IMF: War with Russia could last until mid-2026
The International Monetary Fund (IMF) updated its baseline
scenario, predicting the war initiated by Russia against Ukraine will end by
late 2025, with a negative scenario extending to mid-2026. The forecast
was published as part of the sixth review under the IMF's Extended Fund
Facility.
According to the document, the negative scenario assumes a
longer and more intense war, along with a deeper and more prolonged economic
shock for Ukraine compared to the baseline scenario, which anticipates the war
ending in the fourth quarter of 2025.
The total external financing gap under the negative scenario
is projected at $177.2 billion, compared to $148 billion in the baseline
scenario, the IMF stated. Key macroeconomic indicators under the negative
scenario are notably worse than those in the baseline, predicting a contraction
in Ukraine’s real GDP (with a slower recovery and higher, more persistent
inflation).
Additionally, the negative scenario foresees that the
economic shock in Ukraine will begin in the first quarter of 2025. This will
significantly affect the sentiment of businesses and households, as well as the
pace of refugee returns. It will also cause further large-scale damage to
Ukraine’s energy infrastructure and power outages, compared to the baseline
scenario.
As a result, the IMF expects real GDP growth in Ukraine to
be weaker than in the baseline scenario, with a 2.5% growth rate in 2025
(compared to a 2.5% to 3.5% range in the baseline scenario).
High defense needs and weaker economic activity are expected
to drive a further increase in the budget deficit in 2025–2026. A foreign
exchange market imbalance will reappear and is expected to persist for a longer
period due to worse export performance, according to the IMF.
The negative scenario suggests that Ukraine’s recovery in
production will be slower than in the baseline scenario, given the greater
damage to capital and worsening labor force dynamics. As a result of these
factors, production will remain below pre-war levels for a longer period than
previously expected.
The current negative scenario indicates some convergence
toward the baseline level in the medium term, supported by EU membership
prospects, reverse migration flows, and private investments, the IMF believes.
“Overall, extensive discussions with Ukraine’s authorities
during the sixth review confirm that the program remains sound even in such a
negative scenario. Very strong political commitments from the government, its
track record, as well as renewed financing guarantees from international
partners and expected debt relief, give confidence that even in this updated
negative scenario, the program’s goals for supporting macroeconomic and
financial stability will remain reliable,” the review states.
IMF forecast on Ukraine’s economy
On July 2, the IMF published a forecast on Ukraine’s
economy. The baseline scenario predicted the end of active combat during the
war with Russia by 2024. The negative scenario assumed the war might end by the
end of 2025.
In the negative scenario, the IMF estimated Ukraine’s total
financing gap at around $140.7 billion, $19 billion higher than the baseline
forecast for 2023–2027.
According to the experts’ forecast, the negative scenario
predicted a sharp decline in real GDP growth, just 1.7% in 2024 (compared to
2.5% to 3.5% in the baseline scenario), with a 1% contraction in 2025.
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