(Bloomberg) -- The International Monetary Fund is exploring a multiyear aid package for Ukraine worth as much as $16 billion to help cover the country’s needs and provide a catalyst for more international funding while Kyiv tries to repel Russian forces, according to people familiar with the matter.

Whether the program is implemented hinges on a range of conditions, including endorsement from Group of Seven nations, and Ukraine’s donors and creditors ensuring the sustainability of the country’s debt, said the people.

The plan would also require changes to IMF lending rules so the fund could lend to the war-torn country, and the government in Kyiv would need to commit to a series of policies, on top of successfully completing a four-month non-cash IMF program approved last year, according to the people, who asked not to be identified because they’re not authorized to discuss the issues publicly.

If approved, the three- to four-year program — worth $14 billion to $16 billion total — will assume a disbursement of $5 billion to $7 billion in the first year, according to the people. There’s hope the plan will be agreed on by the end of March, with the first tranche coming as early as in April in the best-case scenario, they said. It’s also expected to help propel more financial support for the country from public and private creditors.

“Unless the IMF changes its lending terms, it would be in Ukraine’s interest to borrow less from the Fund, with an IMF program serving largely as a policy anchor helping ensure financial aid from partner-countries,” Olena Bilan, chief economist at Kyiv-based broker Dragon Capital, said in a note, referring to the fund’s standard terms of interest. 

The IMF “remains closely engaged” with Ukraine, the fund said in a statement in response to questions from Bloomberg News, adding the cooperation “could pave the way toward a fully fledged program,” without elaborating on details such as the potential size of a loan. 

Ukraine’s Finance Ministry declined to comment. In a separate statement on Thursday, it expressed hopes for a “fully fledged” program with the fund that would include financing.

Funding Needs

If the plan doesn’t get the support from enough IMF member countries, the fund could back Ukraine with a $1.3 billion Rapid Financing Instrument program, according to two of the people.

The IMF last month estimated Ukraine’s external funding needs to be at least $39.5 billion this year. Finance Minister Serhiy Marchenko said Jan. 10 the government’s monthly budget shortfall will amount to $3.5 billion during 2023, which would total about $42 billion.

However, the country will likely need about $8 billion more this year for critical infrastructure damaged by recent Russian attacks, one of the people said. 

The European Union has committed to providing Ukraine with €18 billion ($19.5 billion) in financial assistance this year and the US is expected to contribute about $10 billion. Ukraine anticipates other creditors will also send varying amounts.

Under the current program with the IMF, the Ukraine government has committed itself to take measures to boost tax revenue, significantly reduce the central bank’s support of its war-battered budget and further improve corporate governance at state-run companies.

When the war ends, Ukraine will need major financial support to finance its reconstruction. 

Recent Russian attacks targeted civilian infrastructure, and particularly the power grid, in a bombing campaign that wrought damage across the country, leaving millions of people and businesses without reliable supplies of electricity, heat and water.

Economic recovery may be slow. Ukraine’s economy is expected to grow 0.3% after a 30.3% decline last year, the country’s central bank said Thursday.

--With assistance from Volodymyr Verbyany, Daryna Krasnolutska and Eric Martin.

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