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 payments needs and maintain financial stability. .
IMF Executive Board Approved on October 7 Raise funds under the new “food shock window” of Rapid Financing Instruments (RFI).
The move aims to address the growing risk of Ukraine’s debt becoming unsustainable as the country’s economy is ravaged by the war.
The IMF says Russia’s war against Ukraine has caused “tremendous human suffering and economic suffering” and forecasts that Ukraine’s gross domestic product (GDP) will contract by 35% in 2022.
“The impact on economic activity will be significant: real GDP will contract sharply, inflation will rise sharply, trade will be severely disrupted and fiscal deficits will rise to unprecedented levels,” IMF Managing Director Kristalina Georgieva said in a statement. “It’s grown to unprecedented levels,” he said.
Georgieva said the spending represented 50% of Ukraine’s budget allocation and would help the country meet “urgent” balance of payments needs, including those caused by a significant shortage of grain exports.
“Due to the extreme uncertainty inherent in the extreme situation currently prevailing in Ukraine, it is currently not possible to assess with sufficient precision what is needed to ensure the sustainability of Ukraine’s debt. It is difficult, but the balance of probabilities suggests that debt is more risky: unsustainable,” she added.
In addition to providing Ukraine with much-needed funding, the IMF’s decision is also intended to act as a catalyst for further donor support.
Ukraine’s bilateral creditors and donors reaffirm the IMF’s status as a preferred creditor on outstanding debts to Ukraine, and the IMF will continue to help countries in distress giving room. Creditors also agreed to allow Ukraine to defer some of its debts for a period of time.
According to the IMF, Ukraine has called for oversight of programs involving the IMF Executive Board to strengthen policy commitments and encourage greater donor support.
The IMF official also praised the Ukrainian government and its central bank for managing the economic shock caused by the conflict.
“As the economy adapts to a prolonged war, key macroeconomic policies are geared towards protecting priority spending, relieving pressure on the hryvnia and foreign exchange reserves, and maintaining financial stability,” Georgieva said. .
Ukrainian officials are seeking additional non-urgent funding under a full-fledged IMF financing arrangement, although such a program may come later.
Separately, a United Nations spokesman said Friday the agency was working to expand and extend a deal that would enable Ukraine’s Black Sea grain exports, which is set to expire in late November.