Ukraine's economy expected to gradually recover this year, IMF says

Kyiv will depend on international support for its 'large financing needs' in 2023 and beyond, Kristalina Georgieva expects

Ukraine's President Volodymyr Zelenskyy with IMF managing director Kristalina Georgieva in Kyiv on February 20. Reuters

Ukraine's economy is expected to gradually recover this year despite the impact of the Russian war, but it will need support from the international community for its financing needs, Kristalina Georgieva, managing director of the International Monetary Fund, said on Tuesday.

After a visit to Ukraine, Ms Georgieva said that the country's economy remains resilient.

“During my visit and discussions, I saw an economy that is functioning, despite the tremendous challenges," she said.

"Shops are open, services are being delivered and people are going to work.

"Government agencies and economic institutions are working remarkably well. They are collecting taxes and paying salaries and pensions. The banking system is fully operational.

"Notwithstanding the attacks on critical infrastructure, the economy is adjusting and a gradual economic recovery is expected over the course of this year."

The country's economy shrank by 30 per cent last year, a "less severe contraction than previously expected", the IMF said.

Ukraine's economy has been ravaged since it was invaded by Russia in February last year.

The Kyiv School of Economics said the estimated damage to infrastructure stood at $138 billion as of December 2022, equal to 70 per cent of 2021 gross domestic product.

This month, Moody's Investors Service downgraded Ukraine's ratings deeper into junk, or non-investment grade territory, as a result of the mounting pressure on its finances.

The country's foreign and domestic-currency long-term issuer ratings and foreign-currency senior unsecured debt ratings were cut to Ca from Caa3, the rating agency said.

A Ca rating is non-investment grade, which means the country and companies in it will find it more difficult to access capital markets and raise funding.

The downgrade of the ratings “is driven by the effects of the war with Russia that are likely to pose long-lasting challenges to Ukraine's economy and public finances", Moody’s said.

One year of the Russia-Ukraine war — in pictures

February 24 will be a year since Russia started the Ukraine war. The National picks out the most powerful images from the conflict. AFP

A member of Ukraine's 79th Air Assault Brigade fires a rocket-propelled grenade at Russian positions near Marinka in February. Reuters

Ukrainian President Volodymyr Zelenskyy addresses MPs in Westminster Hall, London, in February 2023. Getty Images

Destroyed buildings 32km west of the front lines in Donetsk in January. Getty Images

An anti-aircraft gun in January fires at Russian positions near Bakhmut, Donetsk. Reuters

Destruction in the village of Bohorodychne, Donetsk. AFP

A Ukrainian artilleryman discards an empty shell on the outskirts of Bakhmut, eastern Ukraine, in December 2022. AFP

Children receive presents from a Ukrainian soldier dressed as Santa on Christmas Eve in Sloviansk. Getty Images

More than 1,000 missiles and rockets fired by Russian forces collected for cataloguing in Kharkiv in December 2022. Getty Images

The Metro provides shelter as Russia launches another missile attack on Kyiv, Ukraine's capital, in December 2022. Getty Images

Children at a PE class in Kyiv after Russia abandoned its attempt to seize the capital in November 2022. Getty Images

A sniper searches for Russian positions on the bank of the Dnipro river in Kherson in November 2022. Getty Images

Graffiti by Banksy on a wall among the debris in Borodyanka in November 2022. Getty Images

Ukrainian flags flutter around graves in a cemetery for soldiers killed in action in Kharkiv in October 2022. Getty Images

Parts of a drone, which Ukrainian authorities said was Iranian-made, after a Russian strike in Kyiv in October 2022. Reuters

An elderly woman is helped across a damaged bridge in Bakhmut in October 2022. Getty Images

Fuel tanks ablaze on damaged sections of the Kerch bridge in Crimea, in October 2022. Reuters

A destroyed bridge makes crossing the Donets river difficult, in Staryi Saltiv, east of Kharkiv, in September 2022. AFP

Firefighters at a thermal power plant in Kharkiv damaged by a Russian missile strike in September 2022. Reuters

Ukrainian soldier Oleksandr with his daughter Nikole at Lviv railway station in August 2022. Getty Images

Ukrainian President Volodymyr Zelenskyy and then-British prime minister Boris Johnson read a plaque in Kyiv in August 2022 dedicated to the latter for his support. Getty Images

Destroyed Russian military equipment on Khreshchatyk street in Kyiv. The materiel was turned into an open-air military museum ahead of Ukraine's Independence Day on August 24. AFP

Shakhtar Donetsk v Metalist Kharkiv kicks off the Ukrainian Premier League season in August 2022 amid fears of bomb and missile alerts. EPA

Ukrainian servicemen fire an American-made 155mm M777 howitzer in July 2022 in the Kharkiv area. EPA

A bomb crater on the Antonovsky bridge across the Dnipro river in Kherson, July 2022. AFP

Maksym and Andrii with plastic guns at a 'checkpoint' they set up while playing in Kharkiv, July 2022. AP

Ukrainian troops on Snake Island in June 2022. Reuters

A woman evacuated from an area of conflict in June 2022 contemplates what the next move might be. AP

Romanian President Klaus Iohannis, Italian Prime Minister Mario Draghi, Ukrainian President Volodymyr Zelenskyy, French President Emmanuel Macron and German Chancellor Olaf Scholz in Kyiv in June 2022. Getty Images

Graves in Irpin cemetery, May 2022. Getty Images

A Ukrainian soldier trapped within the besieged Azovstal Iron and Steel Works complex in Mariupol in May 2022. Reuters

The wreckage of a Russian helicopter in a bomb-cratered field in Biskvitne, May 2022. Getty Images

A Ukrainian army officer inspects a grain warehouse shelled by Russian forces in May 2022 near Novovorontsovka, Kherson. Getty Images

A boy from Mariupol arriving at an evacuation point in Zaporizhzhia in May 2022. Getty Images

A Russian serviceman on guard outside Zaporizhzhia nuclear power station in May 2022. AFP

Oksana searches for salvageable items on the destroyed second floor of her home in Hostomel, April 2022. Getty Images

A floral memorial wall in Lviv for Ukrainian civilians killed during the Russian invasion, April 2022. Getty Images

People fleeing Lviv, eastern Ukraine, in April 2022, wait for a bus that will take them to Poland. Getty Images

A Russian soldier patrols a bombed Mariupol theatre in April 2022, as Moscow intensified its campaign to take the strategic port city. AFP

A Ukrainian celebrates success in Hostomel in April 2022. Getty Images

Julia Palovskaya reads to children during an air raid drill in the basement shelter at a preschool in Lviv, April 2022. Getty Images

Volodymyr Zelenskyy in Bucha in April 2022, where hundreds of bodies were found in the street and it was claimed the Russian leadership was responsible for killing civilians. AFP

Oleh Smolin, 23, who suffered leg injuries from Russian shelling in April 2022, in hospital in Chuhuiv. Getty Images

Fleeing refugees arrive at the border train station of Zahony, Hungary, in March 2022. Getty Images

A father says goodbye to his daughter on an evacuation train about to leave Odesa in March 2022. AFP

Ukrainians under a destroyed bridge as they try to cross the Irpin river on the outskirts of Kyiv in March 2022. AP

People cram into Kyiv station to catch trains to Poland or to western parts of Ukraine, shortly after the initial invasion in February 2022. Getty Images

A demonstration in support of Ukraine in Trafalgar Square, London, February 2022 . Getty Images

Russian army vehicles in Armyansk, Crimea, in February 2022. AFP

Volodymyr Zelenskyy in Kyiv on February 25, 2022, in a video on Facebook. He said 'we are all here', shortly after the Russian invasion began. AFP

A residential building damaged by a missile strike in Kyiv in February 2022. Getty Images

A metro station in Kyiv in February 2022, crowded with people trying to escape the invasion. AFP

A police officer addresses people gathered to protest against the invasion of Ukraine, in central Saint Petersburg, Russia, February 2022. AFP

A protester in support of Ukraine, in Berlin, Germany, in February 2022. Getty Images

Ukrainian soldiers prepare to repel an attack in Ukraine's Lugansk region on February 24, 2022. AFP

Volodymyr Zelenskyy in Kyiv on February 24, 2022, after Russia launched a full-scale invasion. AFP

A mass exodus from Kyiv after pre-offensive missile strikes by Russian armed forces on February 24, 2022. Getty Images

Security personnel inspect the remains of a shell in Kyiv on February 24, 2022, soon after Russian President Vladimir Putin announced a military operation in Ukraine. AFP

CCTV footage shows Russian military equipment crossing a Crimea border checkpoint on February 24, 2022. AFP

Russian President Vladimir Putin in the Kremlin early on February 24, 2022, when he announced a 'military operation' in Ukraine. AFP

In October, the IMF approved the release of $1.3 billion in emergency funding for Ukraine, to help the country meet its "urgent" economic requirements.

"In addition to last year’s emergency financing, the IMF has been intensively engaged with the Ukrainian authorities through our Programme Monitoring with Board involvement, which provides a strong anchor for macroeconomic policies and helps to further catalyse donor support," Ms Georgieva said.

"Performance under the PMB has been strong, paving the way for discussions on a full-fledged IMF financing programme."

Ukraine could receive as much as $40 billion in official financial support in 2023 if the war is prolonged, mostly coming from the US and the EU, according to the IMF.

Moody's forecasts financing needs of about 20 per cent of GDP in 2023, which are expected to be mainly covered through donor support and the remaining by issuances on the domestic market.

“The international community will continue to have a vital role in supporting Ukraine, including to help address the large financing needs in 2023 and beyond," Ms Georgieva said.

"The war in Ukraine has had far-reaching consequences for the local, regional, and global economy.

"Only if we work together as a global community will we be able to build a better future.”