The Ukrainian economy continues to recover in 2023 amid ongoing attacks on infrastructure and its growth could reach 3.2% next year and 6.5% in 2025, but the duration and intensity of the war present a considerable risk to the economic outlook, the International Monetary Fund has said.

"Medium-term prospects depend on the outcome of the war, the scale of reconstruction spending, return of migrants, structural reforms and prospects of EU accession," the IMF said in its Regional Economic Outlook for Europe released on Wednesday morning.

According to the IMF, the recovery is attributed to increased resilience among firms and households during the war, supported by a rebound in domestic demand and improved consumer and business sentiments.

The foreign exchange market has remained broadly stable, helped by sizable international financial support. International reserves outperformed thanks to a better-than expected current account balance and declining foreign exchange drains. This partly reflects a better-than-expected current account balance. Capital controls have also helped contain financial account outflows. Foreign direct investment inflows totaling about $2 billion year to date and lower-than-expected foreign exchange outflows from the banking system also helped underpin the strong international reserves position.

At the same time, the IMF noted an increase in the budget deficit compared to last year, as higher expenditures more than offset higher revenues. The growth in expenditure was driven largely by defense-related spending, while tax revenues have benefited from the economic recovery. The fiscal deficit continues to be financed predominantly by external financial support.

The IMF recalled that at the end of June it approved t the first review under the four-year Extended Fund Facility, enabling the disbursement of about $890 million.

"Sustained reform momentum is needed, including in governance and anticorruption frameworks. With spending pressures growing, developing and executing a 2024 budget consistent with fiscal and debt sustainability will be critical," the IMF, whose mission at this week began work on the second review of the EFF arrangement and the Article IV consultation.