The International Monetary Fund has approved a $5 billion aid package for Ukraine aimed at helping the country "to cope with COVID-19 pandemic challenges," with an immediate release of $2.1 billion, the institution announced in a statement on Tuesday.

The new 18-month program is geared towards "providing balance of payments and budget support, while safeguarding achievements to date and advancing a small set of key structural reforms, to ensure that Ukraine is well-poised to return to growth when the crisis ends," the Fund said in a statement published on its website.

The program was agreed in principle on May 21 but has now received the green light from the body's board of directors.

The Washington-based institution said Ukraine's track record in stabilizing the economy over the last five years has been "strong."

"However, more reforms efforts are needed to ensure robust and inclusive growth," it added in the statement.

The COVID-19 outbreak has "significantly worsened" the country's outlook, it said, forcing authorities to focus primarily on virus containment measures.

"Uncertainty is large, and the economy is projected to contract sharply in 2020 as strict containment measures -- in Ukraine and globally -- led to sizable falls in domestic and external demand," the IMF warned.

The 2020 budget is "expected to be hit hard, with a sharp decline in revenues and large emergency spending needs to address the crisis," it continued.

A passenger (R) gets a temperature check at the railway station in Kiev, on June 1, 2020 during the coronavirus pandemic
A passenger (R) gets a temperature check at the railway station in Kiev, on June 1, 2020 during the coronavirus pandemic AFP / GENYA SAVILOV

The agreement was reached under what the Fund calls a Stand-By Arrangement (SBA), the technical term for one of the financing instruments most commonly used by the Fund, usually in exchange for a reform program.

It succeeds the previous 14-month $3.9 billion program approved in December 2018 to maintain stability during the election year, the Fund said.

At the end of March, the Ukrainian parliament lifted a long-standing ban on the sale of farmland, a crucial and controversial piece of legislation needed to unlock support from the IMF.

In May, Kiev also adopted a law targeting owners of banks that go bankrupt, preventing them from regaining their assets.

Under the previous plan, Ukraine, one of the poorest countries in Europe, received a single payment of $1.4 billion due to insufficient reforms and corruption.

Separately Tuesday the IMF approved $363.6 million in emergency aid for Papua New Guinea, for use in its fight against the coronavirus pandemic.

The support "provides resources to the authorities to maintain macroeconomic stability with the aim of assisting the private sector adversely affected by COVID-19," the IMF said.

The Fund said it welcomed measures the country had taken to support businesses, workers and households.

However due to export losses and the cost of measures put in place to mitigate spread of the virus, Papua New Guinea is expected to be in recession this year.