Ukrainian demonstrators rally in Kyiv on February 12, 2022 to show unity amid U.S. warnings of an imminent Russian invasion. Photo by Oleksandr Khomenko/UPI | License Photo
March 22 (UPI) -- The International Monetary Fund said it has reached a staff-level agreement to provide Ukraine with $15.6 billion, a much-needed loan to aid the country in continuing to function while in the midst of a war with Russia.
The IMF announced the deal, which is subject to approval by its executive board, on Tuesday, following months of negotiations as well as discussions with Ukrainian officials in Warsaw from March 8-15.
"The staff-level agreement reflects the IMF's continued commitment to support Ukraine and is expected to help mobilize large-scale concessional financing from Ukraine's international donors and partners over the duration of the program," said IMF team lead Gavin Gray in a statement.
The war in Ukraine, which began with Russia's invasion on Feb. 24, 2022, has taken a significant toll on the European country. It has devastated infrastructure, with the Kyiv School of Economics estimating in late January that the cost of damage has reached nearly $138 billion.
The conflict has also forced Kyiv's economy to contract by 30% last year, with IMF expectations that real gross domestic product for 2023 will range from a 3% contraction to 1% growth.
The first phase of the four-year program will seek to strengthen fiscal, external, price and financial stability over the next 12 to 18 months, with the second phase shifting focus to what the IMF described in a statement as "more expansive reforms to entrench macroeconomic stability, support recovery and early reconstruction and enhance resilience and higher long-term growth."
Ukraine's Ministry of Finance explained that during the second phase it will be expected to return to pre-war policy frameworks that include a flexible exchange rate and an inflation-targeting regime.
"The overarching goals of the authorities' program are to sustain economic and financial stability in circumstances of exceptionally high uncertainty, restore debt sustainability and support Ukraine's recovery on the path toward EU accession in the post war period," Gary said.
Ukrainian Prime Minister Denys Shmyhal said in a statement on Telegram that they are "grateful" to the IMF for their support and await final approval.
"In the context of a record budget deficit, this program will help us finance all critical expenditures, maintain macro-financial stability and strengthen our interaction with other international partners," he said.
The finance ministry echoed Shmyhal's appreciation while adding that the teams of the IMF, government of Ukraine and Kyiv's national bank did a "tremendous job" to secure the agreement.
The program "will significantly support the Ukrainian economy, financial system and will ensure mobilization of additional donor's financial resources, which is necessary for our successful struggle against the aggressor," Finance Minister Sergii Marchenko said in a statement.
U.S. Treasury Secretary Janet Yellen also welcomed the deal on Tuesday.
"An ambitious and appropriately conditioned IMF program is critical to underpin Ukraine's reform efforts, including to strengthen good governance and address risks of corruption and provide much needed financial support," Yellen said in a statement.
"It will also bolster the economic assistance that the Untied States and our partners have provided that is funding essential services like schools, hospitals and first responders, and which is offering vital support to the Ukrainian economy."