If War Continues, Ukraine's Economy Could Shrink By Upto 35% In 2022: IMF Report

The International Monetary Fund (IMF) has warned that Ukraine¡¯s war-ravaged economy could shrink by up to 35% this year if Russia¡¯s invasion lasts for a long time.

As per an initial assessment released in the report yesterday, the IMF stated that the real gross domestic product (GDP) of Ukraine can fall by 10% in 2022, citing loss of life, damage to critical infrastructure, trade disruption and an outflow of refugees as key reasons.

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Predictions By The IMF Report

This report has been prepared ahead of the IMF's approval of $1.4 billion in emergency financing to Ukraine.

The IMF report also stated that Ukraine's economic output could shrink by 25% to 35%, based on real wartime gross domestic product data from other war-hit countries like Iraq, Lebanon, Syria and Yemen.

Previously in 2014, Ukraine¡¯s output had dropped 6.6% as Russia had annexed the Crimea region of Ukraine at that time, as per Reuters.

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Ukraine Continues To Service Debt & Pay Tax

While the biggest war in Europe since WWII has sparked a massive humanitarian and economic shock, the IMF mission chief for Ukraine, Ivanna Vladkova Hollar, said Ukrainian authorities were making "a remarkable effort" to keep the country's economy and financial system running in the face of the war, as per Reuters.

The Ukrainian authorities have continued to service their external debt obligations and the country's payment system remained operational, with banks open and mostly liquid, as per IMF.

Vladyslav Rashkovan, alternate executive director for Ukraine at the IMF, told the IMF's board that liquidity buffers adopted after the Russian invasion were sufficient for financing expenditures and repaying liabilities, with most Ukrainian companies still paying taxes and some even paying in advance to support the budget.

Reuters

IMF¡¯s Efforts

The IMF is working to set up a trust fund instrument through which bilateral donors can channel resources to Ukraine, an official said, as per Reuters.

The IMF¡¯s $1.4 billion emergency financing already approved is the maximum Ukraine can borrow under current IMF rules, but the loan is having a "catalytic" effect in encouraging other donors, the IMF official said.

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