IMF drastically lowers Ukraine’s current account deficit forecast

This revised forecast was published in the updated World Economic Outlook (WEO), following a more optimistic June prediction of 5.8% for 2024 and 6.9% for 2026. The IMF attributes the growing deficit to Ukraine’s ongoing need for imports during the war, labor shortages impacting exports, and reduced grant funding. These challenges are expected to outweigh potential benefits from re-established maritime routes, private remittances, and debt restructuring.

In the first half of 2024, Ukraine’s current account deficit ballooned to $8.6 billion from $1.8 billion in the same period last year -  primarily due to a decline in grant funding from international partners.

The trade balance worsened by 8% year-on-year, driven by higher imports for defense and energy, despite steady export levels of agricultural products and iron ore. However, the services balance improved, partly due to easing border blockades and reduced cash withdrawals by Ukrainians abroad.

Looking ahead, the IMF forecasts a 15.7% rise in exports in 2024, following a 15.4% drop in 2023. Imports, which surged by 21.5% in 2023, are expected to grow by another 14.4% in 2024 and 7% in 2025.

Foreign direct investment is predicted to slow to 2% of GDP in 2024, slightly up from 2.6% in 2023, with a modest increase to 2.1% in 2025. However, thanks to continued strong external financial support, Ukraine’s reserves are projected to grow from $40.5 billion in 2023 to $42.6 billion in 2024, and to $44.9 billion in 2025.

The IMF initiated a mission in September 2024 to review the Extended Fund Facility (EFF) program and determine the release of an additional $1.1 billion in support, as it was reported earlier.

In July, Ukraine received a $2.2 billion tranche from the IMF.

On Oct. 18, 2024, the IMF approved the fifth review of the four-year EFF program, enabling Ukraine to access another tranche of funds.