The International Monetary Fund (IMF) has approved a new USD 17.5 B financial aid package for Ukraine to help the country stave off collapse of its economy.

The new funding plan replaces the existing two-year USD 17 B aid programme from April 2014 that proved inadequate to stabilize Ukraine's finances as the country fights an insurgency by pro-Russian rebels in its eastern regions, home to a great portion of its industrial base.

The IMF’s executive board gave the go-ahead for the four-year reform programme agreed with Ukraine’s government , Managing Director Christine Lagarde announced in a statement on Wednesday.

"This new four-year extended arrangement will support immediate economic stabilization in Ukraine," Lagarde said.

The new aid package “involves risks, notably those stemming from the conflict in the east of the country,” but it “will provide more funding, more time, more flexibility, and better financing terms for Ukraine.

Lagarde said last week that the success of financial support for Kiev hinges on the stability of the truce in eastern Ukraine.

 The IMF funds are part of a total aid of over USD 40 B for war-torn and cash-strapped Ukraine. The EU has pledged EUR a 2.2 B loan and the US have guaranteed USD 2 B in Eurobonds. Canada, Germany and Japan have also pledged financial assistance.

In return for the IMF bailout, Ukraine’s government has launched a series of reforms including unpopular steps such as cutting pensions and increasing the retirement age, eliminating gas price subsidies and reducing budget spending.

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