The International Monetary Fund has approved the release of $1.3 billion in emergency funding for Ukraine to help the war-torn country meet its “urgent” economic needs.

The IMF has indicated that it will continue its support to ensure fiscal stability.

The disbursement, which is being made under the new food shock window of the IMF’s Rapid Financing Instrument, aims to meet balance of payments needs ― including a deficit created by a large cereal export shortfall ― while playing a “catalyst role” for additional financial support from Ukraine. creditors and donors, the Washington-based fund said Saturday.

While the impact of the war on Ukraine’s economic activity has been devastating, causing inflation to rise sharply, significantly disrupting trade and driving the budget deficit to unprecedented levels, the IMF has recognized the Kyiv’s efforts to maintain some stability, wrote chief executive Kristalina Georgieva.

“The Ukrainian authorities deserve considerable credit for maintaining a significant degree of macro-financial stability in these extremely difficult circumstances,” she said.

“As the economy adjusts to the now protracted war, key macroeconomic policies have focused on safeguarding priority spending, easing pressure on the hryvnia and international reserves, and preserving financial stability. .”

Russia launched its military offensive in Ukraine at the end of February, plunging the latter into a deep economic and political crisis.

Ukraine’s GDP is expected to contract by nearly half in 2022, the World Bank has estimated, but that will still depend on the extent of the damage and the duration of the conflict.

The International Finance Institute had a more cautious estimate, saying the Eastern European country’s economy would contract by around 35% this year – the same projection as the IMF – with a monthly fiscal gap included. between 3 and 10 billion dollars.

Ratings agencies S&P and Fitch had already downgraded Ukraine’s long-term currency rating to default territory after a majority of bondholders in the war-torn country agreed to a debt restructuring plan in August.

Investors representing about 75% of Ukraine’s $19.6 billion in foreign bonds agreed to defer coupon and principal payments until 2024, with majority also approving a request to change warrant payment terms gross domestic product, which are linked to economic growth.

Meanwhile, the Russian economy, which has already plunged into recession following international sanctions for its aggression, is expected to collapse by more than 11% this year, according to the World Bank.

The Ukrainian authorities have the merit of having maintained a significant degree of macro-financial stability in these extremely difficult circumstances.

Kristalina Georgieva, Managing Director of the International Monetary Fund

The conflict is also affecting economies around the world, with emerging markets and developing countries in Europe and Central Asia bearing the brunt, the Washington-based lender added.

As Ukraine will continue to face risks and uncertainties due to the current situation, the IMF said it would be difficult to assess with sufficient precision what is needed to ensure its debt sustainability, but the “balance of probabilities suggests that there are higher risks of debt being unsustainable”.

Ms. Georgieva said that the majority of Ukraine’s official bilateral creditors and donors have indicated their intention to continue to support Ukraine financially to help it achieve a balanced growth path and external sustainability. middle term.

“In order to mitigate the risks to the fund from lending to Ukraine in these circumstances, these bilateral creditors and donors have reaffirmed their recognition of the fund’s preferred creditor status with respect to amounts owed to Ukraine,” it said. she added.

Updated: October 08, 2022, 06:41