WASHINGTON: The government in Kyiv continues to function, the banking system is stable and debt payments are viable in the short term, but the Russian invasion could plunge Ukraine into a devastating recession, the IMF said.
The Washington-based crisis lender also warned the war could have broader repercussions, including by threatening global food security by causing prices to rise and hampering the planting of crops, especially wheat.
At a minimum, the country would see “output falling 10 percent this year, assuming a prompt resolution of the war,” the IMF said in an analysis of the economy in the wake of the Russian invasion.
Though the lender warned of “massive uncertainty” around the forecasts, it said if the conflict is prolonged, the situation will worsen.
Citing wartime data for conflicts in Iraq, Lebanon, Syria and Yemen, the IMF said the “annual output contraction could eventually be much higher, in the range of 25-35 percent.”
The country’s economy grew 3.2 percent in 2021 amid a record grain harvest and strong consumer spending.
But in the wake of the Russian invasion on February 24, “the economy in Ukraine dramatically changed,” said Vladyslav Rashkovan, alternate executive director for Ukraine on the IMF board.
That includes the destruction of hospitals, schools and houses as well as “tens of kilometers of roads, and countless objects of critical infrastructures,” the official said in a statement.
Oleg Ustenko, economic adviser to Ukraine’s President Volodymyr Zelensky, last week estimated the damage at $100 billion so far.
Despite the destruction, the government and banks in the country have continued to function, Rashkovan said, and as of March 1, the country held foreign reserves of $27.5 billion, “which is sufficient for Ukraine to meet its commitments,” according to a statement dated March 9.
The IMF, which last week approved a $1.4 billion emergency aid program for Ukraine, said “debt sustainability does not appear to be at risk” in the short term, although there are “very large” uncertainties.
Beyond the human and economic losses in the country, the IMF cautions about the likely spillovers from the war to the global economy.
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