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
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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.

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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.”

Updated: February 21, 2023, 7:00 PM