Ukraine - Second Growth Foundations Development Policy Operation : Supplemental Financing Document

Overview & Synopsis

The development objective of Second Growth Foundations Development Policy Operation for Ukraine are to (i) strengthen the economic policy framework to facilitate a structural shift towards sustainable growth; and (ii) enhance macro-financial stability to create a growth-conducive environment. This Supplemental Grant Document for the project requires US$2.35 billion grant to address a financing gap exacerbated by extended hostilities. This grant, sourced from the FORTIS Ukraine Financial Intermediary Fund, is crucial as external fiscal financing needs for 2026 are estimated at US$52 billion, significantly higher than the US$24.2 billion projected when the parent DPO was approved in December 2024. Despite ongoing challenges like critical infrastructure disruptions and labor market tightness, the reform program supported by the original DPO remains on track. Key achievements include the overachievement of the target for total dividends paid by State-Owned Enterprises to the Government, reaching UAH 71 billion in 2024 against a 2026 target of UAH 50 billion. Progress has also been made in renewable energy capacity, biomethane exports, and outstanding credit to the agricultural sector, with UAH 135 billion reached by August 2025 towards a UAH 150 billion target for 2026. The operation's overall risk rating remains exceptionally high due to political, governance, and macroeconomic risks, but the supplemental grant is deemed necessary given Ukraine's inability to secure sufficient funds from other lenders on reasonable terms and the urgency of short-term fiscal pressure. The document highlights the government's two-pronged strategy of mobilizing domestic resources and securing international funding, with tax revenues increasing to 37 percent of GDP in 2025.