Support for Ukraine's budget deficit $5 bln per month should be predominantly grant

The fall in tax revenues in Ukraine by more than half due to the war unleashed by Russia and the costs of the war and 7 million internally displaced persons (IDPs) cause a budget deficit of $5 billion per month and the need for its external support, predominantly by grant funds, Director of the IMF's European Department Alfred Kammer has said.

At a press conference in Washington of Friday, he said the IMF proposes that most of the support be provided in the form of grants. According to him, there are various types, including the possibility for IMF members to provide their special drawing rights.

Kammer said that an estimate of $5 billion in deficit per month for the next two months was carried out by the Ukrainian authorities in conjunction with the IMF.

Speaking about possible instruments to support Ukraine, he named a special account administered by the IMF, a World Bank multi-donor trust fund, and there will also be an EU Trust Fund for Solidarity.

The IMF representative also said the Ukrainian government is now very interested in supporting economic recovery in those parts of the country where economic activity can continue, and this is a very important priority for the government, which will help normalize, increase productivity and growth, and also help IDPs.

In the Regional Economuc Outlook for Europe presented on Friday, the IMF reaffirmed its forecast for Ukraine's GDP to fall by 35% in 2022. According to the presented chart, a little more than a third of this fall is due to a fall in labor resources, almost half is due to the loss of capital, including due to physical destruction. The remaining part of the negative contribution to the dynamics of GDP is the fall in overall productivity.

"In Ukraine, the already significant economic damage will increase as the war continues," the fund said.

According to it, the ongoing war is also disrupting the country's pivotal agricultural sector, which accounts for 12% of GDP and half of its export revenue, where production could fall by half. In addition, the war has brought severe damage to seaports, through which over 80% of exports and imports are routed, as well as logistic networks, severely impacting good flows.

"Further broad-based donor support will be critical to Ukraine's medium-term economic prospects as needs for post-war reconstruction are likely to be very large," according to the document.