IMF approves $1.1bn disbursement for Ukraine as economy demonstrates resilience

Total funds now at $9.8bn with the country's macroeconomic stability 'being preserved through skilful policymaking' by authorities, global lender says

A building damaged by a missile attack in Kyiv. Russia’s war in Ukraine continues to take a 'devastating' social and economic toll, the IMF says. AFP

The International Monetary Fund has approved a $1.1 billion disbursement for Ukraine, after completing the latest assessment of its economy, which the global lender said is resilient despite its continuing war with Russia.

Total disbursements are now up at $9.8 billion under the 48-month extended fund facility that was approved in March 2023 and part of a $148 billion support package for the war-torn country, the Washington-based fund said on Friday.

The Extended Fund Facility is aimed at supporting Ukraine's economic recovery, the IMF said, in addition to boosting its governance and strengthening its fiscal institutions, as Kyiv's nearly three-year war with Moscow rages. It is also meant to promote long-term growth and aid in reconstruction as Ukraine prepares for possible accession to the EU.

Ukraine's macroeconomic stability is “being preserved through skilful policymaking” by the country's authorities, IMF managing director Kristalina Georgieva said.

“The economy has remained resilient, reflecting the continued adaptability of households and firms, although risks are tilted to the downside due to headwinds from attacks on energy infrastructure and a tight labour market. Preparedness and contingency planning are key to enable appropriate policy action should risks materialise.”

Russia’s war in Ukraine continues to take a “devastating” social and economic toll on Ukraine's economy. However, Kyiv has managed to stabilise the country with improved policies and external support.

Ukraine's real gross domestic product growth plunged 28.8 per cent in 2022, when Russia began its invasion in February, but it was able to recover to post a 5.8 per cent expansion in 2023, data from the IMF shows.

The fund projects real GDP growth to dip to 4 per cent in 2024 and further down within the range of between 2.5 per cent to 3.5 per cent next year, before growing to 5.3 per cent in 2026, it added.

Kyiv has made several moves to support its growth, including enacting a tax package and 2025 budget in line with the IMF's programme baseline. However, there are few remaining buffers and “strict budget execution will be key”, the fund said.

“Continued progress at domestic revenue mobilisation is imperative for Ukraine to meet its high priority spending needs and to restore fiscal sustainability. Strong implementation of the National Revenue Strategy and customs reform will help raise further revenue, improve compliance, combat evasion and support EU accession,” the IMF said.

Ukraine also completed a Eurobond exchange in August and authorities are now focusing on reaching an agreement with other holders of external commercial claims, including GDP warrants, in line with their strategy.

“A swift agreement in line with the programme’s debt sustainability objectives would reduce fiscal risks and create space for critical spending needs,” the IMF said.

Inflation, meanwhile, has accelerated more than estimated in recent months. The IMF called the central bank's tightening of its monetary policy “appropriate”, and advised that it “should stand ready to take further action should inflation expectations deteriorate”.

“Allowing exchange rate flexibility will help strengthen the resilience of the economy to external shocks while safeguarding reserves,” the IMF said.

“The financial sector remains stable, but vigilance is needed given heightened risks. Progress on strengthening bank resolution and risk-based supervision, stress-testing frameworks and contingency planning should be sustained.”