IMF praises Ukraine’s economic resilience as ‘astonishing’ while country pushes for $15-billion loan

The International Monetary Fund has praised Ukraine’s economic resilience in the face of Russian aggression as the war-torn country pushes for a $15-billion loan to cover its budget deficit.

It comes as Kristalina Georgieva, the IMF’s managing director, returns from a visit to Kyiv where she met with President Volodymyr Zelenskyy and Prime Minister Denys Shmyhal, among other top officials.

“My most important takeaway from the visit to Ukraine is that the Ukrainian economy is functioning and that Ukrainian people are strong,” Georgieva told Euronews in a video interview after the trip.

“What we have seen over the last months is (Ukraine’s) determination to take the right decisions on the policy front and to support the revitalisation of the economy.”

Georgieva highlighted three key areas in which Ukraine has made progress: fiscal policy, monetary policy and the fight against corruption.

“On fiscal policy: last year, they collected over 36% of GDP in taxes. For anybody who knows a country affected by war, this is absolutely astonishing,” the IMF chief said.

“They have kept inflation at bay at 25%. This is high, but by far not as high as it could have been in the absence of strong monetary policy.”

The IMF estimates that after suffering a 30% GDP contraction in 2022, Ukraine will enter a gradual recovery this year as the country continues to adjust to the new normal under Russia’s brutal invasion.

“What I heard from the business community is actually quite a lot of optimism,” Georgieva said.

“Why? Because they have adapted to a different modus operandi, because they see the government being effective in resolving problems when they occur.”

Kyiv insists it needs reliable and consistent Western aid to plug the $38 billion deficit in its annual budget, exacerbated by a drastic fall in exports, brain drain and rising unemployment.

The European Union has pledged to deliver €18 billion in financial assistance over the course of 2023 while the United States also plans to help out.

But both allies are unlikely to cover the entire deficit, leading Kyiv to seek help from the IMF in hopes of securing a multi-year loan.

Prime Minister Shmyhal has said the loan should be worth at least $15 billion and cover immediate budgetary needs and the post-war reconstruction.

The IMF has so far refused to provide an exact number, but last week said a staff-level agreement had been reached between the parties, paving the way for a “fully-fledged” support programme.

The aid will require the approval of the fund’s executive board.

Since the start of Russia’s invasion, the IMF has disbursed two tranches of emergency funds – $1.4 billion in March and $1.3 billion in October –, in addition to setting up a donor-backed channel.

EU accession will take a ‘long time’

As Ukraine works to keep its economy running and repair its bombed-out power grid, Zelenskyy has vowed to complete all the necessary reforms to kick-start EU accession talks already in 2023.

The country was granted candidate status in the summer following an intense public campaign.

“When I say this year, Charles, I mean this year, 2-0-23,” Zelenskyy told European Council President Charles Michel earlier this month during an in-person visit to Brussels.

Georgieva, a former European Commissioner herself, said the IMF was ready to support Ukraine in its path to join the bloc but noted the process would nevertheless take a “long time.” 

“Joining the European Union requires alignment of all policies and institutions, and that is not going to happen overnight,” the Bulgarian economist told Euronews.

“But what I can tell you is that I am quite confident that they will start the EU accession process on time. They are aiming for the fall of 2023 and I am looking into ways in which we, the IMF, can support them in that regard.”

Asked about the effect of EU sanctions on Russia, the IMF chief said they have an impact but that the “biggest impact comes from the war itself.”

“It has harmed the world economy. It has harmed the Russian economy as well,” she noted.

Despite Moscow’s policy to shift energy exports from Western clients to non-sanctioning countries, Georgieva said Russia will see a “possible loss of up to 9% of GDP between now and 2027” as a result of the invasion.