The International Monetary Fund (IMF) has approved Ukraine’s request for $1.3 billion in emergency funding to help the war-torn country meet its urgent balance of payment needs and preserve financial stability.
The move seeks to address the growing risk of Ukraine’s debt becoming unsustainable, as the country’s economy has been decimated by war.
The IMF stated that Russia’s war against Ukraine has caused “tremendous human suffering and economic pain” and predicted a 35 percent contraction in Ukraine’s gross domestic product (GDP) in 2022.
“The impact on economic activity has been enormous: real GDP has severely contracted, inflation has risen sharply, trade has been significantly disrupted, and the fiscal deficit has increased to unprecedented levels,” IMF Managing Director Kristalina Georgieva said in a statement.
Georgieva said the disbursement was equivalent to 50 percent of Ukraine’s funding quota and would help the country meet “urgent” balance of payment needs, including those caused by a large cereal export shortfall.
“Unique to the extreme circumstances now prevailing in Ukraine, very high uncertainty makes it difficult, at present, to assess with sufficient precision what would be required to ensure sustainability of Ukraine’s debt, but the balance of probabilities suggests that there are higher risks of debt being unsustainable,” she said.
Besides providing Ukraine with much-needed financing, the IMF’s decision is also meant to serve as a catalyst for further donor support.
Ukraine’s bilateral creditors and donors have reaffirmed the IMF’s status as a preferred creditor with respect to amounts outstanding to Ukraine, giving the IMF more leeway to continue supporting the beleaguered country. The creditors have also agreed to allow Ukraine to defer some amounts owing for a period of time.
Ukraine has requested program monitoring with IMF board involvement to bolster the policy commitment and further catalyze donor support, according to the IMF.
IMF officials also praised the Ukrainian government and its central bank for their management of the economic shocks caused by the conflict.
“As the economy adapts to the now prolonged war, key macroeconomic policies have been geared toward safeguarding priority expenditures, easing pressure on the hryvnia and international reserves, and preserving financial stability,” Georgieva said.
Ukrainian officials are pushing for additional nonemergency funds under a full-fledged IMF lending arrangement, but such a program could come later.
Separately, a U.N. spokesman said on Oct. 7 that the agency is working to expand and extend a deal allowing Ukrainian Black Sea grain exports that’s set to expire in late November.
