IMF managing director urges to provide Ukraine with more external financing, especially concessional and grants

The tremendous efforts being made by the Ukrainian authorities to maintain macroeconomic and financial stability will become even more difficult to maintain in the face of huge shocks and dire circumstances without additional external financial support, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva has said.

"More external financing is necessary – especially concessional funding and fast-disbursing grants," she said, opening the Ukraine Roundtable with participation of Ukrainian Prime Minister Denys Shmyhal as part of the Spring Meetings of the IMF and the World Bank on Thursday.

Georgieva said that the needs of Ukraine now are huge, and the needs ahead will be greater still.

"For as long as the war continues, demands on the budget will mount, especially as spending on security and conflict-related compensation inexorably rise," she said.

She added that Ukraine's reserves will come under pressure. Capital outflows will increase with the relaxation of import restrictions necessary to allow the economy to reopen, while inflows shrink due to the likely decline in exports – particularly agricultural exports – in the face of damage inflicted on key infrastructure and the blockade of some of the export routes.

"While subject to considerable uncertainty, we estimate that over the next 2-3 months some $5 billion a month may be needed simply to allow the government and the economy to continue to operate in the midst of the war," Georgieva said.

She said that the participants of the roundtable gathered to demonstrate our firm commitment to support Ukraine in its hour of need.

"Russia's invasion of Ukraine is first and foremost a human tragedy that has brought unimaginable human suffering to ordinary men, women, and children. Thousands have been killed or injured. Millions have been forced from their homes. They are foremost in our thoughts," the managing director said.

She recalled that the IMF published its World Economic Outlook that projects Ukraine's GDP to shrink by almost 40% (WEO mentioned 35%).

"This underlines the importance of our shared determination to help the government and people of Ukraine meet the steep economic challenges they face," Georgieva said, noting the emergency economic and financial policy response by the Ukrainian authorities as remarkable.

She said that they have acted decisively to preserve the availability of foreign exchange reserves and reduce exchange rate uncertainty. They have supported financial stability and protected priority budget payments. And they ensured that people in Ukraine can still access the services and the cash they need.

"In the midst of the invasion, these actions have helped avoid the economic shocks that often accompany wars, such as hyperinflation and currency devaluation," Georgieva said.

She said that the IMF has played its part – through a $1.4 billion Rapid Financing Instrument that was agreed less than two weeks after the invasion. And last week the IMF established an Administered Account for Ukraine that will provide donors with a secure vehicle to direct financial assistance to Ukraine. Georgieva thanked Canada, whose recent federal budget proposed up to CAD 1 billion be disbursed to Ukraine through the Administered Account.

The IMF managing director also said that "while the focus now is very much on the priority of keeping the government and economy functioning, we also need to prepare for the future – and we know that reconstruction needs will be massive. It is right to start this conversation early, so the prospects of a vibrant economy are a source of inspiration for the Ukrainian people at their most difficult times."

According to the National Bank of Ukraine (NBU), total international financial support for Ukraine since the beginning of the war amounted to $3.8 billion.

Economic Adviser to the President of Ukraine Oleh Ustenko, in an interview with The New Yorker last week, estimated the Ukrainian budget deficit in the coming months at about $8 billion a month and announced the desirability of partner assistance of $50 billion for six months. At the same time, Finance Minister Serhiy Marchenko earlier predicted a state budget deficit for April-May of $5-7 billion a month compared to $2.7 billion in March.