainder of 2018 and for 2019 in greater detail. The program will be monitored through semi-
annual reviews, and Table 1 of the attached MEFP presents the quantitative conditions (periodic
and continuous performance criteria, indicative targets) and a monetary policy consultation
clause, while Table 2 describes the structural benchmarks under the program.
5. In line with our focus, we have already taken the following prior actions:
 We have enacted a government budget for 2019, together with the necessary tax policy
changes and consistent with IMF staff recommendations, that limits the budget deficit to
2.3 percent of GDP (paragraph 5b of the attached MEFP);
 Household gas tariffs have been raised, and heating tariffs will have been raised at least
one week before consideration by the IMF Executive Board of our request, to reflect
rising international prices and we have adopted a path for further tariff adjustment next
year (paragraph 8a of the attached MEFP); and
 We have enacted legislation to improve the governance of state-owned banks
(paragraph 9 of the attached MEFP).
6. Based on these steps and our commitments for the period ahead, we request approval
by the IMF Executive Board of the proposed SBA and notify our decision to the cancel
immediately prior to such approval the EFF arrangement. We also request that the IMF Executive
Board approves to make available SDR 1 billion (49.7 percent of quota) upon approval of the
arrangement. We furthermore request approval of the retention of the exchange restrictions and
multiple currency practices that we maintain temporarily due to balance of payments difficulties
and that are inconsistent with our obligations under Article VIII Sections 2 (a) and 3 of the Fund’s
Articles of Agreement. During the period of the SBA, Ukraine will not introduce or intensify
exchange restrictions, introduce or modify multiple currency practices, and will not introduce or
intensify import restrictions for balance of payments reasons nor conclude bilateral payment
agreements that are inconsistent with article VIII of the Fund’s Articles of Agreement
7. We believe that the policies set forth in the attached MEFP are adequate to achieve the
macroeconomic and financial objectives of the program, but we will take any additional
measures that may become appropriate for this purpose. We will consult in advance with the IMF
on the adoption of these measures and on any revisions to the policies contained in the MEFP, in
accordance with the IMF’s policies on such consultation. We will refrain from policies that would
be inconsistent with the program’s objectives. In particular, we will refrain from granting any tax

UKRAINE
amnesty, introducing new tax exemptions or privileges, and reducing or altering corporate
income taxation (CIT) directly or indirectly by replacing the CIT regime, but will explore together
with IMF staff ways to make our tax system more growth friendly while assuring debt
sustainability. We will provide IMF staff with the data and information it requests for the purpose
of program monitoring. Reaffirming our commitment to transparency, we consent to the IMF’s
publication of this letter, the MEFP, the Technical Memorandum of Understanding (TMU), and
the accompanying Executive Board documents immediately upon consideration of our requests
by the IMF’s Executive Board.
Yours sincerely,
/s/ /s/
Petro Poroshenko
President
Volodymyr Groysman
Prime Minister
/s/ /s/
Oksana Markarova
Minister of Finance
Yakiv Smoliy
Governor, National Bank of Ukraine

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Attachment I. Memorandum of Economic and Financial Policies
December 5, 2018
1. Our policies remain focused on maintaining macroeconomic stability, reducing
vulnerabilities, and achieving stronger and inclusive economic growth. We are committed to
preserving the achievements realized since the economic crises of 2014–15. Our policies are
centered on: (i) maintaining a cautious monetary policy geared toward further reducing inflation and
rebuilding reserves in the context of a flexible exchange rate regime, while repairing viable banks
and reviving sound bank lending; (ii) durable fiscal consolidation to ensure medium-term debt
sustainability, supported by broader fiscal reforms to make the tax system more efficient and growth
friendly, and improve the quality and efficiency of government spending; and (iii) continuing with
structural reforms to reform the large state-owned enterprise (SOE) sector, improving the business
environment and tackling corruption, to attract investment and raise the economy’s potential.
A. Monetary and Exchange Rate Policies
2. We remain fully committed to an institutionally strong and independent National
Bank of Ukraine (NBU) that preserves continuity in its inflation targeting (IT) policy, within a
flexible exchange rate regime, and with a strong focus on maintaining financial stability. We will
ensure that this framework remains unchanged.
3. Our monetary and exchange rate policies will remain consistent with our commitment
to meet the program’s international reserve and inflation objectives. We intend to bring
inflation down to below 7 percent by end-2019 and within the NBU’s target range of 5 percent
+/-1 percentage points in 2020, while letting the exchange rate adjust in line with economic
fundamentals and purchasing foreign exchange to meet the program’s reserve targets. Progress in
reducing inflation will be monitored under the program by consultation bands around the central
points of our inflation targets (Table 1); if actual inflation falls outside the inner band, the NBU will
consult with IMF staff on the reasons for the deviation and policies to return inflation to within the
band. To achieve our inflation targets, the NBU will continue to keep its policy rate firmly positive in
real terms on a forward-looking basis. The NBU stands ready to raise the policy rate if inflation
pressures threaten the disinflation path projected in the program. Any further easing of foreign
exchange restrictions and administrative controls will be aligned with the agreed roadmap’s
principles and conditions that, inter alia, require steps to be consistent with meeting the program’s

UKRAINE
reserve targets. Additionally, the gradual capital control liberalization envisaged in the new currency
law will be carefully sequenced and conditions-based, without setting specific deadlines for the
removal of existing restrictions.
4. We will take further steps to strengthen the effectiveness of monetary policy and
support the development of financial markets. To enhance the monetary transmission
mechanism, the NBU, in consultation with IMF staff, will adjust its operational framework to make it
applicable to varying structural liquidity conditions. In this context, the Ministry of Finance will
provide the NBU with enhanced daily and monthly cash flow projections of the Single Treasury
Account, as needed for improved liquidity forecasting.
B. Fiscal Policies
5. Fiscal policy in 2018 and 2019 will continue to be anchored by our medium-term
consolidation path aimed at ensuring fiscal sustainability. We will limit the general government
budget deficit to no more than 2½ percent of GDP in 2018 and 2¼ percent of GDP in 2019. More
specifically:
a. 2018 Budget. While budget execution is so far broadly in line with the approved budget,
spending pressures are expected to increase in the coming months stemming primarily from
higher than envisaged social spending (including pensions and utility subsidies). We will
ensure compliance with the deficit target of 2½ percent of GDP, by strictly curtailing
discretionary spending, notably spending on goods and services but also by deferring some
capital spending, raising additional excise revenues on tobacco products according to the
current schedule of increases; and additional profit transfers from state-owned enterprises.
The Ministry of Finance will not release any resources to spending units that would cause the
deficit to exceed the target and inform all spending units of the changes to the payment
schedule.
b. 2019 Budget. The general government budget deficit will be limited to UAH 90 billion,
equivalent to 2¼ percent of GDP, with revenues in the State budget estimated at
UAH 1,026 billion and spending budgeted at UAH 1,116 billion. The budget includes no
major changes in tax policy, other than the already scheduled increases in excise rates plus a
further increase in the excise on tobacco products by 9 percent effective from July 1, 2019;

UKRAINE
an increase in the rates of royalty payments for hydrocarbons (oil extraction and gas
condensate extraction) by 2 percentage points and for iron ores by 0.8 percentage points; an
increase in the royalty payment for forestry usage by 2 percentage points; an increase in the
environmental tax rate for carbon dioxide (CO2) emissions by stationary sources from UAH
0.41 per ton to UAH 10 per ton; a reduction of the threshold for VAT exemption for parcels
sent through international express shipment from €150 to €100; the introduction of customs
duties of US$1,000 on imported cars with foreign registration; and the introduction of
electronic excise stamps. To create sufficient fiscal space for security-related spending and
much-needed investment in infrastructure, civil service wages are kept at their 2018 level
and the average wage increase for public sector employees is limited to 9.4 percent in 2019,
while the minimum monthly wage was raised by 12 percent to UAH 4,173. Similarly, pension
benefits, including for military and other special pension schemes, will increase on average
by 8½ percent in accordance with the pension reform law adopted in 2017. To rationalize
our health care expenditures, in 2019 the Ministry of Health will continue to outsource the
procurement of pharmaceuticals to reputable international organizations. We have taken
steps to further improve the targeting of housing and utility subsidies to ensure that these
will remain within the budgeted amount, including by reducing the social norms for the
calculation of housing and utility subsidies on average by 11 percent (including by reducing
the amount of the subsidized gas consumption from 4.5 cubic meters to 4.0 cubic meters
per one square meter of heated space and a commensurate reduction in the norm for
centralized heating, effective May 1, 2019). Parliamentary approval and enactment of this
budget is a prior action. In early 2019, we will remove the caps on the base for social
security contribution assessments. If during 2019 it becomes evident that the reduction in
the social norms is not sufficient to ensure that housing and utility subsidies will remain
within the budgeted amount, we will further reduce these norms or make the necessary
changes to the formula for the calculation of subsidies.
c. During the program period we will refrain from: (i) granting any tax amnesty, introducing
new tax exemptions or privileges, and further earmarking of revenues; (ii) reducing or
altering corporate income taxation (CIT) directly or indirectly by replacing the CIT regime; (iii)
introducing new special pensions or privileges; and (iii) introducing (elements of) a funded
second pillar to the pension system. We will continue to work with IMF staff to develop
proposals to improve corporate taxation and make the tax system more growth friendly,

UKRAINE
including by addressing tax gaps, broadening the tax base, and reducing opportunities for
tax avoidance, but will not enact any legislation during the program period that changes our
tax system such that it will undermine fiscal sustainability. Any revenue over-performance
will be used to reduce public debt, settle arrears, or increase infrastructure investment. We
will remain current on all our payment obligations and not accumulate any spending arrears.
We will review the revenue sharing and expenditure assignment responsibilities between the
central and local government budgets to avoid the accumulation of subnational imbalances.
Public Financial Management
6. We will continue to strengthen our fiscal framework to facilitate sustainable fiscal
adjustment and improve the credibility and predictability of fiscal policies. As part of our Public
Financial Strategy for 2017–2021, we are fully committed to implement a full-fledged medium-term
budget framework (MTBF) for the 2019 budget year. Adhering to the MTBF will reinforce fiscal
discipline and facilitate informed policymaking, better monitor expenditure commitments, and
provide predictability in planning and executing budgets. To this end, we will: (i) amend the budget
code to reflect core elements of the MTBF in line with IMF recommendations, establish the mandate
for fiscal risk monitoring and reporting, and strengthen debt management by requiring a credit risk
assessment for issuing government guarantees; (ii) introduce binding budget ceilings for key
spending units in the annual budget declaration; and (iii) regularize assessments of public
expenditure efficiency through rolling spending reviews. In this context, we will seek technical
assistance from the IMF to further strengthen the MTBF by adopting a rule-based fiscal policy
framework, in line with best international practices, to avoid procyclical behavior and anchor public
debt sustainability.
Revenue Administration
7. We are taking steps to move toward modern and efficient tax and customs
administrations. As progress in revenue administration reform had met with several obstacles in
recent years, to achieve our objectives:
a. Organization. We will consolidate the current central and regional units of the State Fiscal
Service (SFS) into two separate legal entities: the Tax Service and the Customs Service by

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end-April 2019, which will both report to the Minister of Finance (a structural benchmark).
The many current legal entities comprising the SFS will be abolished as part of this process.
This will be the first, and essential, foundational step on the roadmap to long-term reform of
revenue administration. The heads of both services will be able to delegate their powers in
the organizations as needed for the more efficient functioning of tax and customs
administrations. By the same time, the tax police will be transformed into a new financial
investigation service under the Ministry of Finance, in line with technical advice from the
IMF, while ensuring that assessment of tax liabilities remains solely with the Tax Service.
b. Management. We will ensure that an effective and reform-oriented management for both
the tax and customs administrations will be appointed through a transparent recruitment
process by end-April 2019. The new managers will be tasked with developing and
implementing transformational improvement of operations in both organizations, which
include reforming tax audit and verification practices and introducing new approaches in
addressing tax non-compliance. The new agency heads should present within one month
following their appointments transformational reform plans to the Minister of Finance. The
plan for the tax administration will be guided by the roadmap suggested by the IMF’s
technical assistance report of September 2017.
c. Oversight. We will increase the Ministry of Finance’s role in the oversight of the tax and
customs administrations by strengthening its supervision and control functions. We will also
develop detailed reporting requirements for the tax and customs administrations and the
methodology for calculating KPIs to enable the Ministry of Finance to verify and better
assess KPIs, including indicators related to anti-corruption efforts in both organizations. As
part of monitoring the effectiveness of the managements in tax and customs services, by
end-December 2018 the Ministry of Finance will begin conducting annual independent
surveys of taxpayers to assess their perception of corruption at tax and customs
administrations. The Ministry of Finance will also complete an audit of the tax and customs
administrations’ IT systems to detect weaknesses and risks for data security in the tax and
customs systems by end-December 2018. Based on the audit results, the necessary steps to
address any security threats will be implemented by March 2019.
d. Tax and customs processes. We are also taking measures to improve the efficiency of the
tax and customs administrations. We will alleviate the burden that taxpayers face to comply

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with their tax obligations by: (i) rebalancing the audit program away from mandatory audits
(such as liquidation audits and audits at the request of other agencies) towards targeted
audits based entirely on assessed compliance risks; (ii) enhancing the online taxpayer portal
(e-cabinet) to allow for online registration, electronic payment for businesses and updating
of taxpayer information; and (iii) improving taxpayers information services. In customs, we
have established a one-stop process for clearance, and are continuing efforts to fight fraud
and corruption, facilitate the information exchange with major trading partners and build an
effective oversight of and support to the valuation field work of the regional offices.
C. Energy Policies
8. We will continue our efforts to advance gas sector reforms. Specifically:
a. Gas and heating tariffs. We have (i) raised the wholesale price for gas supplied to
households and district heating companies to UAH 6,236 per thousand cubic meters
(excluding transmission and distribution tariffs, supplier’s mark-up and VAT), effective
November 1, 2018; (ii) revised the automatic gas price adjustment mechanism to ensure that
the wholesale price for gas supplied to households and for heating will be adjusted
automatically effective May 1, 2019 to 80 percent of the base market price as defined in
CMU Resolution 867 (as defined also in paragraph 25 of the TMU); and (iii) the National
Energy and Utilities Regulatory Commission (NEURC) has given final approval to—and
published in the official gazette—increases in the heating tariffs, effective January 1, 2019, to
fully reflect the increase in the wholesale gas price, of all the heating companies licensed by
NEURC together accounting for about 60 percent of the total centralized heating supply (a
prior action). The necessary decisions for raising heating tariffs, effective January 1, 2019, to
reflect the higher wholesale gas price, of remaining heating companies —thus together
covering at least 95 percent of the total centralized heating supply—are expected to be
taken by end-December 2018 (a structural benchmark). As of January 1, 2020, Naftogaz
will sell gas for household and district heating companies’ use at prevailing market prices
and the Public Service Orders will be cancelled by May 1, 2020. We have cancelled the
scheme that allowed a 12-month installment plan to pay heating bills for households that do
not receive subsidies (CMU Resolutions 630 and 357).

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b. Monetization. We are working with the World Bank to gradually monetize the benefits of
the HUS program to facilitate retail market competition and incentivize households to
reduce gas consumption. As a preparation for the monetization of subsidies the Ministry of
Social Policy has already created the public registry of utility subsidy recipients and the
Ministry of Finance and the Ministry of Social Policy will complete the verification of
recipients of all social benefits and allowances by end-December 2018. In March 2019, a
pilot project of monetization of subsidies will be launched. Upon a successful trial period, we
aim to implement the monetization of subsidies at end-user level starting from January
2020. Additionally, starting from July 2019, we will set up an Energy Efficiency Fund to help
facilitate the decrease in gas consumption in Ukraine.
c. Unbundling. The unbundling of Naftogaz and certification of a Transmission System
Operator (TSO) is a key strategic issue for advancing energy sector reforms. The
establishment of Mahistralni Gazoprovody Ukrayiny (MGU) as a certifiable TSO on January 1,
2020 requires transfer of selected activities and staff from Naftogaz (UTG) to MGU. As result
of the Stockholm arbitration, only non-core transit activities can be transferred from
Naftogaz to MGU until the end of 2019, and core transit activities can be transferred after
January 1, 2020. To start the transfer, Naftogaz will prepare the list of non-core transit
activities by December 31, 2018 and these will be transferred to MGU during 2019. The
selection will prioritize activities which are not yet fully established in UTG, such as metering
and market balancing operations, network development, and planning. It is expected that
MGU will reach its target staffing level of about 4000 and meet all preconditions for
certification as a TSO by end-September 2019.
d. Gas production. To increase gas production and help ensure energy independence, we will
simplify and accelerate procedures for obtaining permits for the exploration and
development of gas fields, while ensuring transparency, inter alia by holding open permit
and production sharing agreement tenders at least of a quarterly basis, offering at least
20,000 km2 during 2019. We will also promote investment in existing fields to increase
extraction, while ensuring compliance with environmental standards.

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D. Financial Sector Policies
9. Since 2014, we have taken major steps to rehabilitate and strengthen the banking
system. We have intervened and resolved 95 banks (out of 180 in 2014), including PrivatBank, the
largest financial institution. In addition, a few banks excessively exposed to related-party lending
have made progress in reducing such exposures. As a result of these efforts, as of end-July 2018, all
banks met the capital adequacy ratio (CAR) target of 7 percent. Furthermore, we have made
progress in strengthening our supervisory and regulatory framework, including our credit risk
regulation by reversing amendments to Regulation 351 lowering the loss-given-default ratio for the
calculation of credit risk for state-owned enterprises and automatically removing provisioning on
restructured loans, with the view to bringing them closer to international standards and best
practices. Importantly, we have improved state-owned banks’ governance by adopting the Principles
of State Banking Sector Strategic Reforms and enacting a law on State-Owned Bank Corporate
Governance (a prior action).
10. We remain fully committed to further strengthening the banking system’s financial
health. To this end:
a. Capitalization. On the basis of the 2018 diagnostic study, by end-March 2019, all banks
will have to meet a minimum 7 percent Tier 1 capital and 10 percent CAR. In the context of
the transition to Basel III capital structure requirements, we will allow banks to include in
Tier 1 capital additional Tier 1 (AT1) up to 0.75 percent; as such, Tier 1 capital will consist of
at least 6.25 percent of common equity. In the computation of their capital needs, the
largest 24 banks will also address capital needs arising from the 2018 stress testing, under
the baseline scenario for 2018 only (these banks will have until end-2019 to address
potential capital needs under the adverse scenario and their restructuring plans will fully
address the effects of amortization of collateral against NPLs in line with the requirements
of resolution 351). When banks that fail to comply with requirements under the baseline
scenario, the NBU will take appropriate supervisory actions, including resolution, by end-
June 2019 (a structural benchmark). Furthermore, by end-March 2019, the NBU will
complete its viability assessment of the smallest 56 banks’ business models. This evaluation
process will be conducted by the NBU Committee of Supervision, with the participation of
IMF and World Bank staff as observers.

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b. Related-party exposures. By end-December 2018, the NBU will publish amendments to
the existing regulation on related-party exposures that incorporates lessons learned from
the implementation of the current regulation over the last 3 years. Additionally, by the
same date, the NBU will adopt revisions to its capital regulations to subtract loan exposures
to related parties above regulatory limits from regulatory capital (an end-December 2018
structural benchmark). Furthermore, with IMF technical assistance, we will further enhance
the effectiveness of the Related Party Monitoring Office (RPMO) by developing a data
registry based on information from public registries, for which by end-December 2018 the
NBU will sign a Memorandum of Understanding with the Ministry of Justice and the
Securities Market Authority on information sharing, which is critical to build such registry.
c. Deposit Guarantee Fund (DGF). As a well-capitalized and funded deposit insurance
system is critical for financial stability, we have set up a tripartite working group (comprised
of representatives of the Ministry of Finance, the NBU and the DGF) to submit specific
measures to the Financial Stability Council (FSC). In consultation with staff of the IMF and
the World Bank, the FSC will decide by end-March 2019 on steps to bring the DGF back
into solvency by end-December 2019. Finally, we will pursue parliamentary approval by
end-March 2019 of draft amendments to the DGF law that aims at strengthening its
effectiveness as resolution authority. Meanwhile the NBU and the DGF will timely share
information.
d. Supervision and regulation. By end-December 2018, in the context of the transition to
Basel III capital structure requirements and in consultation with IMF and World Bank staff,
the NBU will approve a resolution on the use of additional Tier 1 capital instruments (AT1)
to meet Tier 1 capital for the current recapitalization process, including minimum triggers,
limits and full adaptation of Basel III’s terms and conditions. Additionally, we will complete
the assessment of the collective suitability of the boards and qualifications of senior
management for the 20 largest banks by end-December 2018, for the next 15 largest banks
by end-September 2019, for the next 15 largest banks by end-December 2019, and with
the remaining banks to be assessed in 2020. Furthermore, we will verify compliance with
the new risk management regulation for the 30 largest banks according to the schedule of
implementation of the regulation. Furthermore, we will adopt the Supervisory Review and
Evaluation Process (SREP), except for ICAAP and ILAAP, for the 13 largest banks by end-

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2018, and for all banks by end-June 2019. By end-December 2018, we also plan to
complete and introduce the new regulation on banks’ registration and licensing (replacing
NBU Regulation No. 306). By end-December 2018, we also plan to complete the draft new
regulation on internal control, which we will introduce as of July 1, 2019.
11. We are determined to recover assets from resolved banks to reduce the cost of bank
failures to the state. To this end, we will ensure that all relevant institutions will pursue all
commercial and legal avenues available to recover assets and hold banks’ former owners
accountable as envisaged by the banking law. As such, beginning by end-March 2019, the DGF will
post on its website a list of all borrowers, management, and former bank shareholders of resolved
banks that are yet to honor their debts related to the failed institutions as ruled by court decisions.
By end-March 2019, the DGF will put on sales assets for at least UAH 20 billion. The DGF will
continue selling assets through electronic platforms, while ensuring that the ultimate buyers of
defaulted related party loans and the bank owners are not the same person. Additionally, the
Ministry of Finance will produce regular reporting summarizing progress in asset recovery and
litigation efforts related to the four state-owned banks, with the first report to be published by end-
March 2019 (a structural benchmark).
12. We are taking further steps to facilitate NPL resolution. Following the establishment of a
mechanism for out-of-court restructuring, the removal of tax impediments and the adoption of the
law on creditors’ rights protection, parliament also adopted a new insolvency law (# 8060). In
addition, by end-June 2019, the NBU, with the support from World Bank staff, will issue a regulation
on NPL work-out to guide the financial institutions on how to deal with their troubled borrowers.
This regulation will be in line with best practices and the European Central Bank’s guidance to banks
on NPLs, while taking into account local structural issues such as large credit exposure to related
parties in banks. With respect to the stock of NPLs held by our three SOBs (OschadBank,
UkrGazBank, and UkrEximBank), we are taking decisive steps: (i) in September 2018, under the
auspices of the FSC, we have established a working group comprised of the Ministry of Finance, the
NBU, and the DGF to prepare, in consultation with IMF staff, policy principles to guide the
restructuring of these troubled borrowers. These policy principles will be in line with the legislation
on joint stock companies with regard to the respective responsibilities of corporate governance
bodies regarding significant restructuring decisions and include, inter alia, recommendations to the
state-owned banks’ supervisory boards. By end-December 2018, the FSC will approve these

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principles and communicate them to the above-mentioned state-owned banks’ supervisory boards,
which ultimately remain responsible for these banks’ debt restructuring decisions.
13. We will further strengthen bank governance, transparency and risk management
practices of the state-owned banks. In this direction:
a. Following the adoption of the law on state-owned banks, we will appoint independent
supervisory board members in line with the new law in OschadBank and UkrEximBank
(following the establishment of majority independent supervisory boards at PrivatBank and
UkrGasBank) by end-March 2019.
b. By end-April 2019, the Ministry of Finance will sign a Memorandum of Understanding with
each state-owned bank defining the boundaries of their relationship with the view to
ensuring that these banks are run on a commercial basis and isolated from political
interference on operational matters.
c. From end-December 2018 onward, the financial unit of the Ministry of Finance will publish
quarterly Key Performance Indicators (KPIs) of the state-owned banks and also report on
progress made in the implementation of their strategic planning and NPL restructuring.
d. Consistent with the Principles of State Banking Sector Strategic Reforms, we will take the
necessary steps to pave the way for the entry of EBRD and IFC into the capital of
OschadBank and UkrGasBank, respectively. In this context, we will also aim to unwind the
current full state guarantee of Oschadbank’s deposits by end-December 2019.
14. Additionally, we will move forward with legislation that is critical to create a sound
operating environment for the development of our financial markets. To this end:
a. By end-March 2019, we expect parliament to adopt the law revisiting the supervisory
responsibility for a variety of financial intermediaries (“split” law; #2413a; a structural
benchmark) and legislation establishing the powers, independence and institutional
capacity of the National Securities and Stock Market Commission, allowing it to meet IOSCO
standards (# 6303).
b. By end-March 2019, in coordination with the IMF and World Bank staff, we will submit
amendments to the Law on Banks and Banking to address legal loopholes identified after

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the assessment of our regulatory and supervisory framework for sound risk governance
practices against the 2015 Basel’s Guidelines for Corporate Governance for banks.
c. Finally, we will work toward the adoption by mid-2019 of several financial sector laws under
consideration by the Parliament, notably laws on derivatives and financial markets, consumer
protection and money transfers.
E. Governance, State-Owned Enterprises, and Business Climate
Anticorruption
15. We are committed to build on recent gains in our efforts to tackle high-level
corruption and to deliver concrete results. It is critical that the new anticorruption institutions—
the National Anticorruption Bureau of Ukraine (NABU), the Special Anticorruption Prosecutor’s
Office (SAPO), and the High Anti-Corruption Court (HACC)—maintain their independence and
integrity, to ensure that high-level corruption cases are effectively and credibly investigated,
prosecuted, and adjudicated. We will make every effort to ensure the independence and integrity of
these institutions and address shortcomings in the asset declaration and AML/CFT frameworks:
a. Anticorruption court. We will operationalize the High Anti-Corruption Court (HACC) as
established under Law 2018/2447, to ensure that corruption cases are adjudicated by judges
with specialized skills and high integrity. The six members of the Public Council of
International Experts (PCIE) have been appointed by the High Qualification Commission of
Judges (HQCJ) from the nominations submitted by international organizations according to
the criteria established in the Law. We will ensure that the entire process for assessing the
candidates’ practical skills and integrity, and their selection is transparent and consistent
with the Law on the Judiciary and the Law on the HACC, including that the qualification
evaluation is centered on anonymous written tests and a case study, and with publication of
the methodology for assessment, the criteria used for the qualification evaluation, and the
grades received by candidates for each test. The members of the PCIE and the HQCJ are
provided, bound by confidentiality and sufficiently ahead of any interviews and assessments,
with the same access to information on candidates. By end-April 2019, following nomination
by the High Council of Justice, at least thirty-five anti-corruption judges with impeccable
reputation and relevant professional skills will be appointed to the HACC in line with law

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2018/2447, and with rules of procedures guaranteeing the objectivity and transparency of
the process (a structural benchmark). We expect the HACC to begin its operations by end-
June 2019, and we will ensure that it has adequate resources for its operations, including
staffing and IT, and that security is provided for buildings and personnel, as well as that all
pending corruption cases subject to the HACC’s jurisdiction are transferred from the other
courts in accordance with the law.
b. National Anticorruption Bureau of Ukraine (NABU) operations. In line with the prior
action implemented in the context of the approval of the arrangement under the IMF’s
Extended Fund Facility in March 2015, an external audit of the NABU will be conducted by a
panel of respected experts with international experience selected in accordance with the
requirements set out in the NABU Law (#1698-VII). The terms of reference for the external
audit of NABU will be developed in consultation with IMF staff and we will ensure that
auditors have adequate resources to efficiently and independently complete the audit of
NABU in time. Based on the analysis conducted by the auditors, the audit report will include
clear and prioritized recommendations on the effectiveness of NABU and its operational and
institutional independence, in line with international best practices. In case the auditors
unanimously conclude that the criteria on dismissal of the NABU director referred to in
Article 6.4.11 of the NABU Law are met, they will include the evidentiary basis, a detailed
rationale, and recommendation in their report. In line with this framework, an audit report
will be finalized by end-July 2019 and appended to the subsequent NABU report (a
structural benchmark). By end-June 2019, parliament will adopt legislation to strengthen
the powers of NABU to ensure that the NABU has the use of a wide range of investigative
techniques, including undercover operations, intercepting communications, accessing
computer systems and controlled delivery, without having to rely on other agencies’
infrastructure. We will maintain NABU’s exclusive authority to investigate acts of corruption
by high-level officials.
c. E-declaration. Ensuring that politically exposed persons (PEPs) remain subject to
comprehensive and published asset declaration requirements remains a priority, as this is
critical to effectively address illicit enrichment and prevent the laundering of the proceeds of
corruption. In this regard, by end-December 2018: (i) the National Agency for the Prevention
of Corruption (NAPC) will ensure that NABU has direct and secure electronic access to the

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full asset declarations of all persons under NABU investigative jurisdictions; (ii) the NAPC will
revise the electronic declaration form to facilitate the identification of PEPs, by ensuring an
online search criteria for PEPs and the publication of the PEP’s year and month of birth; (iii)
the NAPC will start publishing quarterly statistics to monitor progress made in detecting
absence or false declarations on a webpage freely available to the public (in line with the
template detailed in paragraph 94 of the TMU); and (iv) the Ministry of Justice will prepare,
in consultation with the relevant authorities, including the NAPC and NABU, a study on the
legal and practical steps needed to transfer responsibility for the verification of asset
declarations of persons under NABU’s jurisdiction to NABU.
d. AML implementation. We remain committed to strengthening and mobilizing the AML/CFT
framework to support efforts to tackle high-level corruption. In this respect, by end-March
2019, and in agreement with IMF staff, we will adopt amendments to the AML legal
framework, including to ensure: (i) the implementation of a three-tier reporting system
(suspicious transaction reports as defined by the FATF, threshold-based reporting of cash
transactions and international funds transfers, and mandatory reporting of transactions
related to high-risk jurisdictions and PEPs); (ii) that the definition of the persons related to
PEPs is consistent with the risk-based approach encouraged by the FATF standard; (iii) that
proportionate and dissuasive sanctions can be implemented by the NBU in case of breaches
of compliance with the AML framework, and (iv) that information on beneficial owners of
companies is up-to-date and accurate. To monitor its contribution to anticorruption efforts,
the FIU will continue publishing quarterly statistics on the information it disseminates to the
NABU (in line with the template detailed in paragraph 96 of the TMU). The NBU will continue
to conduct at least four quarterly inspections of banks at higher risk of laundering of the
proceeds of corruption, focused on regulatory requirements related to customer due
diligence and PEPs, including with regard to requirements to identify PEPs, to verify their
source of wealth and beneficial ownership information. By end-January 2019, the NBU, with
technical assistance from the IMF, will also prepare a roadmap to focus AML/CFT supervision
on ensuring the adequacy of financial institutions’ AML/CFT framework, and discontinue
investigative functions.

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Privatization and State-Owned Enterprise Reform
16. We remain committed to our SOE-reform strategy, that focuses on significantly
downsizing the state-owned enterprise sector. Key measures include:
a. Privatization. We have enacted a new privatization law, and the CMU has adopted the
triage of all SOEs. We have now started the preparations for the sale in line with
international best practices of six large SOEs, with the assistance of reputable advisors, and
by end-December 2018 will launch the tender for the sale of PJSC Centrenergo. This will be
followed by tenders for sale of Coal Company Krasnolymanska, Indar, and the President
Hotel Kiev in the first half of 2019. We have also started with the sale of small companies
and assets through electronic auctions (ProZorro), with the objective to have at least 500
small companies and assets sold by end-April 2019. We will submit draft legislation to
parliament by end-April 2019, to reduce the list of companies banned from privatization to
ensure that it is limited only to enterprises that are essential for national security. We will
adopt a new law on the leasing of state property as a step to generate further demand for
public assets by private entities. We will continue with our efforts to adopt a new bankable
concessional law and launch a concession pilots in the first half of 2019.
b. SOE governance. We expect parliament to adopt the law on SOE governance (draft bill #
6428) by [end-June 2019], clarifying and strengthening the powers of supervisory boards
and granting legal immunity and indemnity to its members. The selection of majority-
independent supervisory boards for the largest SOEs, including Ukrenergo, Boryspil,
Ukrposhta, is expected to be completed by end-December 2018. Moreover, external audits
of the largest SOEs (prepared by international reputable companies) will be conducted by
end-December 2019.
c. Oversight of SOEs fiscal risks. Monitoring and assessment of fiscal risks emanating from
the SOE sector will be one of the key responsibilities of the recently-established fiscal risks
management division in the Ministry of Finance. We will also introduce a comprehensive
fiscal risk management system and adopt the necessary legislative changes by end-July 2019
to better manage and reduce fiscal risks and enhance public asset and debt management
(including public guarantees, public private partnerships, and local government borrowing).

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Business Climate and Markets
17. Deregulation. In the last two years, we have substantially streamlined our regulatory
framework inter alia by reviewing and abolishing about 700 obsolete and non-relevant sub-
legislative acts, the automation of state supervision (control), streamlining procedures for obtaining
permits and licenses, improving clarity and transparency in construction, telecom, and natural
resources. We will continue to further review and streamline sub-legislation, reduce time for land
allocation, simplify access to geological information, improve the system of subsoil use right
auctions, implement risk-based approaches to audits and inspections by state authorities, simplify
cash registers usage (by introducing new technologies and widening possibilities for cashless
transactions, and impose sanctions for violating cash turnover regulations.
18. Land market. We will continue our preparations for establishing a transparent market for
agricultural land. A working group comprising relevant ministries, in collaboration with the World
Bank, has drafted a land turnover law to allow for the sale of land under adequate safeguards, and
we have launched a public information campaign to explain the benefits of this reform.

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INTERNATIONALMONETARYFUND67
Table 1. Ukraine: Quantitative Criteria and Indicative Targets 1/
(End of period, millions of Ukrainian hryvnias, unless otherwise indicated)
2017
December
Act. IT PC IT PC IT
I. Quantitative performance criteria
Ceiling on the cash deficit of the general government (- implies a surplus) 2/ - 86,168 35,000 50,000 75,000 90,071
Ceiling on the cash deficit of the general government and Naftogaz (- implies a surplus) 2/ - 86,168 35,000 50,000 75,000 90,071
Floor on cumulative change in net international reserves (in millions of U.S. dollars) 3/ 4/ 6,691 1,218 1,229 1,955 334 893
Ceiling on publicly guaranteed debt 2/ - 15,000 20,000 20,000 20,000 20,000
II. Continuous performance criterion
Non-accumulation of new external debt payments arrears by the general government 4/ - 0 0 0 0 0
III. MPCC
Inflation target 5/ - 6.0 5.75 5.5 5.25 5.0
IV. Indicative Targets
Ceiling on cumulative change in net domestic assets of the NBU 3/ 209,845 16,865 6,225 8,952 51,795 64,269
Ceiling on stock of VAT refund and CIT prepayment arrears 6/ - 0 0 0 0 0
Ceiling on current primary expenditure of the state budget and social funds 2/ 7/ - 1,118,520 n.a. n.a. n.a. 1,253,870
V. Memorandum Items
Naftogaz deficit (- implies a surplus) 2/ - 0 0
External project financing 2/ - 17,000 5,000 10,000 15,000 21,161
Government bonds issued for banks recapitalization and DGF financing 3/ - 0 14,000 14,000 14,000 14,000
Programmed disbursements of international assistance except IMF (millions of U.S. dollars) 3/ 4/ - 3,297 4,297 5,882 5,882 6,882
Use of swaps (exchange of deposits) with other central banks 3/ 4/ - 0 0 0 0 0
Net issuance of central government domestic FX debt 3/ 4/ - -30 -312 -356 -419 -479
Use of confiscated assets for FX payments or transfer to NBU gross international reserves 3/ 4/ - 0 0 0 0 0
Net new NBU loans to DGF and operations with government bonds issued for DGF financing or banks
recapitalization (net of repayments to NBU) 3/
- -9,384 -10,984 -10,984 -10,984 -10,984
Program accounting exchange rate, hryvnia per U.S. dollar 28.2794 28.2794 28.2794 28.2794 28.2794 28.2794
Sources: Ukrainian authorities; and IMF staff estimates and projections.
2/ Targets and projections for 2018 are cumulative flows from January 1, 2018. Targets and projections for 2019 are cumulative flows from January 1, 2019.
3/ Targets and projections are cumulative from January 1, 2018. Data for December 2017 are stocks for end-December 2017.
4/ Calculated using program accounting exchange rates specified in the TMU.
5/ End of period, year-on-year headline inflation. Outer consultation band, triggering consultation with the Board, will be +4.75/-3.5 percentage for March 2019 and September 2019.
Inner consultation bands, triggering consultation with staff, will be +/- 2 percentage points for December 2018, March 2019, June 2019 and September 2019 and +/- 1 percentage
point for December 2019.
6/ For 2018 includes the stock of CIT prepayment arrears.
7/ For 2018, includes the consolidated pension and social funds.
1/ Definitions and adjustors are specified in the Technical Memorandum of Understanding (TMU).
December March June September December
2019 2019 20192018 2019

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Table 2. Ukraine: Prior Actions and Structural Benchmarks
Prior actions Status Completion date
1. Parliamentary approval and enactment of the 2019 budget and
supporting tax legislation consistent with the program target of
2.3 percent of GDP (as specified in ¶5b).
Met
2. (i) Raising the wholesale price for gas supplied to households
and district heating companies to UAH 6,236 per thousand cubic
meters (excluding transmission and distribution tariffs, supplier’s
mark-up and VAT), effective November 1, 2018; (ii) revision of the
automatic gas price adjustment mechanism to ensure that the
wholesale price for gas supplied to households and for heating
will be adjusted automatically effective May 1, 2019 to 80 percent
of the base market price as defined in CMU Resolution 867; and
(iii) and approval and publication by the National Energy and
Utilities Regulatory Commission (NEURC) of increases in the
heating tariffs, effective January 1, 2019, to fully reflect the
increase in the wholesale gas price, of all the heating companies
licensed by NEURC (as specified in ¶8a).
3. Enactment of the law on State-Owned Bank Corporate
Governance (law #2491).
Met
Proposed Structural Benchmarks
1. Raising heating tariffs, effective January 1, 2019, to reflect the
higher wholesale gas price, of all remaining heating companies
with an output of up to the NEURC-set threshold for volumes of
annual production and supply of heating energy—thus together
covering at least 95 percent of the total centralized heating
supply (as specified in ¶8a).
End-December 2018
2. Adoption by the NBU of revisions to its capital regulations to
subtract loan exposures to related parties above regulatory limits
from regulatory capital (as specified in ¶10b).
End-December 2018
3. Parliamentary approval of the law revisiting the supervisory
responsibility for a variety of financial intermediaries (“split” law;
#2413a) (as specified in ¶14a).
End-March 2019
4. Publication of first report summarizing progress in asset
recovery and litigation efforts related to the four state-owned
banks (as specified in ¶11).
End-March 2019
5. Consolidate the current central and regional units of the State
Fiscal Service (SFS) into two separate legal entities: the Tax
Service and the Customs Service by end-April 2019, which will
both report to the Minister of Finance (as specified in ¶7a).
End-April 2019

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Table 2. Ukraine: Prior Actions and Structural Benchmarks (concluded)
6. Following nomination by the High Council of Justice, at least
thirty-five anti-corruption judges with impeccable reputation and
relevant professional skills will be appointed to the HACC in line
with law 2018/2447, and with rules of procedures guaranteeing
the objectivity and transparency of the process (as specified in
¶15a).
End-April 2019
7. The NBU to take appropriate supervisory actions against banks
that fail to comply with capital requirements (as specified in
¶10a).
End-June 2019
8. Complete an external audit of the NABU, conducted by a panel
of respected experts with international experience selected in
accordance with the requirements set out in the NABU Law
(#1698-VII) (as specified in ¶15b).
End-July 2019

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Attachment II. Technical Memorandum of Understanding
December 5, 2018
1. This Technical Memorandum of Understanding (TMU) sets out the understandings between
the Ukrainian authorities and IMF staff regarding the definitions of the variables subject to
quantitative targets (performance criteria and indicative targets) for the economic program
supported under the Stand-By Arrangement, as described in the authorities’ Letter of Intent (LOI)
dated December 5, 2018 and the attached Memorandum of Economic and Financial Policies (MEFP).
It also describes the methods to be used in assessing the program performance and the information
requirements to ensure adequate monitoring of the targets.
2. The quantitative performance criteria are shown in Table 1 of the MEFP. Prior actions and
structural benchmarks are listed in Table 2 of the MEFP, with corresponding definitions in Section I
below. The definitions of these quantitative targets and the adjustment mechanisms are described in
Section I below. The official exchange rate is defined in Section II. Reporting requirements are
specified in Section III.
3. For the purposes of the program, all exchange rates used to evaluate reserve levels and
monetary aggregates are (i) the official exchange rate of the Ukrainian hryvnia to the U.S. dollar of
28.2794 set by the National Bank of Ukraine (NBU) as of August 31, 2018; and (ii) reference
exchange rates of foreign currencies reported by the European Central Bank (ECB) on its web site as
of August 31, 2018, which the NBU used to set official exchange rates of hryvnia to those currencies.
In particular, the Swiss Franc is valued at 0.9698 per dollar, the Euro is valued at 1.1692 dollars, the
Pound Sterling is valued at 1.3026 dollars, the Australian dollar is valued at 0.7301 U.S. dollars, the
Canadian dollar is valued at 0.7734 dollars, the Chinese Yuan is valued at 0.1464 U.S. dollars, and the
Japanese yen is valued at 111.4608 per dollar. The accounting exchange rate for the SDR will be
0.713578 per dollar. Official gold holdings were valued at 1,202.35 dollars per fine ounce. These
accounting exchange rates are kept fixed over the program period. Therefore, the program’s
accounting exchange rate differs from the actual exchange rate set in the foreign exchange market
of Ukraine. Furthermore, setting a program exchange rate for the purpose of computing monetary
aggregates does not imply that there is any target exchange rate for policy purposes.
4. For the purpose of the program, gross domestic product is compiled as per the System of
National Accounts 2008 and excludes Crimea and Sevastopol.

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I. QUANTITATIVE PERFORMANCE CRITERIA, INDICATIVE CEILINGS,
CONSULTATION CLAUSE, AND CONTINUOUS PERFORMANCE
CRITERIA
A. Floor on Cumulative Change in Net International Reserves (Performance
Criterion)
Definition
5. Net international reserves (NIR) of the NBU are defined as the dollar value of the difference
between usable gross international reserve assets and reserve-related liabilities to nonresidents,
evaluated at program exchange rates.
6. Usable gross international reserves comprise all readily available claims on nonresidents
denominated in convertible foreign currencies, consistent with the Balance of Payments Manual
(Sixth Edition) and the Special Data Dissemination Standard (SDDS) (Table 6.1, item A). Excluded
from usable reserves, inter alia, are:
 any assets denominated in foreign currencies held at, or which are claims on, domestic
institutions (i.e., institutions headquartered domestically, but located either domestically or
abroad, or institutions headquartered abroad, but located domestically). Also excluded are all
foreign currency claims of the NBU on domestic banks, and NBU deposits held at the Interbank
Foreign Currency Exchange Market and domestic banks for trading purposes;
 any precious metals or metal deposits, other than monetary gold and gold deposits, held by the
NBU;
 any assets that correspond to claims of commercial banks in foreign currency on the NBU and
any reserves assets that are (i) encumbered; or (ii) pledged as collateral (in so far as not already
included in foreign liabilities, or excluded from reserve assets); or (iii) frozen; and
 any reserve assets that are not readily available for intervention in the foreign exchange market,
inter alia, because they are not fully under the control of the NBU or because of lack of quality
or lack of liquidity that limits marketability at the book price.
7. For the purpose of this program, reserve-related liabilities comprise:

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 all short-term liabilities of the NBU vis-à-vis nonresidents denominated in convertible foreign
currencies with an original maturity of one year or less;
 the stock of IMF credit outstanding;
 the nominal value of all derivative positions1 (including swaps, options, forwards, and futures) of
the NBU and general government, implying the sale of foreign currency or other reserve assets;
and
 all foreign exchange liabilities of the NBU to resident entities (e.g., claims in foreign exchange of
domestic banks, and NBU credits in foreign exchange from domestic market), which are not
already excluded from reserve assets, but excluding foreign exchange liabilities to the general
government, or related to deposit guarantees.
Table A. Ukraine: Components of Net International Reserves
Type of Foreign Reserve Asset or Liability1
NBU Balance Sheet and
Memorandum Accounts
1. International reserves
Monetary gold
Foreign exchange in cash
Demand deposits at foreign banks
Short-term time deposits at foreign banks
Long-term deposits at foreign banks
SDR holdings and Reserve Position in the IMF
Securities issued by nonresidents
1100, 1107
1011, 1017
1201, 1202, 2746, minus 4746
1211
1212
IMF, Finance Department2
1300, 1305, 1307, 1308, minus 1306
2. Short-term liabilities to nonresidents (in convertible currencies)
Correspondent accounts of nonresident banks
Short-term deposits of nonresident banks
Operations with nonresident customers
Operations with resident banks
Use of IMF credit
3201
3211
3230, 3232, 3233, 3401, 8805
8815
IMF, Finance Department
1/ The definitions used in this technical memorandum will be adjusted to reflect any changes in accounting classifications
introduced during the period of the program. The definitions of the foreign accounts here correspond to the system of
accounts in existence on December 31, 2014. The authorities will inform the staff before introducing any change to the Charts
of Accounts of the NBU and the Commercial Banks, and changes in the reporting forms.
2/ Before receiving the monthly data from the IMF’s Finance Department, these components will be calculated on the basis of
preliminary data from the NBU and memorandum accounts.
Assumptions in Line With the Authorities’ Commitments
8. The NIR/NDA targets assume an average rollover of central government’s domestic foreign
exchange securities of at least 70 percent in 2018Q4 and 2019Q1 and 100 percent in 2019Q2-Q4.
1
This refers to the notional value of the commitments, not the market value.

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The rollover will be achieved through an issuance of new central government foreign exchange
securities with a maturity of at least 6 months, without options of early repayment.
Adjustment Mechanism
 The NIR targets will be adjusted upward (downward) by the full amount of the cumulative excess
(shortfall) in program disbursements relative to the baseline projection (Table B). Program
disbursements are defined as external disbursements (including grants and long-term credit to
the NBU, while excluding project-financing disbursements) from official multilateral creditors
(World Bank, European Commission, European Investment Bank, and European Bank for
Reconstruction and Development), official bilateral creditors (net), and external bond placements
that are usable for the financing of the central government budget deficit or reserve assets.
(shortfall) in net issuance (gross issuance minus debt service) of central government’s domestic
foreign exchange securities over (under) the amounts expected under the baseline (see Table 1
of the MEFP).
 In case the NBU converts any non-reserve currency provided under a central bank swap
agreement with the NBU into a reserve currency through an outright sale, a symmetric adjustor
will be applied to NIR targets. NIR targets will be adjusted upward by the amount that will be
converted into a reserve currency at the time of the conversion. NIR targets will be adjusted
downward by the amount of a reserve currency (both the principal and interest due), when the
NBU repays the non-reserve currency provided under a central bank swap agreement.
 In case the NBU requests use (draws) any reserve currency provided under a central bank swap
agreement with a maturity of over 1 year, a symmetric adjuster will be applied to NIR targets.
NIR targets will be adjusted upward by the amount used with maturity over 1 year. NIR targets
will be adjusted downward when the NBU repays these amounts.
(shortfall) from the transfer of unencumbered confiscated foreign exchange assets to
international reserves at the NBU or, if not transferred to international reserves, by the use of
confiscated assets held at other accounts (or any other non-international reserve accounts) to
make government FX payments, over (under) the amounts expected under the baseline (see
Table 1 of the MEFP).

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Table B. Ukraine: Eurobond Placements and Disbursements from IFIs and Official Sources:
Projections for NIR/NDA Adjustment
(Cumulative flows from January 1, 2018, millions of U.S. dollars at program exchange rate)
Eurobond and
private placement
EU Others Total
End-December 2018 2,695 603 0 3,297
End-March 2019 3,695 603 0 4,297
End-June 2019
End-September 2019
End-December 2019
4,695
4,695
5,695
1.187
1,187
1,187
0
0
0
5,882
5,882
6,832
B. Ceiling on Cumulative Change in Net Domestic Assets of the NBU
(Indicative Target)
Definition
9. Net domestic assets (NDA) of the NBU are defined as the difference between the monetary
base (as defined below) and the NIR of the NBU (as defined above, excluding the conversion of a
non-reserve currency to a reserve currency through an outright sale under a central bank swap
agreement of exchange of deposits). For the purpose of computing the NDA target, the NIR is
valued at the program exchange rates defined in paragraph 3 and expressed in hryvnia.
10. The NBU’s monetary base comprises national currency outside banks and banks' reserves,
including cash at banks, and other NBU liabilities included in broad money and denominated in
national currency.2
Currency in circulation outside banks is defined as Currency—banknotes and
coins (NBU accounts of group 300 minus NBU accounts of group 100)—minus cash at banks (banks’
accounts of group 100. Banks’ reserves are defined as cash at banks (banks’ accounts of group 100)
plus banks’ demand deposits at the NBU in national currency (NBU liabilities accounts 3200, 3203,
3204 and 3208). Other NBU liabilities consist of deposits at the NBU that are included in broad
money and denominated in national currency (NBU liabilities accounts of groups 323,3
and accounts
3250, 4731, 4732, 4735, 4736, 4738, 4739, and 4750).
2
The definitions set out here will be modified to include any other accounts that may be identified or created in the
future in connection with national currency issue and banks' deposits at the NBU.
3
Includes accounts of following sectors: other financial corporations;
state and local government; nonfinancial corporations; nonfinancial corporations; and non-profit institutions serving
households.

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 Consistent with the NIR target adjustment mechanism (as defined above), NDA targets will be
adjusted downward (upward) by the full amount of the cumulative excess (shortfall) in program
disbursements relative to the baseline projection (Table B) and evaluated at the program
exchange rates.
 NDA targets will be adjusted upward (downward) by the full amount of the cumulative excess
(shortfall) in the total amount of new NBU loans (net of repayments) to the Deposit Guarantee
Fund (DGF) as well as total amount of NBU purchases of government bonds issued for the
purposes of DGF financing and NBU purchases from Privatbank of government bonds issued for
bank recapitalization (net of change in Privatbank’s NBU outstanding loans), relative to the
baseline projection, and evaluated at the program exchange rates if provided in foreign
exchange (Table C). The combined upward adjustment is up to a cumulative maximum of the
bank recapitalization and DGF financing bonds issued from January 1, 2018 and the indicative
cumulative limits are derived from the relevant row of Table 1 of the MEFP.
 The NDA targets will be adjusted downward (upward) by the full amount of the cumulative
excess (shortfall) in net issuance (gross issuance minus debt service) of central government’s
domestic foreign exchange debt liabilities over (under) the amounts expected under the
baseline (see Table 1 of the MEFP).
 The NDA targets will be adjusted downward (upward) by the full amount of the cumulative
excess (shortfall) from the transfer of confiscated foreign exchange assets to international
reserves at the NBU or, if not transferred to international reserves at the NBU, by the use of
confiscated assets held at other institutions (or other non-international reserves assets) to make
budget FX payments, over (under) the amounts expected under the baseline (see Table 1 of the
MEFP).
Table C. Ukraine: NBU Net Loans to DGF and Purchases of Government Bonds Issued for
DGF Financing or Banks Recapitalization: Projections for the NDA Adjustment
(Cumulative flows from January 1, 2018, millions of hryvnia)
Net NBU loans to DGF and purchases of
government bonds issued for DGF
Financing
NBU purchases of government bonds
issued for Bank Recapitalization (net of
change in NBU loans)
End-December 2018 -4,884 -4,500
End-March 2019 -6,484 -4,500
End-June 2019
End-September 2019
End-December 2019
-6,484
-6,484
-6,484
-4,500
-4,500
-4,500

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C. Monetary Policy Consultation Clause (MPCC)
Definition
11. Headline inflation is defined as the year-on-year rate of change of the Consumer Price Index
as measured by Ukraine’s State Statistics Service. The inflation mid-point targets and consultation
bands are specified in Table 1 of the MEFP. Consultation with the IMF Executive Board will be
triggered if the observed headline inflation falls outside an outer band of +4.75/-3.5 percentage
points around the mid-point targets for end-March 2019 and end-September 2019. In this case, the
authorities will complete a consultation with the IMF Executive Board that would focus on (i) the
stance of monetary policy and whether the Fund-supported program remains on track; (ii) the
reasons for program deviations, taking into account compensating factors; and (iii) proposed
remedial actions, if deemed necessary. If the observed headline inflation falls outside an inner band
range of +/- 2 percentage points around the mid-point targets for December 2018, March 2019,
June 2019 and September 2019 and an inner band range of +/- 1 percentage point around the mid-
point target for December 2019, then the authorities will complete a consultation with IMF staff on
the reasons for the deviation and the proposed policy response.
D. Ceiling on Cash Deficit of the General Government (Performance
Criterion)
Definition
12. The general government comprises the central (state) government, including the Road Fund
(UkrAvtoDor), all local governments, and all extra budgetary funds, including the Pension Fund,
Unemployment Fund, and the Fund for Social Insurance of Ukraine (formerly temporary disability
insurance and occupational injury and disease insurance funds). The budget of the general
government comprises (i) the state budget; (ii) all local government budgets; and (iii), if not already
included in (i), the budgets of the extra budgetary funds listed above, as well as any other extra
budgetary funds included in the monetary statistics compiled by the NBU. The government will
inform the IMF staff of the creation or any pending reclassification of any new funds, programs, or
entities, immediately. The cash deficit of the general government is measured by means of net
financing flows excluding the impact of valuation changes as:
 total net treasury bill sales4
(in hryvnias and foreign currency) as measured by the information
kept in the NBU registry of treasury bill sales (net treasury bill sales are defined as the
4
From here on, treasury bills are defined as all treasury securities (including long-term instruments or treasury
bonds).

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cumulative total funds realized from the sales of treasury bills at the primary auction and
government securities issued for recapitalization of banks and state-owned enterprises (SOE),
less the cumulative total redemption of principal on treasury bills), excluding bonds issued to
recapitalize Naftogaz5 and other SOEs; plus
 other net domestic banking system credit to general government as measured by the monetary
statistics provided by the NBU (this consists of all non-treasury bill financing in either domestic
or foreign currency extended to the general government by banks less the change in all
government deposits in the banking system) as well as any other financing extended by entities
not reflected by the monetary statistics provided by the NBU; plus
 total receipts from privatization (including the change in the stock of refundable participation
deposits and the sale of nonfinancial assets) and the proceeds from uncompensated seizures;
plus
 the difference between disbursements and amortization on any bond issued by the general
government or the NBU to nonresidents for purposes of financing the deficit of the general
government; plus
 the difference between disbursements of foreign credits to the general government (including
project loans on lent to public enterprises) and the amortization of foreign credits by the general
government (including on lent project loans); plus
 the net sales of SDR allocation in the SDR department; plus
 the net change in general government deposits in nonresident banks, or other nonresident
institutions; plus
 net proceeds from any promissory note or other financial instruments issued by the general
government.
13. For the purposes of measuring the deficit of the general government, all flows to/from the
budget in foreign currency (including from the issuance of foreign currency denominated domestic
financial instruments) will be accounted in hryvnias at the official exchange rate established as of the
date of the transaction. Financing changes resulting from exchange rate valuation of foreign
currency deposits are excluded from the deficit. The government deposits in the banking system
5
These are included in the financing of Naftogaz’ cash deficit when they are used (as collateral for a loan, or as an
outright sale) by the latter to obtain financing.

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exclude VAT accounts used for electronic administration and escrow accounts of taxpayers used for
customs clearance.
 The ceiling on the cash deficit of the general government is subject to an automatic adjustor
based on deviations of external project loans (defined as disbursements from bilateral and
multilateral creditors to the consolidated general government for specific project expenditure)
from program projections (Table D). Specifically, if the cumulative proceeds from external
project financing (in hryvnia evaluated at actual exchange rates):
a. exceed program projections, the ceiling on the consolidated general government deficit will
be adjusted upward by 100 percent of the excess in external project financing; and
b. fall short of program projections, the ceiling on the consolidated general government deficit
will be adjusted downward by 100 percent of the shortfall in external project financing.
 The ceiling on the cash deficit of the general government is subject to an automatic downward
(upward) adjustment by 100 percent of the amount of the budget support grants received in
excess (in short fall) of the program amounts (Table D).
Table D. Ukraine: External Financing of General Government Projects and Budget—
Adjustment
(Cumulative flows from January 1, 2018 and January 1, 2019, in millions of hryvnia)
External project financing
(Technical assumption for
the adjustor purpose)
Budget support grant
(Technical assumption for
the adjustor purpose)
End-December 2018 17,000 0
End-March 2019 5,000 0
End-June 2019 10,000 0
End-September 2019 15,000 0
End-December 2019 21,161 0
 The ceilings on the cash deficit of the general government are subject to an automatic adjustor
corresponding to the full amount of government bonds issued for the purposes of banks
recapitalization and DGF financing, up to a cumulative maximum UAH 15 billion from
January 1, 2019. The amount included in the targets is zero, and indicative cumulative amounts
for bank recapitalization/DGF financing are presented in Table 1 of the MEFP.

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 The ceiling on the cash deficit of the general government will be adjusted downward by the full
amount of any increase in the stock of budgetary arrears on social payments accrued since the
start of the fiscal (calendar) year. Budgetary arrears on social payments comprise all arrears of
the consolidated budget on wages, pensions, and social benefits owed by the Pension Fund, and
the central or local governments. Budgetary arrears are defined as payments not made 30 days
after they are due. Wages are defined to comprise all forms of remuneration for work performed
for standard and overtime work. Pension obligations of the Pension Fund comprise all pension
benefits and other obligations of the Pension Fund. This definition excludes unpaid pensions to
individuals who resided or continue to reside in the territories that are temporarily outside the
government control.
 The ceiling on the cash deficit of the general government will be adjusted downward by the full
amount of any increase in the stock of VAT as defined in section F.
 The ceiling on the cash deficit of the general government are subject to an automatic downward
adjustment corresponding to the full amount of profits transferred by the NBU in excess of the
amount accounted for in the 2019 budget, as approved by the Rada on November 22, 2018.
14. The modalities of monitoring fiscal performance, including the adjustors listed above, can be
revisited in agreement with IMF staff to ensure the achievement of the primary fiscal balance and
debt targets under the program.
E. Ceiling on Cash Deficit of the General Government and Naftogaz
(Performance Criterion)
Definition
15. The cash deficit of the General Government and Naftogaz is the cash deficit of the General
Government as defined above plus the cash deficit of Naftogaz.
16. Naftogaz is defined as the national joint stock company “Naftogaz of Ukraine” and its
subsidiaries (collectively, the “Naftogaz Group”). The cash deficit of Naftogaz is measured from
below the line as:
 net domestic banking system credit to the company (this consists of all financing in either
domestic or foreign currency extended to the company by banks less the change in company
deposits in the banking system); plus

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 the difference between disbursements of private foreign loans to Naftogaz (including private
placements) and the amortization of private foreign loans (including private placements); plus
 the difference between disbursements of official foreign credits to Naftogaz (including project
loans) and the amortization of official foreign credits (including project loans); plus
 the disbursements of trade credits to import gas; plus
 the difference between disbursements and amortization on any bonds issued by Naftogaz; plus
 the net change in deposits of Naftogaz in nonresident banks, or other nonresident institutions;
plus
 net proceeds from any promissory note or other financial instruments issued by Naftogaz; plus
 net receipts from sale of financial assets (including recapitalization or other form of treasury
securities issued to Naftogaz, irrespective of their issuance date); plus
 any other forms of financing of the company not identified above.
17. For the purposes of measuring the deficit of Naftogaz, all flows in foreign currency will be
accounted in hryvnias at the official exchange rate as of the date of the transaction. When there are
arrears outstanding as of the test date, the official exchange rate on the test date will apply to their
valuation.
 All the adjustors as specified in section D for the Cash Deficit of the General Government also
apply to the general government component of this ceiling on the cash deficit of the general
government and Naftogaz.
 The ceiling on the cash deficit of the general government and Naftogaz will be adjusted upward
by the amount Naftogaz’s investment expenditure in excess of UAH 15 billion, but by no more
than UAH 25 billion (corresponding to a total investment expenditure of UAH 40 billion).
F. Ceiling on VAT Refund Arrears (Indicative Target)
18. The ceiling on the stock of VAT refund arrears is set to UAH 0 billion. The stock of VAT
refund arrears is defined as those claims that have not been settled (through a cash refund, netting
out against obligations of taxpayers, payment with a government bond (VAT bond) or an official
decision to reject the claim) within a specified time period after the VAT refund claim has been

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submitted to the State Fiscal Service (SFS). This time period is 74 days, allowing for verification of the
validity and payment processing of claims.
G. Ceiling on State Budget Current Primary and Pension Expenditure
(Indicative Target)
19. The ceiling on the state budget current primary and pension expenditure is defined as
current cash expenditure of the general fund of the central (state) government of Ukraine net of
interest payments on domestic and external debt and net of transfers to from the state budget to
the pension fund, plus total expenditures of the pension fund, plus payments of any past
expenditure arrears. The ceiling is based on the definition as reported in the monthly treasury report
(Kv_1ek) adjusted for Ukravtodor debt repayment and on information provided by the pension fund.
20. The ceiling on state budget current primary expenditure is subject to an automatic
downward adjustor on the accumulation of new budgetary arrears on wages and social benefits
owed by the state budget. Budgetary arrears are defined as payments not made 30 days after they
are due.
H. Ceiling on Non-Accumulation of New External Debt Payments Arrears
by the General Government (Continuous Performance Criterion)
Definition
21. For the purposes of this performance criterion, an external debt payment arrear will be
defined as a payment by the general government to nonresidents, which has not been made within
the due date (including grace period, if any). This includes direct and guaranteed debt by the
general government. The general government is defined for the purposes of this performance
criterion in section E paragraph 12 above. For the purposes of the performance criterion on the non-
accumulation of new external payments arrears by the General Government, arrears resulting from
nonpayment of debt service for which a clearance framework has been agreed or for which a
restructuring agreement is being sought are excluded from this definition. The performance
criterion will apply on a continuous basis throughout the program period.
I. Ceiling on Publicly Guaranteed Debt (Performance Criterion)
Definition
22. The ceiling on publicly guaranteed debt will apply to the amount of guarantees issued by
the central (state) government. The official exchange rate will apply to all non-UAH denominated

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debt. This ceiling excludes guarantees issued by the Ministry of Finance for NBU borrowings from
IMF.
J. Other Continuous Performance Criteria
23. During the period of the Stand-By Arrangement, Ukraine will not (i) impose or intensify
restrictions on the making of payments and transfers for current international transactions;
(ii) introduce or modify multiple currency practices; (iii) conclude bilateral payments agreements that
are inconsistent with Article VIII; and (iv) impose or intensify import restrictions for balance of
payments reasons.
II. OFFICIAL EXCHANGE RATE
A. Determination of the Official Exchange Rate
24. The NBU, on a daily basis, will set the official UAH/USD rate based on a weighted average of
the exchange rates from the day’s interbank market deals, excluding outliers. To calculate the official
exchange rate, information on all deals concluded and provided to the NBU by trade information
systems until 3:30 pm on the day will be considered regardless of the settlement date. Specifically,
tod, tom and spot (T+2) deals will be included. Outliers are transactions for which the exchange rate
deviates from the arithmetic mean for all transactions by more than 2 percent and the rate or
volume deviates from the arithmetic mean for all transactions by more than 2 standard deviations.
As a back-up mechanism, in case the number of transactions to be taken into account for the
calculation is by noon less than or equal to 10 percent of the average daily value for the previous
month, the rate will be calculated as the arithmetic mean of all quotations for purchases or sales of
$1 million submitted by banks from noon to 1pm. The NBU will aim to make public its official
exchange rate by no later than 4 pm of the day, preceding the one for which it is set.
III. COST RECOVERY OF GAS AND HEATING TARIFFS
25. Starting from November 1, 2018 and through December 31, 2019 (inclusive), Naftogaz shall
sell/supply natural gas at the price (without VAT, natural gas transportation and distribution
tariffs subject to mandatory payment in accordance with the natural gas distribution contracts)
calculated in accordance with the formula:
P = (Pbase* Kd) where:
P – (wholesale) price of selling/supplying natural gas

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Pbase - average arithmetic price of selling/supplying natural gas by Naftogaz to industrial
consumers under the condition of advance payment prior to the gas delivery period, effective
from July 1 through September 30, 2018 according to the Price List with regard to natural gas
from the resources of the NJSC “Naftogas of Ukraine” (UAH 8981 per 1000 cubic meters).
Kd - discount coefficient (ratio) equaling:
0.6943 - for calculation of natural gas prices starting from November 1, 2018;
0.8 – for calculation of natural gas prices starting from May 1, 2019.
Starting from January 1, 2020, Naftogaz shall sell/supply natural gas at the prices set between
the vendor (supplier) and purchaser (consumer), but no higher than the average arithmetic gas
price, at which the Company offers gas to industrial consumers under the condition of advance
payment prior to the gas delivery period.
IV. REPORTING REQUIREMENTS
A. National Bank of Ukraine
26. The NBU will continue to provide to the IMF on a monthly basis sectoral balance sheets for
the NBU and other depository corporations (banks) according to the standardized reporting forms
(SRFs), no later than the 25th day of the following month (except for SRFs for the end of the
reporting year, which should be provided no later than the 41st day of the following month).
27. The NBU will provide to the IMF, on a daily basis, with daily data the stock of net and gross
international reserves, at both actual and program exchange rates. In addition, it will provide the full
breakdown of NBU accounts included in net international reserves (defined in Table A above) any
additional information that is needed for the IMF staff to monitor developments in net and gross
international reserves. On a monthly basis, no later than the 25th of the following month, the NBU
will provide data on the currency composition of reserve assets and liabilities.
28. The NBU will provide to the IMF on a daily basis with information on obligatory, voluntary
and total foreign exchange sales (including total from nonresidents and sales by clients in the
interbank market) and approved foreign exchange demand in the interbank market, including
Naftogaz foreign exchange purchases. The NBU will provide the IMF on a daily basis with
information on official foreign exchange interventions and intervention quotations. In this context, it
will also provide the results of any foreign exchange auctions.

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29. The NBU will provide the IMF on a daily basis with information on balances held in the
analytical accounts 2900 “Accounts payable per transactions for the foreign exchange, banking and
precious metals purchase and sale on behalf of banks’ clients.”
30. The NBU will continue to provide on its web site the daily holdings of treasury bills at
primary market prices, at current exchange rates. The NBU will provide information on daily holdings
of treasury bills broken down by type of holders (including state-owned banks and private banks) at
primary market prices at the rate fixed on the day of auction information on t-bills sales, including in
the foreign exchange, from the beginning of the year at the official rate as of the date of placement,
as well as the t-bills in circulation, by principal debt outstanding at the official exchange rate as of
the date of placement; reports on each treasury bill auction; and provide to the IMF the monthly
report on treasury bills, in the format agreed with the IMF staff.
31. The NBU will provide information on daily transactions (volumes and yields) on the
secondary market treasury bills (including over-the-counter transactions and with a breakout for any
NBU transactions).
32. The NBU will provide to the IMF its financial statements (income and expenses as well as
balances on the general reserves) for the current and, if available, projections for the following year,
as approved by the NBU’s Council. The IMF is to be notified immediately of any update.
33. The NBU will continue to provide to the IMF daily and monthly data on the NBU financing
operations (including swaps or refinancing) of the banks of Ukraine, and on the operations of
mopping up (absorption) of the liquidity from the banking system (including through the CDs
issuance) in the formats and timeliness agreed with the IMF staff. It will also provide, on a weekly
basis, bank-by-bank information on the outstanding amount and weighted-average interest rates of
loans from the NBU, reported by type of lending. On a monthly basis, the NBU will provide
information on the collateral that has been pledged to the NBU for loans (by bank and loan type as
well as by collateral type, haircut and currency). The weekly and monthly reporting of NBU loans and
collateral will separately identify which banks are under temporary administration or liquidation.
34. The NBU will provide to the IMF, on a monthly basis but not later than 30 days after the
expiration of the reporting month, the report on the banking sector indicators in the format agreed
with the IMF staff. The NBU will also provide core and expanded FSIs, as defined in the IMF
Compilation Guide, for the aggregate as well as individual banks in State Participation Group
Foreign Banking Group and Private Capital Group.

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35. On a daily basis and on a monthly basis within three weeks following the end of the month,
the NBU will continue to provide the IMF with the depository corporations surveys, including any
additional information that is needed for the IMF staff to monitor monetary policy and
developments in the banking sector, in particular: net domestic assets, including NBU loans and
liabilities with banks and detailed information on loans of the banking sector provided to the
general government, with detailed breakdown of this information by indebtedness of the central
(state) government and local budgets and the DGF, including in national and foreign currency, by
loan and by security, as well as the information on the balances of the funds of the government held
at the NBU, in particular, the balances of the Single Treasury Account denominated in the national
currency (account 3240 A) and the funds of the Treasury denominated in foreign currency (account
3513 A) and DGF.
36. The NBU will provide to the IMF, on a monthly basis, projections for external payments
falling due in the next 12 months. The data on actual settlement of external obligations, reflecting
separately principal and interest payments as well as actual outturns for both the public and private
sectors, shall be provided on a quarterly basis, within 80 days following the end of the quarter.
37. The NBU will provide to the IMF, on a quarterly basis, the stock of short- and long-term
external debt (including arrears) for both public and private sectors.
38. The NBU will provide to the IMF, on a daily basis, data on foreign exchange export proceeds
and obligatory foreign exchange sales; data on import transactions for goods and services; data on
amounts of foreign exchange transferred from abroad to the benefit of physical persons—residents
and nonresidents—to be paid in cash without opening an account; data on foreign exchange wires
from Ukraine abroad for current foreign exchange nontrade transactions on the basis of the orders
of physical persons; data on sales and purchases of foreign exchange cash by individuals (incl.
through banks, exchange offices, and Ukrposta); data summarizing the implementation of T+n
verification system (with n determined by the latest NBU resolution), namely, the total number and
volume of transactions screened and the total number and volume of transactions blocked, with
separate information on imports. The NBU will provide to the IMF weekly data on the volumes of
noncash foreign exchange purchases on behalf of banks’ clients and banks broken down by reasons
(file 3KX).
39. The NBU will provide to the IMF, on a daily basis, data on foreign assets and liabilities of the
overall banking system (excl. the NBU); data on banks’ open foreign exchange positions by main
groups of banks; data on deposits on the aggregated basis for the overall banking system (excl. the
NBU) broken down by households and legal entities, maturity, as well as by national and foreign
currency; data on loans on the aggregated basis for the overall banking system (excl. the NBU)

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broken down by households and legal entities as well as by national and foreign currency. In
addition, the NBU will provide to the IMF, on a daily basis, data on deposits and credits on the
aggregated basis for the overall banking system (excl. the NBU) without deposits and credits of
banks in liquidation starting from the beginning of 2014 and broken down by households and legal
entities, as well as by national and foreign currency. On a weekly basis, the NBU will provide the IMF
data on foreign assets and foreign liabilities (broken down by domestic and foreign currency) for the
individual banks in State Participation Group, Foreign Banking Group and Private Capital Group. On
a monthly basis, foreign assets will be broken down by type (i.e., cash and deposits, government
securities, nongovernment securities, loans, other) and foreign liabilities by type, holder (i.e., banks,
other financial institutions, nonfinancial corporate, and individuals) and remaining maturity (less
than one month, one to three months, three to 12 months and over 12 months). For foreign credit
lines from banks and for securities, the rollover rates will also be provided.
40. The NBU will provide, on a daily basis, bank-by-bank data for the largest 35 banks and
aggregate data for the State Participation Group, Foreign Banking Group, Private Capital Group and
Group 2 separately (all excluding banks in temporary administration) on the liquidity ratio and
amounts of cash and cash equivalents, available funds in NBU accounts (excl. reserve requirements),
correspondent accounts with well-known international banks (excl. encumbered accounts), and
deposits from customers. The NBU will also provide, on a daily basis, bank-by-bank data for State
Participation Group, Foreign Banking Group, and Private Capital Group banks and aggregate for
Group 2, total assets and liabilities; loans and claims (by households, legal entities, and banks); and
foreign exchange net open position. The data will be reported by domestic and foreign currency.
The deposits data will be reported by households and legal entities and by maturity (current
accounts, saving accounts, and time deposits). In addition, for the aggregate of the banking sector
as well as groups of banks, the NBU will provide data on deposits and credits excluding those banks
in liquidation since 2014.
41. The NBU will provide to the IMF on a daily basis aggregated data on main currency flows,
including government foreign receipts and payments by currencies as well as interbank market
operations by currencies. The NBU will continue to provide daily information on exchange market
transactions including the exchange rate.
42. The NBU will provide to the IMF with information on reserve requirements.
43. The NBU will provide the IMF, on a monthly basis, bank-by-bank for State Participation
Group, Foreign Banking Group and Private Capital Group banks the average interest rate on
deposits to customers (by domestic and foreign currency, and legal entities and households, and by
maturity—demand, savings, and time accounts); and on a weekly basis, the average interest rate on

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interbank borrowings (by domestic and foreign currency, and by maturity—overnight, 1–7 days, and
over one week).
44. The NBU will provide the IMF, on a two weekly basis, in an agreed format, data for the entire
banking sector—aggregate for Group 2 and on a bank-by-bank basis for State Participation Group,
Foreign Banking Group and Private Capital Group banks—risk weighted assets and other risk
exposures (for ratio H2 calculation), including for the excess of long-term asset to funding and
foreign exchange open position; total regulatory (Tier 1 and Tier 2) and core (Tier 1) capital; capital
adequacy ratio for total regulatory (H2) capital; loans and claims by maturity buckets for households,
legal entities, and banks in domestic and foreign currencies; deposits by maturity buckets for
households, legal entities, and banks in domestic and foreign currencies; and foreign exchange net
open position, split between total foreign exchange assets (long position) and foreign exchange
liabilities (short position), and between on- and off-balance sheet.
45. The NBU will provide the IMF, on a monthly basis, in an agreed format, data for the entire
banking sector—aggregates for Group 2 and on a bank-by-bank basis for State Participation Group,
Foreign Banking Group and Private Capital Group banks the amount of loans and claims (by
households in domestic and foreign currency, legal entities in domestic and foreign currency, banks
in domestic and foreign currency, maturity, and by loan classification categories I, II, III, IV, and V);
collateral for loans and claims (by type of collateral, legal entities in domestic and foreign currency,
households in domestic and foreign currency, banks in domestic and foreign currency, and by loan
classification categories I, II, III, IV, and V); provisions on loans and claims (by households in domestic
and foreign currency, legal entities in domestic and foreign currency, banks in domestic and foreign
currency, and by loan classification categories I, II, III, IV, and V); large exposures (loans equal to or
greater than 10 percent of equity), refinanced loans, and restructured loans (by households, legal
entities, and banks); the average interest rate on the outstanding stock of loans to customers (by
legal entities and households; accrued interest on loans (by domestic and foreign currency);
securities held for trading and available for sale, with government securities reported separately (by
domestic and foreign currency); securities held to maturity and as investment, with government
securities reported separately (by domestic and foreign currency).
46. The NBU will provide the IMF, on a monthly basis, in an agreed format, bank-by-bank for the
State Participation Group, Foreign Banking Group and Private Capital Group banks the amount of
deposits of related parties (by domestic and foreign currencies, and households and legal entities);
deposits of related parties pledged as (cash cover) collateral (by domestic and foreign currencies,
and households and legal entities); other liabilities to related parties (by domestic and foreign
currencies); related-party loans (by households, legal entities, and banks); counterparty names and

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amounts of the largest 20 loans to related parties; collateral for loans and claims on related parties
(by type of collateral, legal entities, households, and banks in domestic and foreign currencies, as
well as by loan classification categories I, II, III, IV, and V); provisions on loans and claims on related
parties (by households, legal entities, and banks in domestic and foreign currencies, as well as by
loan classification categories I, II, III, IV, and V).
47. The NBU will provide to the IMF, on a monthly basis, aggregate and bank-by-bank and by
region data on loans and provisions (by households and legal entities, domestic and foreign
currencies, and by loan classification categories I, II, III, IV, and V); deposits (by households and legal
entities, and domestic and foreign currencies); due from banks (by domestic and foreign currencies).
48. The NBU will report to the IMF, on a monthly basis, data for the entire banking sector (and
aggregates for Group 2) as well as on a bank-by-bank basis for State Participation Group, Foreign
Banking Group and Private Capital Group banks on cumulative income statements, including total
revenues; interest revenues (from loans to households, loans to legal entities, interbank loans,
placements with the NBU, securities); revenues from fees and commissions; total expenses; interest
expenses (on deposits to legal entities, deposits to households, interbank borrowing, borrowing
from NBU, securities issued); fees and commissions paid; salaries and other staff compensation;
other operational expenses; net earnings before loan loss provisions; loan loss provisions; net
earnings after loan loss provisions; taxes paid; net earnings.
49. Upon request, the NBU will provide to the IMF the two-week projections of bank-by-bank
cash flows for the State Participation Group, Foreign Banking Group and Private Group banks.
50. The NBU will report to the IMF on a bi-weekly basis and bank-by-bank the amount by which
the State Participation Group, Foreign Banking Group and Private Capital Group banks' regulatory
capital has been increased. The report will disclose the instrument or transactions by which the
regulatory capital has been increased (e.g., capital injection, conversion of subordinated debt to
equity, etc.)
51. The NBU will, once a month, inform the IMF any regulatory and supervisory measures
against banks violating the NBU regulations on capital adequacy, liquidity ratio, large exposures, and
related or connected lending, as well as about decisions on declaring a bank as problem or
insolvent.
52. The NBU will continue to provide detailed quarterly balance of payments data in electronic
format within 80 days after the end of the quarter.

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53. The NBU will provide data on credit to nongovernment units that are guaranteed by the
NBU on a monthly basis no later than 25 days after the end of the month.
54. The NBU will inform IMF staff if the Treasury does not pay interest or principal on domestic
government bonds due to the NBU, deposit money banks, or nonbank entities and individuals. In
such case, the NBU will provide information on outstanding interest and principal payments.
55. The NBU will inform IMF staff of any changes to reserve requirements for other depository
corporations.
56. The NBU will communicate (electronically) to the IMF staff any changes in the accounting
and valuation principles applicable to the balance sheet data and will notify the staff before
introducing any changes to the Charts of Accounts and reporting forms of both the NBU and the
commercial banks.
57. The NBU Internal Audit Department will continue to provide an assurance report to the
Fund, no later than six weeks after each test date, confirming that (i) the monetary data are in
accordance with program definitions and have been verified and reconciled to accounting records;
and (ii) that there have been no changes to the chart of accounts or valuation methods that would
impact the data reporting.
58. The NBU will continue to provide the Fund with a copy of the annual management letter
from the external auditor within six weeks of completion of each audit. As required under the Fund's
safeguard policy, this will remain in effect for the duration of the arrangement and for as long as
credit remains outstanding.
59. The NBU will provide the Fund with data relative to the interest income and principal
received from January 1, 2017 on its portfolio of government bonds on a monthly basis but no later
than 15 days from the end of the reporting period. Monthly, the NBU will also provide data on the
monthly coupons and principal to be paid (in hryvnia and foreign currency, separately) on the
outstanding stock of government securities held by NBU and the public.
B. Deposit Guarantee Fund
60. The DGF will provide, on a monthly basis, data on the total number and volume of
household deposits broken down in groups by deposit size. The data will be reported bank-by-bank
for the largest 35 banks and on aggregate for the remaining banks.

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61. The DGF will report to the IMF on a monthly basis and bank-by-bank for all banks in the
banking system the amount of insured deposits and total household deposits. The data will be
reported according to an agreed format, by domestic and foreign currency.
62. The DGF will report to the IMF on a monthly basis and bank-by-bank the total insured
deposits and remaining insured deposits to be paid by the DGF for the banks under liquidation and
under provisional administration. The data will be reported according to an agreed format, by
domestic and foreign currency.
63. The DGF will report to the IMF on a monthly basis the financial position of the DGF,
including information about the cash balance, bond holdings, credit lines, and loans. The data will
be reported according to an agreed format.
64. The DGF will report to the IMF on a monthly basis the financing arrangements of the DGF,
including information about contracted financing from MoF. The data will be reported according to
an agreed format.
65. The DGF will report to the IMF on a monthly basis a one-year forecast of the amount and
type of financial resources that the DGF expects to receive from MoF, NBU and other entities, the
amount that DGF expects to pay out to insured depositors in banks in liquidation, and the amount
of asset recoveries expected by DGF. The data will be reported according to an agreed format.
C. Ministry of Finance
66. The Ministry of Finance will provide the IMF with the monthly consolidated balances (end-
month) of other non-general government entities, including SOEs, holding accounts at the Treasury
no later than 25 days after the end of the month.
67. The Treasury will continue to provide to the IMF reports on daily operational budget
execution indicators, daily inflow of borrowed funds (by currency of issuance) to the state budget
and expenditures related to debt service (interest payments and principals), weekly balances of
Treasury cash flow (outturn and forecast), including data on government foreign exchange deposits,
in a format agreed with IMF staff, 10-day basis data on the execution of the state, local, and
consolidated budgets on the revenue side and data on revenues from the social security
contributions, monthly data on funds, deposited with the Single Treasury Account, on the
registration accounts of the entities which are not included in the state sector, information on
balance of funds as of the 1st day of the month on the account #3712 “accounts of other clients of
the Treasury of Ukraine,” on inflow to the State budget from placing Treasury or any other liabilities
to households in foreign and domestic currency and their redemption.

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68. The Ministry of Finance will continue to provide to the IMF in electronic form monthly and
quarterly treasury reports, no later than 25 and 35 days after the end of the period respectively. The
Ministry of Finance will continue to provide to the IMF in electronic form the final fiscal accounts at
the end of each fiscal year, no later than March of the following year. Inter alia, these reports will
provide expenditure data by programs and key spending units, as well as based on standard
functional and economic classifications. In addition, quarterly reports will contain standard
information on budget expenses to cover called government guarantees.
69. The Ministry of Finance will report monthly data on the public wage bill (excluding SOEs) in
line with the template agreed with the IMF staff. It will also provide monthly reports on the
borrowing (disbursements, interests, and amortization) of UrkAvtoDor in line with the format agreed
with IMF staff. The Ministry of Finance will report to the IMF on a monthly basis information on
municipal borrowing and amortization of debt in format agreed with IMF staff.
70. The Ministry of Finance will report to the IMF on a monthly basis, no later than 15 days after
the end of the month, the cash deficit of the general government, with details on budget execution
data for privatization receipts of the state and local governments; disbursements of external credits
(including budget support and project loans for on lending) to the consolidated budget and
amortization of external debt by the consolidated budget; net domestic borrowing of the general
government, including net t-bill issuance, issuance of other government debt instruments, and
change in government deposits.
71. The Ministry of Finance will provide data on the stock of all budgetary arrears on a monthly
basis, no later than on the 1st day of the second subsequent month, including separate line items for
wages, pensions, social benefits, energy, communal services, and all other arrears on goods and
services. The Treasury will report monthly data on accounts payable for state and local budgets
(economic classification of expenditures). The Pension Fund will provide monthly reports on net
unpaid pensions to the individuals who resided or continue to reside in the territories that are
temporarily outside the government control.
72. The Ministry of Finance will provide monthly information, no later than 25 days after the end
of each month, on the amounts and terms of all external debt contracted or guaranteed by the
central government.
73. The Ministry of Finance will provide to the IMF in electronic form on a monthly basis, no
later than 25 days after the end of the month, (a) data on the outstanding stock of domestic and
external debt of the state and local budgets (including general and special funds); (b) the standard
files planned and actual external debt disbursement, amortization, and interest payments (including

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general and special funds), broken down in detail by creditor categories as agreed with Fund staff;
and (c) the report on external debt amortization and interest payments by days and currencies. The
Ministry of Finance will also report the accumulation of any budgetary arrears on external and
domestic debt service.
74. The Ministry of Finance will provide to the IMF monthly debt (domestic and external)
amortization schedules updated on a weekly basis.
75. The Ministry of Finance will provide data on external and domestic credit to key budgetary
spending units as well as nongovernment units (including Naftogaz, State Mortgage Institution,
DGF, and Agrarian Fund) that is guaranteed by the government (amount of sovereign guarantees
extended by executive resolutions and actually effectuated; total amount of outstanding guarantees
and list of their recipients) on a monthly basis no later than 25 days after the end of the month.
76. The Ministry of Finance will provide data on the approved budgets and quarterly operational
data (daily for the Pension Fund only) on the revenue, expenditures, and arrears, and balance sheets
of the Pension Fund (detailed data on the breakdown of revenues and expenditure by main
categories are expected for this Fund), the Fund for Social Insurance, Employment Fund (detailed
data on the breakdown of revenues and expenditure by main categories are expected for this Fund),
and any other extra budgetary funds managed at the state level no later than 50 days after the end
of each quarter (each month in case of the Pension Fund). Any within-year amendments to the
budgets of these funds will be reported within a week after their approval. The Ministry of Finance
will also report the annual financial statement including the final fiscal accounts of those funds at
the end of each fiscal year, no later than April of the following year.
77. The Ministry of Finance will provide, no later than 15 days after the end of each month,
monthly data on the budgetary costs associated with the recapitalization of banks and SOEs. This
cost includes the upfront impact on the cash deficit of the general government of the
recapitalization of banks and SOEs as well as the costs associated with the payment of interests,
including the respective changes as a result of supplementary budgets.
78. The Ministry of Finance will provide monthly data on their expenditure plans (ROSPIS) for
state budget.
79. SFS will provide monthly data, no later than 25 days after the end of the month, on tax
arrears, inclusive of deferred payments, interest and penalties outstanding, in the following format:

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Beginning Stock
Netting
out
during
month
Deferrals
during
month
Write-
-offs
(arrears
written
off during
month)
Collections
of
outstanding
debt at
beginning
of month
New
Arrears (tax
liabilities
becoming
overdue
during
month)
Ending
Stock
Total Principal Interest Penalties
Tax
arrears
80. The SFS will continue to provide on a quarterly basis, no later than two months after the end
of the quarter, a listing of all tax exemptions granted, specifying the beneficiary the exemption
provided, the duration, and the estimated subsequent revenue loss for the current fiscal year.
81. The SFS will continue to provide monthly information, no later than 25 days after the end of
the month, on VAT refunds in the following format: (i) beginning stock of refund requests; (ii) refund
requests paid in cash; (iii) refunds netted out against obligations of the taxpayer; (iv) denied
requests; (v) new refund requests; (vi) end-of-period stock of requests; and (vii) stock of VAT refund
arrears according to the definition in paragraph 11 (unsettled VAT refund claims submitted to the
SFS more than 74 days before the end of period.
82. The SFS will continue to provide monthly reports 1.P0 on actual tax revenue and 1.P6 on tax
arrears, no later than 25 days after the end of each month.
83. The SFS will provide on a quarterly basis but no later than 25 days after the end of each
quarter information on the number of tax appeals and the associated disputed amounts received by
the SFS in each reporting period, the number of internally resolved appeals indicating the number of
appeals resolved in favor of the controlling body, in favor of taxpayer and partial satisfaction.
D. Ministry of Economic Development and Trade, Ministry of Energy and
Coal Industry, Ministry of Housing and Municipal Economy of Ukraine,
National Commission in Charge of State Regulation in Energy and Utilities
(NCSREU), and Naftogaz
84. The Ministry of Regional Development, Construction, and Housing and Municipal Economy
will provide quarterly information on actual levels of communal service tariffs in all regions for major
services (heating, water supply, sewage and rent) and their level of cost recovery. In addition, the
Ministry of Economic Development and Trade and the NCSREU will provide the methodology
underlying the tariff calculations for full cost recovery, including heating and gas.

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85. For each month, no later than the 25th of the following month, the government (based on
information by the Ministry of Energy and Coal Industry, the Ministry of Economic Development and
Trade, SFS/SCS, MoF, NCSREU, and Naftogaz) will provide IMF staff with information in electronic
form (in an agreed format defined as “Ukraine: The Financial Position of Gas Sector”) on financial
indicators in the gas and heating sectors, including prices and volumes of domestically produced (by
production entity) and imported (by sources of imports) gas, sales, tariffs, arrears, payments to the
budget, subsidies, and debt.
86. For each month, no later than the 25th of the following month, the Ministry of Economic
Development and Trade (based on information by Naftogaz) will provide IMF staff with information
in electronic form (in an agreed format) on the cash flows and deficit of Naftogaz Group and
separately for each of the entities, as defined above. This report will provide information on volumes
and prices of gas purchases and sales (purchase of domestic and imported gas, sales to households,
heating utilities, budget institutions, and industries), and the main revenue, expenditure and
financing items. On a monthly basis, Naftogaz will provide to IMF staff updated information on the
company’s financial liabilities, with a schedule of loan-by-loan interest and principal payments. This
report will break down the total cash outlays for gas imports from Gazprom by month in a separate
table mutually agreed with IMF staff.
87. For each quarter, no later than the 25th of the following month, the Ministry of Housing and
Municipal Economy will provide IMF staff with information of the quantity of heating energy meters
installed at a building level measured also as a ratio to the applicable buildings.
88. The National Commission for State Energy and Public Utilities Regulation will provide
information with a breakdown by its licensees regarding the levels of tariffs for heat energy for the
households, centralized heating services and centralized hot water supply to the households in the
event of their changes with the definition of average tariff levels (net of VAT and VAT included).
89. The National Commission for State Energy and Public Utilities Regulation will inform in
advance (10 days before the day of the meeting at which it is planned to adopt such a decision)
about any amendments that can be made to the Commission's decisions regulating the distribution
accounts for companies in the natural gas sector. The National Commission for State Energy and
Public Utilities Regulation on the day following the adoption of the Resolution on the approval of
Register of norms for the transfer of funds received as payment for provided heat and / or utilities
including centralized heating, centralized hot water supply to all categories of consumers and as a
payment of heat supplying enterprises for heat produced by heat-generating enterprises for
respective month and on the changes to the Register of norms, will inform about them in the
electronic format.

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90. NJSC Naftogaz will report on a weekly basis data on Naftogaz daily market purchases of
foreign exchange.
91. The Ministry of Economy will provide on a quarterly basis, but no later than 80 days after the
end of each quarter consolidated information from the financial statements of 50 largest SOEs
(excluding Naftogaz). Specifically, the information will include data on (a) gross profit/losses; (b) net
financial results; (c) subsidies received from the budget; (d) guarantees granted from the budget;
(e) stock of debt, broken down by domestic and foreign; (f) taxes and dividends paid; (g) wage
arrears; and (h) other payment arrears. The report will also include information on the number of all
SOE (a) making profits, (b) making loss or (c) balanced with aggregated financial results for each of
these groups.
E. State Statistics Service
92. In case of any revisions of gross domestic products, the State Statistics Service will provide
to the IMF revised quarterly data on gross domestic product (nominal, real, deflator) and their
components (economic activities, expenditure, income), no later than 10 days after any revisions
have been made.
F. Ministry of Social Policy
93. The Ministry of Social Policy will collect and submit to IMF and World Bank staff on a
monthly basis data on HUS and privileges for energy consumption. The data, which will be
presented in an agreed excel format, will show for each program (a) the number of households
which applied for HUS; (b) number of approvals extended to such HUS applications; (c) number
of households-recipients of HUS and privileges in the reporting month; (d) total value of
transfers; (e) total value of outstanding HUS debt (f) number of refusals extended to such
applications; (g) income per capita of participants, both for HUS and privileges; (h) number of
household members; and (i) main reason for refusal for HUS applications (e.g. lack of residency
information) and are to be presented by overall, by region and for rural/urban areas.
G. National Agency for Prevention of Corruption
94. The National Agency for Prevention of Corruption (NAPC) will publish on a website freely
available to the public quarterly data, no later than at the end of the month following the quarter,
on the action taken regarding the asset declaration of high level officials, in the following format:

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Number of Full Verifications of Asset declarations by the NAPC
(Article 50 Law on Prevention of Corruption)
Members of
Parliament,
Members of
the
Government
Judges Prosecutors Category A
Civil Servants
SOE
Managers Others
Number
Reports sent by the NAPC to NABU
Members of
Parliament,
Members of
the
Government
Civil Servants
SOE
Managers Others
Number of reports
for absence of
declaration
Number of reports
for false declaration
H. National Anti-Corruption Bureau
95. The National Anti-Corruption Bureau (NABU) will publish on a website freely available to the
public quarterly data, no later than at the end of the month following the quarter, on the number of
persons indicted, the number of persons convicted by a first instance court decision, and the
number of persons convicted pursuant a final court decision, in the following format:
Number of Persons Indicted
Penal Code
Article
Members of
Parliament,
Members of the
Government
Civil Servants
SOE
Managers Others
Art. 191
Art. 206-2
Art. 209
Art. 210
Art. 211
Art. 354
Art. 364
Art. 368
Art. 368-2
Art. 369
Art. 369-2
Art. 410

UKRAINE
Number of Persons Convicted—First Instance
Penal Code
Article
Members of
Parliament,
Members of
the
Government
Judges Prosecutors
Category A
Civil Servants
SOE Managers
Others
Fine Jail Fine Jail Fine Jail Fine Jail Fine Jail Fine Jail
Art. 191
Art. 206-2
Art. 209
Art. 210
Art. 211
Art. 354
Art. 364
Art. 368
Art. 368-2
Art. 369
Art. 369-2
Art. 410
For fines, total value in UAH. For jail, total months (and suspended jail).
Number of Persons Convicted—Final Decision
Penal Code
Article
Members of
Parliament,
Members of
the
Government
Judges Prosecutors
Category A
Civil Servants
SOE Managers
Others
Fine Jail Fine Jail Fine Jail Fine Jail Fine Jail Fine Jail
Art. 191
Art. 206-2
Art. 209
Art. 210
Art. 211
Art. 354
Art. 364
Art. 368
Art. 368-2
Art. 369
Art. 369-2
Art. 410
For fines, total value in UAH. For jail, total months (and suspended jail).
I. Financial Intelligence Unit
96. The Financial Intelligence Unit (FIU) will continue to publish on a website freely available to
the public quarterly data, no later than at the end of the month following the quarter, information
on reports sent to NABU in relation to suspicions of laundering of the proceeds of corruption, in the
following format:

UKRAINE
Reports sent by the FIU to NABU
Members of
Parliament,
Members of
the
Government
Civil Servants
SOE
Managers Others
Number of reports
disseminated
Aggregated value of
suspected money
laundering

UKRAINE
CANCELLATION OF ARRANGEMENT UNDER THE
EXTENDED FUND FACILITY—SUPPLEMENTARY
INFORMATION
Approved By
Philip Gerson (EUR)
and Mark Flanagan
(SPR)
Prepared By
European Department
1. This supplement provides an update on economic and policy
developments since the issuance of the staff report on December 7,
2018.
2. Following the issuance of the staff report for the Ukrainian authorities’
request for a Stand-By Arrangement, the National Energy and Utilities
Regulatory Commission (NEURC) on December 11, 2018 gave final
approval to—and published in the official gazette on December 12,
2018—increases in the heating tariffs, effective January 1, 2019, to fully
reflect the increase in the wholesale gas price, of all the heating
companies licensed by the NEURC. With this action, all components of the
prior action regarding household gas and heating tariffs were met prior to
the December 18, 2018 Board meeting, and the IMF Executive Board was
informed of this during the Board consideration of the request.
January 4, 2019

UKRAINE
Table 2. Ukraine: Prior Actions and Structural Benchmarks
Prior actions Status Completion date
1. Parliamentary approval and enactment of the 2019 budget and
supporting tax legislation consistent with the program target of
2.3 percent of GDP (as specified in ¶5b).
Met
2. (i) Raising the wholesale price for gas supplied to households
and district heating companies to UAH 6,236 per thousand cubic
meters (excluding transmission and distribution tariffs, supplier’s
mark-up and VAT), effective November 1, 2018; (ii) revision of the
automatic gas price adjustment mechanism to ensure that the
wholesale price for gas supplied to households and for heating
will be adjusted automatically effective May 1, 2019 to 80 percent
of the base market price as defined in CMU Resolution 867; and
(iii) and approval and publication by the National Energy and
Utilities Regulatory Commission (NEURC) of increases in the
heating tariffs, effective January 1, 2019, to fully reflect the
increase in the wholesale gas price, of all the heating companies
licensed by NEURC (as specified in ¶8a).
Met
3. Enactment of the law on State-Owned Bank Corporate
Governance (law #2491).
Met
1. Raising heating tariffs, effective January 1, 2019, to reflect the
higher wholesale gas price, of all remaining heating companies
with an output of up to the NEURC-set threshold for volumes of
annual production and supply of heating energy—thus together
covering at least 95 percent of the total centralized heating
supply (as specified in ¶8a).
End-December 2018
2. Adoption by the NBU of revisions to its capital regulations to
subtract loan exposures to related parties above regulatory limits
from regulatory capital (as specified in ¶10b).
End-December 2018
3. Parliamentary approval of the law revisiting the supervisory
responsibility for a variety of financial intermediaries (“split” law;
#2413a) (as specified in ¶14a).
End-March 2019
4. Publication of first report summarizing progress in asset
recovery and litigation efforts related to the four state-owned
banks (as specified in ¶11).
End-March 2019
5. Consolidate the current central and regional units of the State
Fiscal Service (SFS) into two separate legal entities: the Tax
Service and the Customs Service by end-April 2019, which will
both report to the Minister of Finance (as specified in ¶7a).
End-April 2019

UKRAINE
Table 2. Ukraine: Prior Actions and Structural Benchmarks (concluded)
6. Following nomination by the High Council of Justice, at least
thirty-five anti-corruption judges with impeccable reputation and
relevant professional skills will be appointed to the HACC in line
with law 2018/2447, and with rules of procedures guaranteeing
the objectivity and transparency of the process (as specified in
¶15a).
End-April 2019
7. The NBU to take appropriate supervisory actions against banks
that fail to comply with capital requirements (as specified in
¶10a).
End-June 2019
8. Complete an external audit of the NABU, conducted by a panel
of respected experts with international experience selected in
accordance with the requirements set out in the NABU Law
(#1698-VII) (as specified in ¶15b).
End-July 2019

Statement by Vladyslav Rashkovan, Alternate Executive Director for Ukraine
The Ukrainian authorities thank the Fund for the continuous and fruitful engagement and helpful
technical assistance. Since the deep economic crisis of 2014-2015, with strong support from the
international community, Ukraine has been able to restore economic and financial stability and
achieve inclusive growth by addressing key macroeconomic imbalances and advancing
structural reforms. These results reflect the strong commitment of the Ukrainian authorities to
sound economic policies consistent with the targets under the EFF arrangement approved by the
Fund on March 11, 2015.
Within the framework of the EFF arrangement, considerable progress has been made with
fostering structural reforms in several key sectors. Despite these achievements, some areas of
reform have experienced delays and some of the goals of the EFF arrangement were no longer
attainable before its expiration in March 2019. In order to build on the achieved progress under
the EFF arrangement and to maintain a valuable anchor for economic policies in 2019 (a
particularly challenging year as it includes two major elections), the Ukrainian authorities
request a new 14-month Stand-By Arrangement (SBA) to succeed the EFF arrangement, which
will be cancelled. The authorities are in broad agreement with staff’s well-balanced assessment
of the economic situation and outlook and reaffirm their strong commitment to the key policies
and objectives under the Fund-supported program.
In this statement, I want to focus on (1) macroeconomic developments, (2) monetary policy, (3)
financial sector policies, (4) fiscal policies, (5) energy policies, and (6) structural reforms to
improve the business climate, including the anticorruption progress.
Macroeconomic developments
Macroeconomic stabilization remains on track, even overperforming in many areas. The
Ukrainian economy has been recovering at a solid pace, despite the headwinds posed by the
ongoing military conflict. GDP growth sped up to 2.5 percent in 2017 and at an estimated
3.2 percent in the first nine months of 2018 thanks to favorable terms of trade and robust
domestic demand, both in consumption and investment. Consumption growth was supported by
strong growth in real wages, pension benefits and labor migrant remittances. Business
expectations improved and investment increased thanks to a favorable external price
environment, the alignment of the hryvnia exchange rate with economic fundamentals and
abated fighting intensity in Donbas.
Merchandise exports have been growing at a solid pace amid favorable commodity prices,
robust growth in Ukraine’s main trading partners and good harvests. However, imports rose
faster than exports, underpinned by robust domestic demand and rising energy prices. In
addition, dividend repatriation increased due to strong earnings and a gradual FX liberalization
delivered by the National Bank of Ukraine (NBU). At the same time, Ukraine enjoyed massive
inflows of remittances. As a result, the current account deficit has been gradually widening -to
an expected 3.3 percent of GDP this year- but financial inflows were adequate to cover the
current account deficit and create safeguards against a worsening global and domestic
environment, raising the international reserves from US$15.5 billion end-2016 to
US$17.7 billion as of end-November 2018, sufficient to cover 3 months of future imports.

Hit by several shocks, consumer inflation accelerated to 13.7 percent in 2017, exceeding the
NBU’s target. Since then, inflation slowed down to 10 percent yoy in November 2018, thanks to
a decrease in food price pressures and tight monetary policy, partially offsetting the impact of
demand-pull and cost-push factors (including labor cost and higher energy prices).
Public and publicly guaranteed debt decreased from its peak of 85 percent of GDP in 2014 to
72 percent of GDP in 2017 and is expected to further decline to about 66 percent of GDP by the
end of this year, as repayments exceeded the volume of new borrowings. However, the
government faces significant financing needs to repay and service external debt, which will peak
in 2019–2020. Lending from the IMF and other official lenders combined with continued access
to the international capital markets will help Ukraine meets its obligations.
Based on the macroeconomic stabilization achieved during the EFF arrangement, Ukraine
successfully returned to the capital markets in 2017, raising US$3 billion, which provided the
necessary budget financing as well as resulted in a significant decrease of the repayment needs
for 2019 and 2020. In September 2018, Ukraine raised US$2 billion from the market, despite the
challenging conditions.
Monetary policy
The NBU has made strong progress with implementing a rules-based, transparent and
accountable monetary policy. The NBU firmly implements an inflation targeting regime and
adheres to a floating exchange rate. In order to bring inflation to the target and in line with its
commitment to the inflation targeting framework, the NBU took decisive actions by raising the
policy rate in six steps by 550 basis points to 18 percent in 2018. In accordance with the latest
NBU projections, as the result of such tight monetary stance, inflation is expected to decline to
6.3 percent by the end of 2019 (still above the NBU’s medium-term target range of 5 percent
+/- 1 percentage point.). It will enter the target range in Q1 2020 and reach the medium-term
target of 5 percent by the end of 2020.
This year, for the first time, the NBU Council approved the medium-term Monetary Policy
Strategy that defines the main goals, principles, and tools of monetary policy. Approval of the
Strategy is aimed at ensuring consistency of monetary policy and immutability of its goals and
principles. This will contribute to enhancing predictability and consistency of monetary policy
and stabilizing inflation expectations.
Notwithstanding the turbulence in several emerging market countries, the hryvnia has remained
relatively stable, allowing the NBU to buy on balance nearly US$1 billion so far this year,
following net purchases of US$1.2 billion in 2017, and to continue to gradually ease
administrative restrictions in line with the agreed roadmap under the EFF arrangement.
The NBU has been strongly committed to continue prudent monetary and exchange rate
policies, to anchor inflation expectations and build stronger reserve buffers. Monetary policy
will remain sufficiently tight in order to bring inflation down to its medium-term target. The
NBU will continue implementing its inflation targeting roadmap by further enhancing the
decision-making process, monetary instruments, financial market developments, and
communications.
2

The NBU’s progress with implementing a credible monetary policy framework would not be
feasible without the NBU having a clear policy mandate and operational independence. The
Ukrainian authorities are fully committed to maintaining and protecting the independence of the
NBU.
Financial sector policies
The banking sector’s health has continued to improve. Reaffirming its commitment to
further strengthen bank capital, the NBU assessed banks' resilience in three stages in 2018:
AQR, extrapolation of AQR results, and stress testing according to two scenarios (baseline and
adverse). The test showed that capital buffers have strengthened since end-2016, and in general,
the capital risks are estimated as low. The capital adequacy improved due to banks’ compliance
with the capitalization program/restructuring plans. Banks’ profits neutralized the capital
decrease caused by transferring the banking sector accounts to IFRS 9 standards. Liquidity
coverage ratio (LCR) tests showed a fairly high level of liquidity in the banking sector despite
the forecast of moving to a structural liquidity deficit in 2019. The banking sector slowly returns
to profitability.
The level of NPLs in the system remains high. This however, does not pose a risk to financial
stability, since the level of provisioning in the system is 87 percent, and the banking sector has
been adequately capitalized. Several initiatives are underway to facilitate NPL resolution in the
following priority areas: facilitating out-of-court restructuring, removal of tax impediments to
NPL resolution, launching the Credit Register in the NBU and introducing a new insolvency law
approved by the Parliament. A policy framework for NPL restructuring in state-owned banks is
under preparation. In addition, the NBU, with technical support from the World Bank, is
working on a regulation, in line with the European Central Bank (ECB) approach, to provide
guidance to banks on how to reduce their NPL portfolios.
After the nationalization of Privatbank, the share of state-owned banks in the banking system
remains high (more than 54 percent of the net assets). The government approved the Principles
of State Banking Sector Strategic Reforms in February 2018 aiming to reduce its stake to 24
percent by the end of 2022. On September 1, 2018 the Ministry of Finance announced the
launch of regular and detailed reporting of the key performance indicators of SOBs and the
implementation of individual bank’s strategies. The first publication of quarterly KPIs of SOBs
has been placed on the official website of the Ministry of Finance on November 1, 2018. The
authorities plan to publish every six months a separate report with the results of the SOBs’
efforts to resolve NPLs.
Strengthening governance of the state banks remains a key priority for the government and the
NBU in 2019: the law approved by the Parliament on November 9, 2018 envisages
professionalization of the governing boards of the state banks, including the appointment of the
majority of independent Supervisory Board members. In close cooperation with IFIs, the
Ministry of Finance is taking measures to implement the provisions of the above-mentioned law
and currently formulates the criteria for the selection process for such members.
To further develop the financial markets (improving the supervision of insurance, leasing,
factoring, credit unions, pawnshops and other non-banking financial companies institutions) the
3

government identifies as a priority the adoption of the consolidated model of financial sector
supervision (“Split” law).
Fiscal policies
The authorities have achieved a drastic fiscal consolidation, reducing the budget deficit even
below the program targets. In 2018, as well in 2017, Ukraine pursued a conservative expenditure
approach, keeping general government finances under control. The general government deficit
was below the IMF target in 2017 and the NBU and Ministry of Finance forecast similar
developments in 2018.
The recently approved 2019 Budget is based on conservative assumptions: it is fiscally prudent
and compliant with fiscal consolidation program targets, constraining non-priority spending.
The budget process followed all required rules and procedures strictly and benefited from the
full-fledged discussion. The Ministry of Finance ensures further development of the public
internal financial control system (PIFC) and its harmonization with international standards and
EU best practices.
In October 2017, the Parliament approved the long overdue pension reform, streamlining the
Pension Fund expenditures and aiming at ensuring long-term sustainability and intergenerational
equity. As a result of the reform, the pension expenditures are projected to stabilize at around
10 percent of GDP in the medium term. The government also continues to reform the Education
and Health sector financing, in line with recommendations endorsed by the World Bank.
The authorities consider a thorough institutional reform of the State Fiscal Service (SFS) as a
priority, to effectively collect and enforce taxes under the strengthened supervisory and control
functions of the Ministry of Finance. In 2019, the efforts will be concentrated on the efficient
split of the SFS into three separate authorities: the Tax Service, the Custom Service and the
Financial Investigations Service, with consolidation of each service into a single legal entity.
The Fund provided the respective technical assistance to Ministry of Finance and SFS in the
course of 2017-2018.
On December 6, 2018, the Parliament approved the amendments to the Budget Code introducing
a medium-term budgeting framework, clear fiscal rules and the fiscal risks monitoring and
management system from 2019. Starting next year, the Medium-term Budget Declaration will
set binding expenditure ceilings for all key spending units and focus on strategic goals and
policies linking budget funds with clearly defined results. The government has also
institutionalized spending reviews – the modern and powerful tool for expenditure planning and
execution analysis. These instruments will improve the efficiency of the use of public funds and
further support the fiscal consolidation efforts of the Government.
Energy policies
The authorities have raised the wholesale price for gas supplied to households from
November 2018, recognizing the need to adjust household gas prices to market levels. This
increase has now also been implemented for heating tariffs for the largest heating companies
accounting for about 60 percent of total heating supply, while tariffs for other heating companies
(overall covering no less than 95 percent of total heating supply) are expected to be adjusted by
4

the end of this year. A further increase of 15 percent in wholesale gas prices for households and
heating companies is scheduled for May 2019. Starting from January 2020, the household gas
tariffs will be fully market-determined.
Thanks to the policies implemented under the EFF program, the deficit of Naftogaz has been
entirely eliminated and the company is now a major source of revenue for the budget, accounting
for 18 percent of budget revenues in January-November 2018. Budget revenues from Naftogaz
are increasing (the proceeds for January-November 2018 are 12 percent higher than the entire
previous year).
Throughout 2017-2018 the Government introduced a range of measures to improve the targeting
and effectiveness of the Housing and Utility Subsidies (HUS) program. HUS eligibility rules
have been strengthened to capture household income more accurately, and social norms for
housing and utility services have been reviewed to reflect the actual spending patterns by
vulnerable population groups. The plan is to implement the full monetization at end-user level by
January 2020, so that private gas traders can compete with Naftogaz to supply gas to households
and utilities, while simultaneously creating strong incentives for energy conservation. The
authorities have been committed to increasing gas production to help ensure energy
independence, to which end open permit and production sharing agreement tenders will be held
on at least a quarterly basis.
Improving the business climate, including the anticorruption progress
The authorities demonstrated substantial progress with the privatization agenda. The new
law on privatization of state and municipal property, approved in February 2018, entailed a
substantial streamlining of privatization procedures. Large companies are to be sold only with
the assistance of a competitively selected investment advisor to help with valuation, preparation
and marketing. As of end of November 2018, seven advisor consortiums have been selected to
lead the potential privatization of ten large state companies with the final sales and purchases
agreements that can be governed under UK law at the request of the prospective investor. Small-
scale privatization (the companies with assets under UAH 250 million) are to be sold through e-
auctions using ProZorro.Sale platform. These sales started in August 2018 and already generated
400 transactions worth more than UAH 0.5 billion. Governance of SOEs will continue to be
improved, and external audits of the largest SOEs will be conducted by reputable international
companies.
The authorities also committed to build on recent gains in tackling high-level corruption
and to deliver concrete results, leveraging on the increasing efficiency of the anticorruption
institutions (some of them built in 2015-2018 as a part of the EFF arrangement: the National
Agency on Corruption Prevention, the State Bureau of Investigations (SBI), the National
Anticorruption Bureau of Ukraine (NABU), the Special Anticorruption Prosecutor’s Office
(SAPO), and the High Anti-Corruption Court (HACC)). The authorities are committed to
maintain the independence of these institutions and their integrity, to ensure that high-level
corruption cases are effectively and credibly investigated, prosecuted, and adjudicated. The next
decisive step will be the operationalization of the HACC, established by the Parliament in June
2018. Credible and independent HACC will ensure that corruption cases are adjudicated by
judges with specialized skills and high integrity.
5

Concluding remarks
The Ukrainian economy is recovering: the large fiscal and quasi-fiscal deficits have fallen
sharply, public debt is on a downward path, the exchange rate is flexible, inflation is declining,
the central bank’s international reserves have increased substantially, the financial system is
getting more capitalized, liquid and profitable, and, importantly, growth has returned. Several
key reforms were also advanced, notably strengthening the independence and governance of the
central bank, cleaning up the banking system, adopting pension reforms, raising gas tariffs, and
setting up new, independent institutions to tackle corruption.
The new requested program will support covering Ukraine’s balance of payments needs by
bolstering confidence and unlocking external financing and supporting the needed adjustment.
The authorities remain strongly committed to the full and timely implementation of the policies
under the Fund-supported program to achieve its long-term goals. The authorities are grateful
for the cooperation and support from the Fund, as well as from other IFIs and the international
community.
6

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