Evaluating Ukraine's New IMF Program: Gains and Losses

In late November 2023, the Ukrainian government announced a new four-year program with the International Monetary Fund (IMF), which is set to provide approximately $8.4 billion in budget financing. However, the announcement was met with skepticism, particularly due to the IMF's stipulations for increased taxation, including for small and micro-businesses. Critics argue that the terms of the IMF's Extended Fund Facility (EFF) do not align with Ukraine's pressing needs, particularly in the context of the ongoing war with Russia.

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

Historically, the IMF has been viewed as a relatively inexpensive source of financing, offering loans at concessional interest rates. However, the current situation has changed dramatically. Ukraine is now facing interest rates from the IMF ranging from 5% to 7%, with the new program pegged at 6.1%. This contrasts sharply with domestic borrowing rates of 3% to 4%. The IMF's loans are not expanding Ukraine's fiscal capacity; instead, they are designed to ensure that Ukraine can meet its repayment obligations, which include $1 billion in interest on the new loans.

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

The IMF's EFF program is intended for countries experiencing serious medium-term balance of payments problems due to structural weaknesses. Critics argue that Ukraine's primary challenge is not economic mismanagement but rather the ongoing military aggression from Russia. The IMF's standard remedies, such as increasing revenues through taxation and reducing public debt, do not address the immediate needs arising from the conflict. The financial parameters of the program suggest a significant mismatch, as the funds provided will not adequately cover the anticipated repayment obligations.

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

While cooperation with the IMF is essential for securing financing from other international partners, critics assert that Ukraine's representatives at the IMF have failed to negotiate effectively for more favorable terms. Although the IMF has alternative concessional instruments, such as the Extended Credit Facility (ECF) with lower interest rates, these options have not been pursued. The argument is that the IMF can be flexible, but Ukraine must articulate its needs more clearly and negotiate from a position of strength.

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

The Ukrainian government maintains that cooperation with the IMF is crucial for signaling progress to other international partners. However, there is a growing sentiment among critics that the current program does not adequately reflect Ukraine's unique circumstances and challenges. The government is urged to engage in principled negotiations to secure better terms that align with the country's pressing needs.

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

• “But the IMF offers no answer to the question of how additional taxation of everyone and everything is supposed to help us in a situation where, in just nine months of 2025, actual government expenditures exceeded domestic revenues twofold.” — Analyst

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

• “The problem, therefore, is not the IMF’s rigidity—it is our own failure to negotiate effectively.” — Economic Expert

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

• “Cooperation with the IMF thus acts as a “quality mark”, signalling that the country is moving in the right direction.” — Government Official

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme

The new IMF program presents a complex scenario for Ukraine, offering necessary funds but imposing conditions that may not align with the country's immediate needs due to the ongoing conflict with Russia. The effectiveness of this cooperation will largely depend on Ukraine's ability to negotiate better terms that reflect its unique circumstances.

An Expensive Creditor: What Ukraine Really Gains—and Loses—Under the New IMF Programme