IMF lowers Ukraine's growth outlook

The International Monetary Fund (IMF) on June 28 cut its growth forecast for Ukraine amid the Russia-Ukraine conflict that has seen severe damage to the Eastern European country's energy infrastructure and subsequent effects on economic activity.

On the same day, the IMF Executive Board also voted to disburse $2.2 billion from a $15.6 billion financing program for Kiev – a much-anticipated step after the terms were agreed late last month. This is the fifth tranche of money Ukraine has received under the program, which was launched in 2023.

The Washington DC-based lender has lowered its forecast for Ukraine’s economic growth this year to between 2.5% and 3.5%, down 0.5 percentage point from its forecast in March. The IMF also cut its forecast for next year to 5.5% from 6.5%, the agency said in a statement on June 28.

“The recovery is expected to slow, particularly due to attacks on Ukraine’s energy infrastructure and a high-risk outlook due to the exceptionally high instability associated with the war,” IMF Managing Director Kristalina Georgieva said in the statement.

At the same time, Ms. Georgieva also said that financial and macroeconomic stability has been maintained thanks to “skillful policy planning by the Ukrainian authorities as well as significant external support.”

Ukrainian soldiers on the front line in Vovchansk, Kharkiv region, May 20, 2024. Photo: Getty Images

The IMF funds are a vital part of a $38 billion plan that Ukraine expects to receive in foreign aid this year, serving as a financial lifeline as the war enters its third year.

Financial and military support from Western allies has allowed Kiev to withstand the conflict, especially as Russian forces make advances on the northern and eastern frontlines.

The government’s negotiations with bondholders are “intensifying” and Kiev has prepared a restructuring proposal in line with the economic framework and debt targets of the capital assistance program, IMF Mission Chief for Ukraine Gavin Gray said at a press conference.

Ukraine's first formal talks earlier this month with bondholders on restructuring international bonds worth more than $20 billion ended without a deal, as creditors objected to Kiev's debt relief proposal.

As it stands, the debt freeze will end with a regular interest payment on August 1 on the 2026 bond. The country could default if it fails to make a payment after a 10-day grace period.

The IMF expects the Ukrainian government to continue its strategy of completing the restructuring in the coming weeks, Mr. Gray said. He added that the downgraded economic forecasts for this year and next year will not affect Ukraine’s debt outlook because the medium-term forecast has not changed significantly.

Moscow’s renewed targeting of power plants has caused widespread blackouts, hampering economic activity. The Central Bank of Ukraine (NBU) has cut its GDP growth forecast for this year to 3%, from 3.6% in April. The NBU will publish an updated forecast next month.

Ukraine is expected to receive two more tranches of the IMF loan, worth a total of $2.2 billion, by the end of this year. The review and approval of these tranches will take place in September and December.

Minh Duc (According to Bloomberg, RFE/RL)

Source: https://www.nguoiduatin.vn/imf-ha-du-bao-trien-vong-tang-truong-cua-ukraine-a670756.html