IMF, Ukraine reach deal that would give it access to $1.1 billion

WASHINGTON (Reuters) -The International Monetary Fund said on Tuesday it had reached a preliminary agreement with Ukraine that would give the war-torn country access to about $1.1 billion in financial assistance.

The agreement follows what Kyiv said on Tuesday were "difficult" talks and is subject to approval by the fund's executive board, which the IMF said in a statement is expected to happen in coming weeks.

The IMF is a key international lender to Kyiv and its four-year $15.6 billion program is a crucial part of a bigger global economic support package to Ukraine as it gears up for a third winter trying to fend off Russia's full-scale invasion.

"Russia's war in Ukraine continues to have a devastating impact on the country and its people," Gavin Gray, who led the IMF's monitoring mission to Kyiv for the fifth review of the lending program, said in a statement.

"Skilful policymaking, the adaptability of households and firms, and robust external financing have helped support macroeconomic and financial stability."

The IMF, however, said that the risks to Ukraine "remain exceptionally high" with an economic slowdown expected due to the impact of the war on the labour market and Russia's continued attacks on the energy infrastructure, among other factors.

Ukraine's Central Bank Governor Andriy Pyshnyi said that considerable attention was focused on sources to finance 2025 budget spending.

"Securing timely and predictable assistance from international partners remains a top priority," Pyshnyi said.

"At the same time, it is no less important that Ukraine should carry out painstaking work to accumulate internal resources."

Kyiv is spending about 60% of its total budget to fund its army and relies heavily on financial support from its Western partners to pay pensions and wages to public sector employees and finance social and humanitarian spending.

Ukraine has received about $98 billion in financial aid from Western partners since the start of the war, finance ministry data showed.

The IMF urged the Kyiv government, which President Volodymyr Zelenskiy reshuffled last week, to "respect financing constraints and debt sustainability objectives" in the 2025 budget and look for ways to increase domestic revenues.

The government has said previously it plans to raise taxes and has already implemented other fiscal measures, including increasing import and excise duties.

Ukraine also won an agreement from bondholders to restructure and write down its debt.

(Reporting by Jasper Ward; Wrtiting by Jasper Ward and Lidia KellyEditing by Christopher Cushing and Miral Fahmy)